LEE PUI LING ANGELINA AND OTHERS v. CHEN WAI WAI (also known as VIVIEN WAI WAI CHEN) AND OTHERS

CACV 206 /2017

[2019] HKCA 1317

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 206 OF 2017

(ON APPEAL FROM HCMP NO 3245 OF 2015)

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J U D G M E N T

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Hon Kwan VP:

Introduction and factual background

1.  This is an appeal by the 4^th respondent, Sabella Marcel Chen (“Marcel”), from the decision of L Chan J handed down on 13 July 2017 on the originating summons issued by three of the four executors[1] of the estate of Chen Din Hwa, deceased (“the Deceased”), seeking the determination of various questions arising from the administration of the residuary estate.

2.  Pursuant to the will of the Deceased dated 30 August 2001, the Deceased gave his residuary estate to the D H Chen Foundation, his two daughters (Chen Wai-Fong Angela (“Angela”) and Chen Wai Wai Vivien (“Vivien”)) and the children of Angela and Vivien.  The beneficiaries are the eight respondents in these proceedings.  Angela, the mother of Marcel and Sabella Damien Chen (“Damien”), is entitled to 15% of the residuary estate.  Marcel and Damien are each entitled to 5%.

3.  The gifts of 5% of the residuary estate to Marcel and Damien are contingent, as to one half on each attaining the age of 30, and as to the other half on attaining the age of 40.  Marcel and Damien have attained 30 but not 40[2]. Angela has not exercised the power vested in her under the will to accelerate the payment of the gifts in favour of her two sons.

4.  The Deceased passed away in June 2012.  Probate of his will and codicil was granted to the executors on 16 April 2013.  The administration of his estate has not been completed.

5.  At the time of the hearing before the judge and in this court, Marcel and Damien each have a vested interest in 2.5% of the residuary estate as both have attained the age of 30 and this interest is not subject to any condition precedent.  They have a present right to future enjoyment of this interest but not an immediate right to present enjoyment as the administration of the estate is not yet complete, so this is an interest vested in interest but not vested in possession (Lewin on Trusts (19^th ed) para 1‑048).

6.  On 21 May 2015, Angela wrote to the executors’ solicitors requesting the executors to exercise the power of advancement under section 34(1) of the Trustee Ordinance, Cap 29 (“the s 34 Power”) to transfer part of the interests of Marcel and Damien in the estate (at 2.5% each) to existing trusts established for their benefit.  She stated that the proposed transfer would confer on Marcel and Damien wealth preservation benefits, privacy and confidentiality benefits, and tax benefits by minimizing or eliminating the exposure to tax liability in the United States in respect of income, estate, gift and generation-skipping transfer taxes.

7.  Marcel wrote to the executors’ solicitors on 12 June 2015 indicating his agreement with his mother’s request.

8.  On 2 November 2015, Angela wrote to the executors’ solicitors with a revised request to the effect that the interests of Marcel and Damien be transferred to new trusts established under US laws for their benefit rather than to existing trusts as proposed earlier.  The legal representatives of Marcel and Damien wrote on 3 November 2015 indicating their agreement with the revised request.

9.  On 8 December 2015, the three executors issued the originating summons in these proceedings seeking determination of a number of questions arising from the administration of the residuary estate, including three questions of law that are the subject of this appeal.

The three questions and the determination by the judge

10.  I will take the wording of the three questions as stated in §15 of the judge’s decision.  They were numbered 1A, 1 and 3 in the decision and were considered in that order by the judge.

11.  Question 1A is as follows: Whether the executors can exercise the s 34 Power before the administration of the estate is completed and the relevant interest of the relevant adult beneficiary has not yet vested in possession.

12.  The judge agreed with the executors and answered this in the negative. The executors cannot exercise the s 34 Power before the administration of the estate is completed[3].

13.  Question 1 is as follows: Whether the executors can exercise the s 34 Power to pay or apply trust capital in favour of an adult of full capacity who has become absolutely entitled to his or her interest under the trust.

14.  Although the words “vested in possession” are missing from the formulation of this question in the decision[4], the judge had dealt with the question on the basis that there is absolute vesting “in possession” of trust property and all parties had apparently argued the matter before him on that basis[5]. I shall therefore take Question 1 as worded in the executors’ submission on appeal: Whether the s 34 Power can be used to pay or apply trust property already absolutely vested in possession in the adult beneficiary of full capacity.

15.  The judge also agreed with the executors and answered this in the negative. The executors cannot exercise the s 34 Power in favour of an adult of full capacity whose share or interest in the trust property has absolutely vested in possession[6].

