NORMAN GUY DONALD AND ANOTHER v. LEE MICHAEL CHAK CHUEN in his capacity as executor of the estate of LI PAK IU AND OTHERS

CACV 203/2022, [2023] HKCA 1032

On Appeal From [2022] HKCFI 1106

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 203 OF 2022

(ON APPEAL FROM HCMP NO 610 OF 2021)

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J U D G M E N T

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Hon Chu VP:

1.  I agree with the judgment of Yuen JA.

Hon Yuen JA:

2.  This is an appeal from a Decision of B Chu J (“the Judge”) given on 21 April 2022 (“the Decision”) in HCMP610/2021 in proceedings concerning the estate (“the Estate”) of Li Sing Kui (“the Deceased”) who died on 28 August 1955 aged 76, leaving a Will dated 15 December 1954 (“the Will”).  Essentially, the matter before the Judge centered on the construction of a clause in the Will¹ which will be discussed later in this Judgment. 

Background

3.1.  The relevant background may be summarized as follows. 

3.2.  The Deceased was a wealthy businessman.  He had a tin fong wife, 2 concubines, 5 sons and 15 daughters.  In his Will, he provided for his family² in the following way. 

3.3.  As for his tin fong wife Madam Leung, and 2 concubines Madam Cheung and Madam Chau, in clause 4 of his Will, he gave each of them annuities of equal sums during their respective lifetimes, and in clause 8, he authorized the trustees to provide for the payment of these annuities by establishing an annuity fund for each, and on the cesser of an annuity, that annuity fund would revert to his residuary estate.  The last surviving of them (Madam Chau) died in 2002. 

3.4.  As for the daughters, they are not affected by these proceedings, although some of them were given pecuniary legacies etc [clauses 3(a) and (b)³ and clause 5(1)(b)].  

3.5.  The Deceased had 5 sons, viz.

-  1 son Pak Tat (James), by Madam Leung

-  1 son Pak Iu (Francis), by Madam Cheung, and

-  3 sons Pak Leung (Bernard), Pak Wing and Pak Huen, by Madam Chau.

As seen below, they were beneficiaries in equal shares of his residuary estate.  

4.  Four of the sons died between 1987 and 2016, leaving only Pak Huen who is the 5^th defendant in these proceedings.  The estates of the other 4 sons are represented as follows:

-  Lee Michael Chak Chuen is the 1^st defendant in his capacity as executor of Pak Iu’s estate,

-  Lee Cheryl Ann is the 2^nd defendant in her capacity as executrix of Pak Tat’s estate (by chain of representation),

-  Cheung Wai Ming Daisy is the 3^rd defendant in her capacity as executrix of Pak Leung’s estate, and

-  Pak Huen is the 4^th defendant in his capacity as executor of Pak Wing’s estate, of which he is also the sole beneficiary: Lee Goo Lynette Siu Yin v Cheung Wai Ming and others [2019] HKCFI 1086, [29].  

(Where this Judgment refers to “the 5^th defendant”, that is a reference to Pak Huen personally only).  

5.  The executors and trustees named in the Will were Pak Iu, Pak Leung and Madam Chau.  Probate was first granted on 19 June 1956 to Pak Iu and Madam Chau, power being reserved to Pak Leung to apply for a like grant. Subsequently, on 22 May 1957, double probate of the Will was granted to Pak Leung.

6.  There have been previous proceedings between the members of the Li family, but they are not material to the present appeal.  Suffice it to say that on 3 July 2020, Letters of Administration with the Will annexed de bonis non of the estate left unadministered were granted to the plaintiffs, who are professional trustees (“the Trustees”).

HCMP610/2021

7.  In 2021, the Trustees commenced these proceedings.  In the Originating Summons (“OS”), the first issue was for the court to determine the issue of the validity of Clause 5(2)(f) of the Will and to make consequential orders.

