BERMUDA TRUST (HONG KONG) LTD v. THE SECRETARY FOR JUSTICE AND ANOTHER

1997, No. HCMP 2039

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS

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J U D G M E N T

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1. This is an unusual case in a branch of law governing the dispute now before me which is completely foreign to me. It is a pure chancery type case which apparently because one of my brother judges has overrun, I have been given this case to decide, turning as it does on points of trust which as I said, is a branch of the law quite unfamiliar to me. However, I am grateful that I have had three able counsel in front of me who have guided my feet hopefully into the correct path. If there is an error, the fault is mine and not theirs.

2. This is an interesting case because it involves a gentleman, Mr Victor Tang ("Victor"), who was a beneficiary under a trust which his mother established. Mr Godfrey Lam has kindly given me a chronology and synopsis which I found very helpful. I know that sometimes counsel find that providing written submissions gives extra work, but it is always very good as it enables the court to read them and understand the issues better.

3. Mr Tang's father had died in June 1971, and he died intestate. He had some sons and daughters. Victor, one of the sons, was, from the early days, mentally retarded. His mother set up a trust which I call the "1972 Settlement" on 29 May 1972, and by this Deed of Settlement, the beneficiaries were Victor and what were called charities. The charities were unspecified and that is found in a well-paginated bundle which has been prepared, and the Settlement is set out at "Tab 8". I do not refer to it in detail.

4. The mother had obviously expressed, from the early times, interest in the Hong Kong Polytechnic and Victor unfortunately became mentally ill, and it was necessary, therefore, for an application to be made to the court to protect him. On 22 March 1973, an application was made to the court under the provisions of the Supreme Court Ordinance and the Mental Health Act for the mother and Jack, who was the elder son, to be appointed Receivers, which they were. The father, as I said, had died intestate and because the distribution of the estate had to be settled according to what is called "Ching Law", the daughters unfortunately were disinherited and the money was split up by virtue of a Deed of Settlement amongst the sons. Victor obtained a few million dollars and the monies were, as far as I can see, very wisely invested. In May 1994, the Trust had been established and which at that time had only a small amount of money. There was an application made to Briggs CJ in May 1974 by the Trustees who asked for the money which had been left to Victor to be placed in the Trust, so the Trust had put into it nearly $2 million.

5. Over the years that sum grew. The Deed of Settlement empowered the Trustees to make provision either for Victor or the charities. However, it is clear from the order of Briggs CJ that the money that was being paid into the Trust would be exclusively for Victor. This is not in dispute in this case. I am grateful to Mr Nelson Miu, who is instructed by the Department of Justice to represent these unnamed charities, for the succinct submissions that he has given. He accepts that up to the moment of death, the Trustees had to administer the money exclusively for Victor. The charities ultimately benefit because in 60 years' time i.e. in 2032, what monies that would have been left in this Trust would be distributed to the charities.

6. The unusual position that has arisen in this case and which has really caused the problems is by virtue of the fact that Victor was a mental patient and his day to day living expenses were not great. He was either in a hospital or sometimes he was at home and his general living expenses were relatively small - there was no need for him to have expensive motor cars or expensive holidays or Rolex watches as people do in Hong Kong. He lived a simple life in a hospital. What happened then was that because the Trustees had wisely invested this money, it produced a substantial income. The capital was being maintained, but the income generated by the capital grew. This was either from dividends or from deposits, but it produced a substantial income. The Trustees were in a predicament because they did not know what to do with this income as they could not apply it for the benefit of Victor since he did not need any money, and it was clear from the order made by Briggs CJ that it was to be utilised solely for his purpose. They sought, therefore, the opinion of counsel and they went to Mr Lynton Tucker in Lincoln's Inn at the end of 1992 who is obviously an expert in this field. As I said, I am but a mere beginner. He examined in great depth the powers given under the Deed of Settlement. He came to the conclusion that during the lifetime of Mr Victor Tang, he was the sole object of the power to pay or apply capital. That is not, as I said, in dispute.