16.  Question 3 is as follows: Whether the executors are enabled by the s 34 Power to advance the entirety of the interests of Marcel[7] and Damien in the residuary estate.

17.  It is provided in proviso (a) to section 34 that “the money so paid or applied for the advancement or benefit of any person shall not exceed altogether in amount one-half of the presumptive or vested share or interest of that person in the trust property”.  The judge agreed with the executors’ submission and held that the meaning of proviso (a) is that the amount of money paid or applied for advancement is limited to one-half of the presumptive or vested share or interest of the beneficiary in the trust property that the trustees can apply at the time of the advancement.  Since Marcel and Damien have attained 30 and not yet reached the age of 40, only 2.5% of the residuary estate had vested in each and can be transferred to them upon completion of administration and only 2.5% is available for use in their advancement.  Hence, proviso (a) limits the amount to be paid or applied for their advancement to 1.25% of the residuary estate[8].

18.  In this appeal, which was brought only by Marcel, Question 3 is of little moment in light of the imminence of Marcel’s 40^th birthday.  We have indicated to the parties at the hearing that we do not propose to deal with it.  The only live issues in this appeal are Questions 1A and 1.

19.  Both questions involve statutory interpretation. Before I consider them, I will first set out the relevant principles of construction and mention a number of matters relevant to the context in construing section 34.

Principles of statutory interpretation

20.  The relevant principles have been summarised by Ma CJ in Town Planning Board v Town Planning Appeal Board (2017) 20 HKCFAR 196 at §29 and are as follows[9]:

“(1)   In construing statutory provisions, the court does not merely look at the relevant words. It construes the relevant words having regard to their context and purpose.

(2)   The context of the relevant statutory provision should be taken in its widest sense and will of course include the other provisions of the statute. It may also be relevant in any given case to look at the history of the relevant provisions.

(3)   Ascertaining the purpose of the statutory provision is obviously relevant, not only to help provide the relevant context, but to give meaning to the words used. In this latter respect, it is to be observed that often the meaning of words by themselves will not be clear unless regard is paid to context and purpose. Words have to be construed but they must not be construed in a vacuum.

(4)   In ascertaining the purpose of a statutory provision, the court adopts a flexible and open-minded approach.  The purpose may be clear from the provision itself or it may be necessary to look at the Explanatory Memorandum to the bill introducing the provision or a ministerial or official statement may be utilised for this purpose.”

21.  In addition, the following principles as mentioned by the judge[10], which are not controversial, should also be noted:

(1)     When the true position under a statute was to be ascertained by interpretation, it is necessary to read all the relevant provisions together and in the context of the whole statute as a purposive unity (Medical Council of Hong Kong v Chow Siu Shek (2000) 3 HKCFAR 144 at 154B to C).

(2)     Whilst statutory provisions should be given a purposive interpretation, one must not seek to distort or even ignore the plain meaning of the text and construe the statute in whatever manner in order to achieve a result that is considered desirable (China Field Ltd v Appeal Tribunal (Building) (No 2) (2009) 12 HKCFAR 342 at §36).

(3)     Since section 34 is a provision which confers power, section 19 of the Interpretation and General Clauses Ordinance, Cap 1, which provides that an Ordinance shall be deemed to be remedial and shall receive such fair, large and liberal construction and interpretation as will best ensure the attainment of the object of the Ordinance according to its true intent, meaning and spirit, is particularly apposite.

Matters relevant to the context in construing section 34

22.  I will first set out the full text of section 34 (which appears in Part 3 headed “General Powers of Trustees and Personal Representatives” and Division 3 headed “Maintenance, Advancement and Protective Trusts”) of the Trustee Ordinance:

“34. Power of advancement

(1) Trustees may at any time or times pay or apply any capital money subject to a trust, for the advancement or benefit in such manner as they may, in their absolute discretion, think fit, of any person entitled to the capital of the trust property or of any share thereof, whether absolutely or contingently on his attaining any specified age or on the occurrence of any other event, or subject to a gift over on his death under any specified age or on the occurrence of any other event, and whether in possession or in remainder or reversion, and such payment or application may be made notwithstanding that the interest of such person is liable to be defeated by the exercise of a power of appointment or revocation, or to be diminished by the increase of the class to which he belongs:

       Provided that—

(a) the money so paid or applied for the advancement or benefit of any person shall not exceed altogether in amount one-half of the presumptive or vested share or interest of that person in the trust property; and

(b) if that person is or becomes absolutely and indefeasibly entitled to a share in the trust property the money so paid or applied shall be brought into account as part of such share; and

(c) no such payment or application shall be made so as to prejudice any person entitled to any prior life or other interest, whether vested or contingent, in the money paid or applied unless such person is in existence and of full age and consents in writing to such payment or application.