Clause 5

8.  Clause 5 of the Will provided as follows:

“5. I devise and bequeath all my real and personal estate and effects unto my Trustees upon Trust to sell call in and convert the same into money with power in their absolute discretion to postpone such sale calling in and conversion and after payment thereout of my debts funeral and testamentary expenses, legacies and annuities to invest the residue of such moneys in manner hereinafter authorised and to stand possessed of such investments and of all parts of my estate for the time being unsold (hereinafter called ‘the Residuary Estate’) during the joint lives of my Tin Fong wife Li Leung Shi and my Concubines Li Cheung Shi and Li Chau Shi and the life of the survivor of them⁴ Upon the following Trusts:-

(1) Upon Trust from time to time and at such times and in such manner as my Trustees shall in their absolute discretion think fit to pay or apply the income of the Residuary Estate or any part or parts of such income or such part of the capital of the Residuary Estate as they may for the time being think advisable in or towards the following purposes:-

(a) To keep and maintain a family house at No.15 Robinson Road Victoria Hong Kong for the habitation of my Tin Fong Wife Li Leung Shi my Concubines Li Cheung Shi and Li Chau Shi during their respective lives.

(b) For the support maintenance and education of each of my unmarried daughters hereinbefore mentioned until each of them shall attain the age of twenty eight years or marry under that age.

(c) For the support maintenance and education of each of my sons hereinbefore mentioned⁵ until each of them shall attain the age of twenty eight years Provided that my Trustees if they think advisable may continue to pay for the educational expenses of any of my said sons until he shall attain the age of thirty years⁶.

(2) Subject to the above Trusts my Trustees shall divide the Residuary Estate into SIX (6) equal shares and hold the same Upon Trust as follows:-

(a) ONE (1) share to and for my son LI PAK IU absolutely.

(b) ONE (1) share to and for my son LI PAK TAT absolutely.

(c) ONE (1) share to and for my son LI PAK LEUNG absolutely.

(d) ONE (1) share to and for my son LI PAK WING absolutely.

(e) ONE (1) share to and for my son LI PAK HUEN now aged 16 years absolutely.

(f) ONE (1) share to be appropriated for ‘Ching Sheung’ (蒸嘗) for the purpose of Ancestor Worship Provided nevertheless that my Trustees may in their uncontrolled discretion pay or apply the said share or any part thereof to or for the benefit maintenance and support of some one or more to the exclusion of the others or other of my abovementioned sons”.

9.  The first issue in the OS was whether clause 5(2)(f) (the entirety of which is referred to hereafter as “the Ching Sheung clause”) was void for infringing the Common Law rule against perpetuities, and if so, whether distributions of the Residuary Estate should be divided into 5 equal shares for the 5 residuary beneficiaries in clauses 5(2)(a) to (e), i.e. the 5 sons. 

10.1.   All the defendants were served with the OS, and all (except the 1^st defendant) were legally represented.  Chui & Lau, the solicitors for the 4^th and 5^th defendants filed an acknowledgment of service on 23 July 2021 indicating that they did not intend to contest the proceedings.  All the defendants were absent at the hearing of the OS⁷ before the Judge on 13 December 2021.   

10.2.  After considering the Trustees’ submissions, the Judge declared on 13 December 2021 that the Ching Sheung clause was void for infringing the Common Law rule against perpetuities, and ordered that any interim distribution earmarked by the plaintiffs for clause 5(2)(f) be distributed to the 5 residuary beneficiaries in clauses 5(2)(a) to (e), i.e. the 5 sons.

10.3.  On 17 December 2021 however, the solicitors for the 4^th and 5^th defendants wrote to the court asking for a rehearing as leading counsel⁸ had given certain advice the previous day.  The order of 13 December 2021 had not been sealed.  On 5 January 2022, the Judge allowed the application for a rehearing.