7. As far as the income is concerned, his reasoning - which I have read several times and as I said being but a beginner in this field, I should give considerable weight to it - was that if the Trustees had failed to pay or apply the income within a reasonable time, they could have been in breach of trust, because the only person for whose benefit the income could be applied is Mr Victor Tang. The wording of the Deed of Settlement was analysed and Mr Tucker said these words :

"... Mr Victor Tang would be the only object of the discretionary power. After a reasonable time the power would lapse and the income would in my view be undisposed of by the terms of the 1972 Settlement. It would therefore revert to Mr Victor Tang ... by way of resulting trust, for Mr Victor Tang ... [and not his mother] is the true settlor in relation to the assets transferred under the Deed of Family Arrangement."

I have had a few authorities cited to me, in particular In re Vandervell's Trusts (No. 2) [1974] 1 Ch 269 and the judgment of Megarry J, particularly his classification of resulting trusts, and his proposition (b) on p.294 of what he calls "automatic resulting trusts".

8. It seems to me, looking at the Deed of Settlement, there are only two beneficiaries, Mr Victor Tang and Charities. Once Mr Victor Tang goes, then the only beneficiary are the charities. In my judgment, therefore, in so far as the capital is concerned, once he has died the only beneficiary for whom the Trustees can administer this money are the charities. I would therefore, in due course, make a declaration that the capital now standing, which is some $16 million, should be administered by the Trustees for the benefit of the charities.

9. The income is a more difficult position. Mr Nelson Miu submits that the charities also should obtain the income. At one time in this case, I confess, with my common law mind, I thought the sensible course for this case was to split the money in half, so the charities get a windfall of half and the two daughters who unfortunately were disinherited by this strange provision, would also get half. Counsel were able to demonstrate that that really should not happen and I am grateful to them for so doing. Although that might appear to be the just result, I do not think in law it would be the correct result, therefore, I have examined the submissions which have been made.

10. Mr Godfrey Lam who has taken a neutral role here, nevertheless, has assisted the court by submitting that the correct approach is that which was set out by Mr Tucker, namely that the income which had been built up should have been distributed within a reasonable time to the beneficiary which was then Mr Victor Tang, the money being as I said exclusively for his benefit. However, that did not happen. It is a pity of course, but I can well understand why it did not happen because Victor's requirement for money was extremely limited. What has happened is that the undisposed income was subject to a discretionary trust. It should have been applied for the benefit of Mr Victor Tang, it was not, and I accept the principle that equity would treat that as done which ought to have been done, and the monies would be held on a resulting trust for his estate. He himself died intestate, but Mr Cheung who appeared for the estate has told me that the sons have had their money, they do not wish to have anymore and the persons for whom the estate is claiming the money are the two sisters who had been disinherited.

11. In my judgment, the correct approach in law on this matter is that the undistributed income which is approximately $18 million should belong to the estate of Mr Victor Tang and that the Trustees should pay the monies which were represented by the income to the estate.

12. There was an additional point which Mr Cheung was intending to take. I only mention this in case this case does go to appeal. It seems to me that the result which is the correct legal result, achieves also the true position here, in that the mother who had established this Trust knows that a substantial sum of money would be going to charity. And also that Mr Victor Tang, whom I am sure had he not been in a mental position would have corrected the injustice, which was obtained when his father died, that because of this unusual "Ching law", the girls could not get any money. So, in my judgment, justice has been properly served here and all those that should benefit do benefit. I would only add that as Mr Cheung was intending to take the point, that it could be argued that the capital resulted also to the estate. That, I think, he has difficulties in. Nevertheless, he wishes to reserve that position; his clients are quite prepared and I think it is a very sensible and honorable decision that he has made - that the charities in Hong Kong ought to be benefitted - and they do benefit by some $16 million.

13. The mother expressed the wish that the Hong Kong Polytechnic should benefit and I am sure the Trustees will take this into account in so far as the administration of the assets are concerned. I hope that in due course they will receive a substantial charitable gift to enable them to continue with the very worthwhile job that they do.

14. I am grateful to counsel, as I said, for having guided my feet in this unusual case. At the end of the day, I think that this is a fair result as well. The Trustees have had a particularly difficult time because of the unusual situation. I do not know what the form of the orders will be, but I will leave that to counsel to address me if necessary.