(2) This section applies only where the trust property consists of money or securities or of property held upon trust for sale calling in and conversion, and such money or securities, or the proceeds of such sale calling in and conversion are not by statute or in equity considered as land.

(3) This section does not apply to trusts constituted or created before the commencement of this Ordinance.

[cf. 1925 c. 19 s. 32 U.K.]”

23.  Section 34 was among the provisions enacted in the Trustee Ordinance 1934, which was an ordinance “to amend the law relating to Trustees” and the purpose was to bring up to date the law of Hong Kong relating to trustees on the lines of the Trustee Act 1925 in the UK.  Practically all the provisions of that Act had been incorporated with slight amendments here and there to suit local conditions[11]. Under the “Objects and Reasons” for the bill, it was stated that “an elaborate maintenance clause is provided and an advancement clause (ss. 33 and 34).” Section 34 is virtually identical to section 32 of the Trustee Act 1925 as enacted at the time[12].

24.  Section 3 of the Trustee Ordinance governs the application of the provisions in the Ordinance and the material provisions for present purpose are:

“3. Application

(1) This Ordinance applies to trusts[13] (whenever created) including, so far as this Ordinance applies, executorships and administratorships whenever constituted.

(Replaced 13 of 2013 s. 4)

(2) Subject to subsection (2A), the powers conferred by this Ordinance on trustees are in addition to the powers conferred by the instrument creating the trust or an enactment.

(Replaced 13 of 2013 s. 4)

(2A) The powers conferred by this Ordinance on trustees—

(a) apply if, and so far only as, a contrary intention is not expressed in the instrument creating the trust or an enactment; and

(b) have effect subject to the terms of that instrument or enactment.

(Added 13 of 2013 s. 4)”

25.  By virtue of section 3, as no contrary intention is expressed in the will of the Deceased, the executors have a statutory power of advancement pursuant to section 34[14].

26.  Prior to the enactment of the Trustee Act 1925, well drafted wills and settlements usually contained an advancement clause.  As stated by Maugham J in In re Mewburn’s Settlement [1934] 1 Ch 112 at 119:

“For many years past a parent who desires to appoint for the benefit of his or her own issue or who is dealing with his or her own property has found it a wise precaution, in many cases, to defer the giving of an absolute interest to children and to provide for powers of management during the attaining of a vested interest and for powers of advancement limited to one-half of the presumptive or expectant share of the object of the power. Such clauses have almost invariably been inserted in properly drawn settlements and wills whereby young children have to be provided for. So common has a power of advancement become that the legislature has thought fit to give trustees a power of advancement at any time. This is done by s 32, sub-s 1 of the Trustee Act, 1925 …”. (Emphasis supplied)

27.  The form and nature of a power of advancement was explained by Viscount Radcliffe in Pilkington v Inland Revenue Commissioners [1964] AC 612 at 633:

“No one doubts that such a power was frequently conferred upon trustees under settlements of personalty and that its general purpose was to enable them in a proper case to anticipate the vesting in possession of an intended beneficiary's contingent or reversionary interest by raising money on account of his interest and paying or applying it immediately for his benefit. By so doing they released it from the trusts of the settlement and accelerated the enjoyment of his interest (though normally only with the consent of a prior tenant for life); and, where the contingency upon which the vesting of the beneficiary's title depended failed to mature or there was a later defeasance or, in some cases, a great shrinkage in the value of the remaining trust funds, the trusts as declared by the settlement were materially varied through the operation of the power of advancement. This possibility was recognised and accepted as an incidental risk attendant upon the exercise of such a power, whose presence was felt on the whole to be advantageous in a system in which the possession of property interests was often deferred long beyond adult years.” (Emphasis supplied)

28.  See also the similar description of Cotton LJ on the advancement clause of a will in Re Aldridge (1886) 56 LT 554 at 556:

“What is advancement? It is a payment to persons who are presumably entitled to, or have a vested or contingent interest in, an estate or a legacy, before the time fixed by the will for their obtaining the absolute interest in a portion or the whole of that to which they would be entitled.” (Emphasis supplied)

29.  The above is important for a proper understanding of the statutory power of advancement in the 1925 Act, as Viscount Radcliffe went on to say in Pilkington at 634:

“No one disputes either that, when section 32 was framed and inserted in the Trustee Act of 1925 as a general enabling provision applying to trusts coming into existence after that date, it was expressed in terms that corresponded closely with the previous common form recommended in books of conveyancing precedents and adopted in practice.”