The 5^th Defendant’s Summons  

11.  On 22 February 2022, Chui & Lau, as solicitors for the 5^th defendant only, issued a summons for the determination of the following questions arising in the administration of the Estate:

“1. Notwithstanding that the part of the Clause 5(2)(f) of the Will of the Deceased dated 15^th December 1954 (the ‘Will’) on the one share of the residuary estate ‘to be appropriated to ‘Ching Sheung’ (蒸賞[嘗]) for the purpose of Ancestor Worship’ is void, whether the proviso for the discretionary trust stated in the remainder of clause 5(2)(f) of the Will is valid;

2. If the answer to Qn.1 is ‘yes’, whether the one share of the residuary estate stated in clause 5(2)(f) of the Will is held on discretionary trust for the sole surviving object of the discretionary trust, i.e. the 5^th Defendant;

3. If the answer to Qn. 2 if ‘yes’, whether the 5^th Defendant being the sole surviving object of the discretionary trust, is entitled to direct the Plaintiffs as trustees to vest the one share of the residuary estate mentioned in clause 5(2)(f) of the Will in the 5^th Defendant”.

The Judge’s Decision     

12.  At the hearing, the Judge heard submissions from the leading counsel for the 4^th and 5^th defendants, the 2^nd defendant and the Trustees respectively.  The 1^st defendant filed written submissions but did not appear.  The solicitors for the 3^rd defendant did not file submissions and were absent. 

13.  Whilst it was common ground that the gift for Ching Sheung was void, the respective cases of the protagonists may be encapsulated as follows:

(1)  the case of the 4^th and 5^th defendants now was that the proviso in the Ching Sheung clause was valid, and that as the 5^th defendant is now the sole survivor of the sons referred to in the discretionary trust in the proviso, he is entitled to direct the Trustees to vest the share in that clause in him exclusively [§§34-39];

(2)  the case of the 2^nd defendant was that, without making submissions on severability of the 1^st and 2^nd Parts of clause 5(2)(f) (referred to in the following paragraph), even if so severed, the 2^nd Part only created a mere power (as opposed to a discretionary trust or trust power), and so the Trustees were not obliged to exercise it.  It was further submitted that if a mere power was not exercised within a reasonable time, it expired, and the asset should be distributed to persons entitled in default of appointment (i.e. all the 5 sons) [§27].

(3)  The 1^st defendant objected to the case of the 4^th and 5^th defendants.

14.  In the Decision, the Judge described clause 5(2)(f) as having two parts [§24]:

“(1) ONE (1) share to be appropriated for ‘Ching Sheung’ (蒸嘗) for the purpose of Ancestor Worship (“1^st Part”)

 (2) Provided nevertheless that my Trustees may in their uncontrolled discretion pay or apply the said share or any part thereof to or for the benefit maintenance and support of some one or more to the exclusion of the others or other of my abovementioned sons (“2^nd Part”)”.

15.  The Judge summarised the issues between the parties as follows [§28]:

“(1) whether the fact that the 1^st Part is void defeats the entire Clause 5(2)(f) or whether the 2^nd Part takes effect notwithstanding the invalidity of the 1^st Part (“Issue (1)”)

 (2) even if the 2^nd Part can be severed from the 1^st Part, whether the 2^nd Part created a mere power or a trust power (“Issue (2)”)

 (3) if a mere power then whether a reasonable time has already lapsed (“Issue (3)”)”.

16.  The Judge recorded that there was no dispute between the parties that the interpretation of a will follows the same approach as interpretation of contracts and other legal documents, and the court must ascertain the objective intention of the testator as expressed in the wording of the relevant provisions in the will, having regard to context and purpose [§32]. 

17.1.  For the reasons set out in the Decision, the Judge held, on Issue (1), that “the 2^nd Part of Clause 5(2)(f) does not have a life of its own, if the 1^st Part is found to be invalid” [§52]. 

17.2.  The Judge then went on, in the event that she was wrong on Issue (1), to discuss Issues (2) and (3), holding that the proviso gave the Trustees a mere power, and that reasonable time for the Trustees to exercise the mere power has lapsed.

17.3.  The Judge ordered that in respect of the costs incurred after the hearing on 13 December 2021, the costs of the Trustees and the 2^nd defendant be borne by the 5^th defendant personally on a party and party basis with certificate for two counsel, and any costs not so recovered be paid out of the Estate on an indemnity basis, with certificate for two counsel.  The Judge also ordered that the 5^th defendant’s own costs should not be paid out of the Estate.  No order was made regarding the costs of the 4^th defendant who was represented by the same counsel instructed by Chui & Lau as the 5^th defendant at the hearing.  The costs orders were made on a nisi basis.  There was no application by any party to vary any of those costs orders. 