30.  Viscount Radcliffe explained the meaning of “advancement” in this context prior to the Act, which he held was carried into the statutory power created by the Act:

“The word ‘advancement’ itself meant in this context the establishment in life of the beneficiary who was the object of the power or at any rate some step that would contribute to the furtherance of his establishment. … This wide construction of the range of the power, which evidently did not stand upon niceties of distinction provided that the proposed application could fairly be regarded as for the benefit of the beneficiary who was the object of the power, must have been carried into the statutory power created by section 32, since it adopts without qualification the accustomed wording ‘for the advancement or benefit in such manner as they may in their absolute discretion think fit.’” (at 634 to 635)

31.  Viscount Radcliffe then pointed out it is important not to confuse the word “advancement” as explained above (which means any use of the money which will improve the material situation of the beneficiary) with “the idea of advancing the money out of the beneficiary’s expectant interest”.  He said this at 635:

“The two things have only a casual connection with each other. The one refers to the operation of finding money by way of anticipation of an interest not yet absolutely vested in possession or, if so vested, belonging to an infant: the other refers to the status of the beneficiary and the improvement of his situation. The power to carry out the operation of anticipating an interest is not conferred by the word ‘advancement’ but by those other words of the section which expressly authorise the payment or application of capital money for the benefit of a person entitled ‘whether absolutely or contingently on his attaining any specified age or on the occurrence of any other event, or subject to a gift over on his death under any specified age or on the occurrence of any other event, and whether in possession or in remainder or reversion,’ etc.” (Emphasis supplied)

32.  I turn to consider the two questions that are the subject of this appeal.

Question 1A

33.  As pointed out by Mrs Shân Warnock-Smith, QC, who appeared for Marcel on appeal[15], the wider impact of the judge’s decision on Question 1A is that where the administration of estates is long delayed or which otherwise cannot be completed before beneficiaries become of full age and absolutely entitled, the statutory power of advancement would not be available in most cases, since in Hong Kong the majority die intestate[16], and many wills are drafted without legal advice.

34.  The judge is mindful that “advancement or benefit” in section 34 should be construed as widely as possible and the beneficiary’s entitlement to the property as generously as feasible.  But however broad and purposive one may want to interpret the provision, he does not think the plain meaning of the text should be distorted or ignored[17]. He held that by its wording, section 34 requires the beneficiary to have a specific interest in the specific piece of capital property which is to be paid or applied for his advancement.  This provision can only be applied to trust capital or property that the beneficiary has a specific entitlement, be it a contingent interest in remainder or reversion.  It cannot be exercised over any property that the beneficiary does not have a specific interest.  As such specific interest will not come into being before the completion of administration of the estate, the s 34 Power cannot be exercised with regard to the residuary legatee of an unadministered estate[18].

35.  The judge divided section 34(1) into two parts.  The first part reads: “[t]rustees may at any time or times pay or apply any capital money subject to a trust, for the advancement or benefit in such manner as they may, in their absolute discretion, think fit, of any person entitled to the capital of the trust property or of any share thereof”.  He emphasised these words: “any capital money subject to a trust” and “any person entitled to the capital of the trust property or of any share thereof”.  The word “entitled” refers to the person to be advanced having an “interest” in that capital money. The first part provides that trustees may utilise trust capital that a beneficiary is entitled to for his advancement.  The proprietary interest of a beneficiary to the residuary estate before the completion of administration is in the totality of the assets, he has no specific interest in any capital property that may be used for his advancement[19].

36.  The second part of the provision reads: “whether absolutely or contingently on his attaining any specified age or on the occurrence of any other event, or subject to a gift over on his death under any specified age or on the occurrence of any other event, and whether in possession or in remainder or reversion”.  The judge held that this part provides that the beneficiary’s interest over the specific property he is entitled to (as required by the first part) may be an absolute or contingent interest.  It is wrong to describe the beneficiary’s interest in the residuary estate before the completion of administration as the “contingent” interest contemplated by section 34.  This is to confuse the prerequisite of advancement that the beneficiary should have a specific entitlement to the trust capital or property with a type of his entitlement in the capital that may suffice for him to be advanced[20].

37.  There is no authority directly in support of this interpretation of the s 34 Power.  Mr Wong Yan Lung, SC, who appeared for the executors here and below[21], essentially repeated his submissions before the judge. His submissions may be summarised as follows:

(1) During the administration of an estate, with the residuary estate not yet ascertained, the “capital money” in the estate is not “subject to a trust”, and the interest of a residuary legatee is not an entitlement to “the capital of the trust property or of any share thereof”[22].

(2) The interest of a residuary legatee in the properties of an unadministered estate is not controversial.  He has no legal or equitable interest in the assets until the residue has been ascertained.  His only right is to have the estate duly administered by the personal representative in accordance with law[23]. This right is a chose in action, and has been described as a “floating equity”, “inchoate and uncertain as regards any particular asset”[24]. It is a broad interest in the “totality of assets”[25].  This proprietary interest may be disposed of by will or inter vivos, whether expressly or by operation of law upon the bankruptcy of the residuary legatee[26]. However, it cannot be regarded as an interest in the capital of the trust property.

(3)     As there is no certainty of subject matter, no trust has come into existence before the completion of administration and ascertainment of the residuary estate[27]. As stated in Commissioner of Stamp Duties (Queensland) v Livingston at 708A to D and 713F, “there had to be specific subjects identifiable as the trust fund”, “an unadministered estate was incapable of satisfying this requirement”, “no trust had as yet come into existence to affect the assets of [the residuary] estate”, and “‘residue’ cannot come into existence in the eyes of the law until administration is completed”.  It is only upon completion of administration when the capital and income in the residuary estate become “trust property” and the interests of the beneficiaries crystallise into “entitlement” to “the capital of the trust property or of any share thereof”.  The personal representative becomes a trustee of the residuary estate for the persons beneficially entitled to it when the administration is complete and the residue is ready for distribution[28].

(4)     The description of interests in section 34, whether “absolutely”, “contingently on his attaining any specified age or on the occurrence of any other event” or “subject to a gift over”, or “in possession or in remainder or reversion” in the “capital of the trust property or of any share thereof”, however wide, is only apt to describe the personal and specific beneficial interest in the trust property, not the broad “chose in action” or “floating equity”, which is wholly uncertain as regards any particular asset and is merely the right to have the estate duly administered in accordance with law.  Other parts of section 34 lend support to this reading: “the interest of such person is liable to be defeated” (section 34(1)); “one-half of the presumptive or vested share or interest of that person in the trust property” (proviso (a) to section 34(1)); “this section applies only where the trust property consists of money or securities …” (section 34(2)).

(5)     Section 5(1)(b) of the Intestates’ Estate Ordinance, Cap 73 provides that “Where under this Ordinance the residuary estate of an intestate, or any part thereof, is directed to be held on the statutory trusts for the issue of the intestate, … the statutory power of advancement … shall apply …”. Under section 2(1) of that Ordinance, “residuary estate” means “every beneficial interest in an estate as to which a person dies intestate, after payment of all such funeral and administrative expenses, debts and other liabilities as are properly payable thereout …”.  Plainly, the power of advancement does not apply before the statutory trusts have arisen upon the ascertainment of the residue. Section 9 confirms the well‑established principle that the personal representative of any person dying intestate shall be a trustee “in respect of the residuary estate of the deceased”.  The position cannot be different where the personal representative is administering the estate pursuant to a will, see section 62(6) of the Probate and Administration Ordinance, Cap 10.

(6)     To allow the personal representative to use any property of the estate for the advancement of a beneficiary before the completion of administration would bring in the risk of prejudicing creditors and specific legatees[29]. Proviso (a) to section 34(1) limiting the money paid or applied to one-half of the presumptive or vested share[30] is no answer as the advancement is before the payment of debt and liabilities and before the residue is ascertained, not to mention that it is not possible to assess the amount of one-half of the share until the residuary estate has been ascertained.  Proviso (c) is for the protection of “prior life or other interest” and does not extend to creditors and specific legatees.  The entire provision is problematic and unworkable in actual reality if an advancement is to be made before the ascertainment of the residuary estate.  The operation of the statutory power cannot simply be left to the good sense of the personal representative.

38.  The combined effect of the position taken by the executors on Questions 1A and 1, which was held to be correct by the judge, is that the statutory power of advancement of the executors to pay or apply trust capital for advancement to a beneficiary of the residuary estate “comes and goes at the same moment when the administration of the Estate is complete.”[31]

39.  In my view, the construction of section 34(1) put forward by Mr Wong and accepted by the judge is a possible interpretation. I have no quarrel with the submission that the words in section 34(1) on which emphasis was placed are capable of being interpreted as requiring the beneficiary to have a specific interest in identifiable trust property for the exercise of the s 34 Power.  But is this correct?