Appeal

18.  The 5^th defendant (but not the 4^th defendant) appealed against the Judge’s Decision on all the issues, as well as the costs orders.  The respondents to the Notice of Appeal were the Trustees and the 1^st to 4^th defendants.   For the appeal, the Trustees were represented by leading and junior counsel.  The 1^st defendant was not legally represented.  He filed written submissions but did not appear.  The 2^nd defendant was represented by leading and junior counsel.  The 3^rd defendant’s solicitors were absent.    As for the 4^th defendant, Chui & Lau remained on the record as solicitors.  No written submissions were filed.  Although Chui & Lau (as solicitors for the 4^th defendant) did not apply to the court to be excused from the hearing, they stated on the attendance sheet at the hearing of the appeal that they acted for the 5^th defendant only.

Discussion

Issue (1)

19.1.  In my view, the meaning of the Ching Sheung clause is clear beyond doubt.  Whilst it may have been convenient to refer to the clause as being in two “parts”, references to “parts” or “severance” should not be grafted onto the clear language of the Will.  Clause 5(2)(f) should be read as a whole.  There can be no question that there was only ever one gift in clause 5(2)(f), which is the gift for Ching Sheung (ancestor worship).  Even though under the proviso the Trustees could in their uncontrolled discretion benefit one or more of the sons, they could only do so out of that gift.  If one applies the test suggested by the 5^th defendant⁹, it is clear that the power to benefit the son(s) was dependent upon the validity of the gift for Ching Sheung.  Accordingly, where (as is common ground) that gift was void ab initio, there was never any gift, and therefore no property which the Trustees could apply for the benefit of any son(s)¹⁰.  

19.2.  It was submitted on the 5^th defendant’s behalf that the language in clause 5(2) is mandatory, but I do not see how that would assist his case.  The language is plainly consistent with the testator’s intention that one share of the Residuary Estate is to be used for Ching Sheung, with the Trustees given a discretion to benefit the son(s) from that share intended for Ching Sheung. Crucially, there were no words¹¹ indicating that the testator was aware that the Ching Sheung gift would (or might) be void, and that he intended to provide for the son(s) on the contingency that the gift for Ching Sheung failed in limine.  As stated in Canning at p.312, in construing a will which raises questions as to the rule against perpetuities, the will must be construed in the first place without regard to the rule against perpetuities. 

19.3.  The words “provided nevertheless” do not assist the 5^th defendant’s case.  The proviso refers to “the said share”, which meant the share to be appropriated for Ching Sheung.  The words “provided nevertheless” simply gave the Trustees the power to apply for the benefit of the sons(s) that which would otherwise have been used for Ching Sheung.  But since the gift for Ching Sheung was void ab initio, there was simply nothing from which the Trustees could exercise that discretion. 

19.4.  The language of clause 5(2)(f) is so clear that, in my view, considerations such as the sufficiency of other provisions for the sons [§45 and §48] or dispositions to other members of the family [§46], are of little materiality, and it is not necessary to discuss the Judge’s views on them.

19.5.  That is the end of the matter, and the appeal should be dismissed.

Issue (2) and Issue (3)

20.1.  On Issue (2), the legal principles on the differences in the duties of trustees who are given a trust power and a mere power respectively were set out by the Judge in the Decision [§§54-57].  In a nutshell,

-  where they are given a trust power over property, they have a duty to dispose of the property, but they determine in their discretion which objects to benefit and when and how; 

-  where they are given a mere power over property, they have two discretions:

(i)    a discretion whether to distribute at all; and

(ii)  if they decide to exercise the 1^st discretion, a discretion which objects to benefit and when and how.      

20.2.  On the assumption that the gift in the “2^nd Part” of clause 5(2)(f) was severable from the “1^st Part”, the Judge held that the words “my Trustees may in their uncontrolled discretion pay or apply the said share” indicated that they may – or may not – pay or apply the share, and so their discretion was not simply in relation to selection, timing or apportionment. 