40.  I have earlier mentioned that it is important to have regard to the form and nature of a power of advancement as was commonly understood and adopted in practice before the enactment of the Trustee Act 1925, which was carried into the statutory power of advancement created by the Act.  As Viscount Radcliffe had explained in Pilkington, the very nature and purpose of a power of advancement was to anticipate the vesting in possession of an intended beneficiary’s contingent or reversionary interest by raising money on account of his interest and paying or applying it immediately for his benefit.  It was about finding money by way of anticipation of an interest not yet absolutely vested in possession or, if so vested, belonging to an infant.  Hence, the situation in which a power of advancement would be invoked is before the completion of administration of the estate, prior to the vesting in possession absolutely of the beneficiary’s interest.

41.  An example in which an advancement clause in a will was exercised where the administration of the estate was not completed is In re Breeds’ Will (1875) 1 Ch D 226.  The testator died on 14 September 1875.  His residuary estate was of the estimated value of £100,000 and was producing an income of about £4,000.  The will contained no provision for the maintenance of his unmarried daughters during the interval between 21 and 25 years of age.  The trustees applied to court seeking an opinion whether they might lawfully and properly make an allowance for the maintenance of the unmarried daughters between the ages of 21 and 25.  There was no mention in the law report whether the administration of the estate was completed at the time.  But as the matter came before Jessel MR on 11 December 1875, less than three months after the testator’s passing, it would be highly unlikely that administration was completed.  It was held that the trustees might do so under the power of advancement provided for in the will.

42.  As observed by Viscount Radcliffe, it was not disputed that when the statutory power of advancement was framed and inserted in the Trustee Act 1925 as a “general enabling provision applying to trusts coming into existence after that date, it was expressed in terms that corresponded closely with the previous common form recommended in books of conveyancing precedents and adopted in practice.”  The Act was not meant to change the previous position.  As submitted by Mrs Warnock-Smith, there was no reason for the legislature to circumscribe the power radically by shutting out many objects deserving of the benefit of the power, for instance, widows or children whose living needs may have to be provided for in advance of the completion of administration.

43.  The judge had opined that if the legislature had intended the statutory power of advancement to operate when the estate is still in the course of administration, it should have said so expressly[32]. With respect, I do not agree.  The provision in the Trustee Act “corresponded closely with the previous common form recommended in books of conveyancing precedents and adopted in practice”, as noted above by Viscount Radcliffe. The power of advancement that had been used in common form provisions was regarded as exercisable in anticipation of the vesting in possession of an intended beneficiary’s contingent or reversionary interest where the administration of an estate had not been completed.  If, contrary to what Viscount Radcliffe said, it had been the legislative intent to change the previous position and practice, express wording to that effect would have been necessary.

44.  Is the wording of section 34 capable of giving effect to the common form advancement clause that had been applied to unadministered estates?  As a matter of construction, instead of construing the words “trust” and “trust property” in section 34 in a strict and narrow sense, it is entirely possible to construe these words as applying to the wider species of trust described in Livingston at 707C to D and In re Leigh’s Will Trusts at 281G to 282A, where property came to an executor by virtue of his office, was held by the executor for the purpose of carrying out the functions and duties of administration and not for his own benefit, and these duties would have been enforced upon him by the court on the application of a beneficiary interested in the estate.  This is supported by section 2 of the Trustee Ordinance, which extends the definition of “trust” to “the duties incident to the office of a personal representative”.  Likewise, the words “any person entitled to the capital of the trust property or of any share thereof” may be construed to include a residuary legatee in an unadministered estate as “it may well be said in a general way that a residuary legatee has an interest in the totality of the assets” (Livingston at 713F).

45.  I agree with Mrs Warnock-Smith that the words “any person entitled to the capital of the trust property or of any share thereof” define the class of objects of the power of advancement, not to limit the time when the power can be exercised.  It is expressly provided in section 34(1) that trustees “may at any time or times” exercise the power of advancement.

46.  She made the valid point that the legislature has delineated the class of objects of the s 34 Power in the widest possible terms, including persons who have a defeasible interest in capital or even an interest contingent on the occurrence of an event that may never occur (Lewin on Trusts, §§32-026 and 32-027).  It would make no sense to qualify beneficiaries of a wholly uncertain contingent or defeasible interest as objects of the power, but exclude beneficiaries who are certain to have a proprietary interest in specific assets once the administration of the estate has been completed and who have a proprietary interest in the meantime that may be disposed of by will or inter vivos, transmitted upon bankruptcy and sold by contract.

47.  There is nothing in the language of section 34 that requires a trustee in exercising the power to transfer outright a specifically identified trust property.  I do not agree with Mr Wong that the operation of the power prior to the ascertainment of the residuary estate would be problematic or unworkable.  Trustees are entitled to “pay or apply any capital money subject to a trust”, and money is fungible.  In exercising the power, trustees are not required to remove identified trust property from the original trust, there is more than one way of advancing and applying trust property to a beneficiary (Fischer v Nemeske (2016) 330 ALR 1 at §§27 to 31, 34; Pilkington at 639).  The power may be used to re-craft the trusts and does not require immediate payment out of the trust fund (Sutton v England [2012] 1 WLR 325 at §§45 to 48).  “Advancement” in this context does not imply that the beneficiary’s interest must be accelerated, the power can be used to postpone the vesting (Lewin on Trusts, §32-003; Pilkington at 636; Wright v Gater [2012] 1 WLR 802 at §22).  Trustees also have power to raise money “in any manner” pursuant to section 18(1) of the Trustee Ordinance.

48.  As for the judge’s concern there is risk that the interest of specific legatees may be prejudiced by the exercise of the power before completion of administration, I am inclined to agree with Mrs Warnock‑Smith it is wrong to cut down a “wide and discretionary power, enacted for general use, through fear of its being abused in certain hypothetical instances”, bearing in mind “there does remain at all times a residual power in the court to restrain or correct any purported exercise than can be shown to be merely wanton or capricious and not to be attributable to a genuine discretion” (Pilkington at 641).  The possibility that the contingency upon which the vesting of a beneficiary’s title depended failed to mature, or there was a later defeasance, or a great shrinkage in the value of the remaining trust funds was “recognised and accepted as an incidental risk attendant upon the exercise of such a power”, as this “was felt on the whole to be advantageous in a system in which the possession of property interests was often deferred long beyond adult years” (Pilkington at 633). 

49.  Mr Wong remarked on the paucity of case law in support of the construction that this power may be exercised prior to the completion of administration of an estate, and said this has given the executors cause for concern.

50.  It does not appear that the availability of this statutory power prior to the completion of administration of an estate has been challenged during its long history.  There is no need to speculate on the reason.  More pertinently, there was reference of the availability of the power and it had been treated without comment that the power could be exercised in this situation[33].

51.  In In re Darby, Farrell v Fargus (1943) 59 TLR 418, the power of advancement was held to be exercisable upon the death of the testator.  It is inconceivable that the administration could have been completed on the date of death of the testator. 

52.  In Wright v Gater, Norris J was concerned with an application under the Variation of Trusts Act 1958 to vary a statutory trust of an unadministered estate.  He mentioned that the statutory power of maintenance under section 31 of the Trustee Act 1925[34] and of advancement under section 32 would be available (at §2), and he ordered a variation which contained an enlarged version of the usual power of advancement (at §17).

53.  In two decisions involving applications under the Variation of Trusts Act 1958 (Bernstein v Jacobson [2010] WTLR 559 and Wright v Gater), the courts held there is jurisdiction to vary trusts of an unadministered estate, rejecting the contention that the wider species of trust as described in Livingston is not within the scope of trusts in section 1(1) of the 1958 Act (Bernstein v Jacobson at §§24 to 29).  Mr Wong emphasised that it is not helpful to “enquire whether in other contexts the concept of a trust does or does not extend to the duties incident to the office of a personal representative” and section 1(1)(d) of the 1958 Act made a material difference to the reasoning (Bernstein v Jacobson at §§24 and 29).  Nevertheless, I think Mrs Warnock-Smith has a fair point. It would be surprising if the statutory power of advancement (which permits analogous alteration of interests) were to be unavailable to estates prior to the completion of administration, while the more extreme jurisdiction under the 1958 Act is.

54.  Construing the provisions in section 34 with regard to their context and purpose, I hold that the judge is in error and Question 1A should be answered in the affirmative.  The s 34 Power can be exercised by the executors before the administration of the estate is completed and the relevant interest of the relevant adult beneficiary has not yet vested in possession.

Question 1

55.  The question is whether the s 34 Power can be used to pay or apply trust property already absolutely vested in possession in the adult beneficiary of full capacity, which the judge answered in the negative.