20.3.  Accordingly, the Judge held, on Issue (2) that there was a mere power and not a trust power [§67], and on Issue (3), that since a reasonable time had already elapsed after receipt of the accumulated funds, and the power to pay the Ching Sheung share for the benefit of the son(s) had never been exercised [§81], the Trustees’ discretion must be treated as having expired [§82].  

21.  In light of my view on Issue (1), I will only discuss Issues (2) and (3) briefly.  The scenario postulated is that the Trustees have a duty to set aside a 6^th share, but they “may in their uncontrolled discretion pay or apply the said share or any part thereof to or for the benefit maintenance and support” of one or more of the sons.  Whilst the words emphasized above may point to a mere power, the subject matter is a share in the residuary estate where there is no gift over.  The absence of a gift over is indicative of a trust power rather than a mere power, although it is not conclusive¹².  On the other hand, if the Trustees are donees of a mere power, then the situation would arise where 1/6 of the residuary estate would be left in limbo for an uncertain time, with the Trustees required only to consider whether to make a distribution or not, which would not likely have been the testator’s intention. 

22.1.  Accordingly, if I am wrong on Issue (1), then I would hold on Issue (2) that the Trustees were given a trust power, and not a mere power, over the Ching Sheung share.  It would follow that Issue (3) would not fall for consideration. 

22.2.  If, in relation to Issue (2), the Trustees were given a trust power, then the deaths of the other 4 sons would result in the reduction of the members of the class of potential beneficiaries to leave only the 5^th defendant, and under the rule in Saunders v Vautier¹³ which can be applied to discretionary trusts¹⁴, he would be entitled to terminate the trust and receive the sole benefit of the assets¹⁵.  However, as mentioned earlier, these views are expressed only on the assumption that I am wrong on Issue (1).

Costs

23.  As for costs, the 5^th defendant argued that it was in the best interests of the Estate for the provisions in the Will to be properly construed.  It was also said that the Trustees had failed to present the case “from all reasonable angles”.  Accordingly, he asked that the costs orders made by the Judge be set aside, and his costs below be paid out of the Estate.

24.1.  In the Decision, the Judge held that she was satisfied that the 5^th defendant’s summons was issued not for the benefit of the Estate but for his own benefit, and that this falls within the 3^rd class of cases described in Re Buckton¹⁶ [§87].  The 3^rd class is where

“... the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation. ... when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs”.

24.2.  The application of this approach to cases on the construction of wills was confirmed by the Court of Appeal in Tan Cheng Gay and others v Tan Choo Suan and another¹⁷.

25.  In the present case, the Judge was entitled on the evidence to make the costs orders that she did.  The costs orders were made on a nisi basis, but the 5^th defendant did not apply to vary them.  As such, there are no grounds for this court to interfere with the Judge’s exercise of discretion in the making of the costs orders.

Order

26.  For the reasons set out above, I would dismiss the appeal with the following orders nisi as to the costs of the appeal:

(a)  the 5^th defendant is to personally pay to the plaintiffs and the 2^nd defendant their respective costs of the appeal on a party and party basis with certificate for two counsel, and any costs not so recovered by the Trustees be paid out of the Estate on an indemnity basis, with certificate for two counsel;

(b)  the 5^th defendant is to personally pay the costs of the 1^st defendant, who may submit a summary of his costs (with reference to Order 62 rule 28A of the Rules of the High Court for litigants in person) to the court (copied to the 5^th defendant’s solicitors) within 14 days of this Judgment.  The 5^th defendant may file submissions on the 1^st defendant’s summary of costs within 14 days thereafter. The court will then undertake a summary assessment of the 1^st defendant’s costs on paper;

(c)  there be no order as to the costs of the 3^rd defendant, as no written submissions were filed and her legal representatives were absent;

(d)  there be no order as to the costs of the 4^th defendant, as no written submissions were filed and Chui and Lau did not attend court in their capacity as solicitors for the 4^th defendant.  

(e)  the 5^th defendant’s own costs of the appeal should not be paid out of the Estate.

Hon Au JA:          

27.  I agree with the judgment of Yuen JA.