56.  The judge considered these statements of Viscount Radcliffe in Pilkington and Upjohn J in In re Wills’ Will Trusts [1959] Ch 1, which he regarded as clear and correct statements of the law, and emphasised the following parts which he italicised[35]:

“I am uneasy at some of the possible applications of this liberty, when advancements are made for the purposes of settlement or on terms that there is to be a settlement. It is quite true … that you might have really extravagant cases of settlement being forced on beneficiaries in the name of advancement, even a few months before an absolute vesting in possession would have destroyed the power.” (Pilkington at 640 to 641)

“The opening words of clause 18 were no doubt widely framed to meet a number of possible situations, and I am quite unable to construe the clause as giving the trustees not a power of advancement pending vesting in possession but in effect a power of defeasance which can operate after a share has vested absolutely in possession.  A power of advancement is intended to permit the donee of the power to anticipate the absolute vesting of a share, but when the share has vested absolutely the power necessarily comes to an end. In my judgment, “vested” in clause 18 bears its prima facie meaning of vested in interest; see Theobald on Wills, 11^th ed., p. 475.” (In re Wills’ Will Trusts, at 9 to 10)

57.  The judge reasoned that upon the absolute vesting in possession of the trust property unto an adult beneficiary, there is no expectant interest that can be anticipated or accelerated and no room for “advancement”[36]. Furthermore, the s 34 Power should not co-exist with the power of an adult beneficiary of full capacity who is absolutely and immediately entitled to receive the trust property to call for immediate transfer of the property on the principles of Saunders v Vautier (1841) 4 Beav 115.  There will be a conflict between the trustee’s power of advancement (which is paternal and can be exercised over the head of a beneficiary) and the beneficiary’s power to call for the immediate transfer of the property, and this will create chaos and endless litigation.  There is no basis for the s 34 Power to continue to exist as the beneficiary is entitled to call for the immediate transfer of property ^[37].

58.  Mrs Warnock-Smith submitted that the judge’s reasoning is bedevilled by his failure to recognise there is a gap between vesting in possession and actual distribution to a beneficiary.  Because there is a difference in timing, and at times there may be a lengthy gap in time, there is scope for using the s 34 Power.  I think that must be right.  There is no conflict with the statements in Pilkington and In re Wills’ Will Trust, and no need to be drawn into the discussion whether the statement in the first case was obiter and a passing comment and the statements in the other case was distinguishable in that they were concerned with an advancement clause in a will.

59.  I also agree with her submission that there is nothing in the language of section 34 that supports the proposition the power should end once the trust property has vested in possession.  As provided in section 34(1), the class of objects of the power covers persons entitled to the capital of the trust property “absolutely or contingently” and “whether in possession”.  Contrary to Mr Wong’s submission[38], I do not think it material that this wording can also cover the situation of a minor beneficiary having an absolute interest vested in possession but is not entitled to call for the immediate transfer of the trust property.  The hotchpot provision in proviso (b) requires the money paid or applied to a person “entitled” who “is or becomes absolutely or indefeasibly entitled to a share in the trust property” to be brought into account as part of such share.  I disagree with Mr Wong’s submission[39] that proviso (b) refers to the time and position of the beneficiary after the payment of the advancement, when the remainder of his interest is to be distributed, as this is to ignore the word “is” in the proviso.

60.  As for the beneficiary’s right to call for an immediate transfer of the trust property under Saunders v Vautier, even when a beneficiary is entitled to exercise this right, unless and until he does so, the trust remains on foot and the trustees are under a duty to administer the trust according to the terms of the trust including the s 34 Power (Hotung & Anr v Ho Yuen Ki [2002] 3 HKLRD 641 at §38).  Hence, an exercise of the s 34 Power before the beneficiary calls for his property is permissible. In Godfreys 2010 Ltd v The Wairewa Runanga Incorporated Society [2017] NZHC 418, the sole beneficiary of a trust was sui juris and entitled to ask the trustee to terminate the trust under Saunders v Vautier (at §§22 to 24), yet this did not prevent the court from holding that the trustee may exercise an express power of advancement (at §§31 to 37).  And if an adult beneficiary absolutely entitled to the trust property should wish to prevent a trustee from exercising the s 34 Power, he could simply call for his property, and the trustee must comply with this direction.  There will not be conflict, chaos or endless litigation as envisaged by the judge.

61.  For the above reasons, I hold that the judge is in error and Question 1 should be answered in the affirmative.  The s 34 Power can be used to pay or apply trust property already absolutely vested in possession in the adult beneficiary of full capacity.

Conclusion and costs

62.  As both Questions 1A and 1 should be answered in the manner opposite to that as held by the judge, the appeal must be allowed.

63.  We have heard submissions on costs.  I will order Marcel’s costs on appeal to be paid out of the estate of the Deceased on an indemnity basis.  The executors’ costs on appeal will also be paid out of the estate on an indemnity basis.

Hon Chu JA:

64.  I agree with the judgment of Kwan VP and the orders proposed.

Hon Au JA:

65.  I agree with Kwan VP’s judgment.