SHAON LAL HIRANAND v. DR HARI NAROOMAL HARILELA PADMA HARI HARILELA

cacv 72/2004, CACV 73/2004 & CACV 74/2004

CACV 72/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 72 of 2004

(on appeal from HCSD NO. 11 of 2003)

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CACV 73/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 73 of 2004

(on appeal from HCSD NO. 12 of 2003)

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BETWEEN

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CACV 74/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 74 of 2004

(on appeal from HCSD NO. 13 of 2003)

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BETWEEN

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REASONS FOR JUDGMENT

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Hon Rogers VP:

1.  I agree with the reasons for judgment of Le Pichon JA.

Hon Le Pichon JA:

2.  These are appeals from the decision of Deputy High Court Judge Gill dated 30 October 2003 dismissing the applicants’ application to set aside statutory demands made against them in HSCD 11 to 13 of 2003.  The appeals were heard together and there is no relevant distinction between the facts in any of the cases.  At the conclusion of the hearing the appeals were dismissed with written reasons to be handed down later which we now do.

3.  The applicants were the plaintiffs in Probate Action No. 15 of 2000.  The defendants to the present appeals were two of three defendants in the probate action.  Yam J dismissed the probate action on 15 August 2001 and ordered costs against the applicants.  The debts which form the subject matter of the statutory demands are the taxed costs (together with interest) awarded to the defendants. 

4.  The debts are not disputed.  The plaintiffs rely, inter alia, on Rule 48(5)(a) of the Bankruptcy Rules and contend that the statutory demands ought to have been set aside on the ground that they have a counterclaim against the defendants which equals or exceeds the amount due to the defendants in respect of the taxed costs.

5.  The applicants are siblings.  The 2^nd defendant is their paternal aunt.  The 1^st defendant is the husband of the 2^nd defendant.  The trust was described in the following terms in the affirmation dated 19 December 2003 filed by the applicant in CACV 72/2004 (“the 1^st applicant”) on behalf of himself and his brother Ravine, the applicant in CACV 73/2004:

“14.In or about 1998, our father transferred a sum of at least HK$6 million to [the 2^nd defendant] for the [defendants] to hold on trust for the Applicants for the purpose of paying for the costs of the Applicants’ weddings.”

It would appear that pursuant to a request made by the father to the defendants by letter dated 2 November 2000, the defendants caused the equivalent in pounds sterling of HK$2 million to be remitted to the account of the father’s solicitors in London.  This, it was said, was a breach of trust.

6.  Mr Chan who appeared for the applicants submitted that the appropriate test to be applied is whether the applicants have shown that there is a general triable issue as to whether the defendants are liable to them in an amount that exceeds the debts supporting the statutory demands.  To succeed in these appeals, the applicants not only have to make out a viable case that a trust exists but also that they are entitled to call for the corpus of the trust. 

7.  The circumstances in which the trust which was made orally was said to have arisen were dealt with in the following paragraphs of the 1^st applicant’s affirmation:

“17.It is also important to understand the purpose and history behind our father setting up and settling this trust.  Prior to the trust, our father had previously refused to pay for my marriage.  I was very upset about this and had complained about my father’s refusal to the Harilela’s (the Respondents, who are my aunt and uncle).

18.The Respondents agreed and assured me that they would obtain money from our father and hold it for the Applicants to ensure that our marriages would be paid for.  The Respondents assured me that we need not worry.  It was our aunt Padma who then approached our father to ask him for this money to hold on trust for the Applicants to provide for our weddings.

19.Thus, one of the main reasons and intentions for settling the trust was to afford the Applicants, the beneficiaries, a degree of guarantee and certainty; so that, regardless of any future change of intention on the part of our father or any subsequent repeated refusal to pay for any of our weddings, our weddings would nonetheless definitely be provided for, since the money is now already held by the Harilela’s (the Respondents) on trust for us for that purpose, so that history would not and cannot repeat itself.  The intention of everyone was to set-up a trust, which would achieve this.”

8.  Mr Chan submitted that the trust that was created was a private trust of the “Denley” variety.  This was a reference to the decision of Goff J in In re Denley’s Trust Deed [1969] 1 Ch 373.  In that case, the question which arose was whether a trust to maintain land for use as a sports ground primarily for the benefit of the employees of a named company was invalid as falling foul of the beneficiary principle.  That principle requires that “a gift on trust must have a cestui que trust” see per Harman J in Re Wood [1949] Ch 498 at 501.  Goff J upheld the trust observing (at 383G to 384A) that where “the trust, though expressed as a purpose, is directly or indirectly for the benefit of an individual or individuals … it is in general outside the mischief of the beneficiary principle.”  I do not see that Denley is of much assistance in the present case.  The question which arises is not so much whether or not a trust could arise in the circumstances described in the 1^st applicant’s affirmation but whether, assuming that a trust could arise, the applicants are entitled to put an end to the trust and call for the capital.  That issue simply did not arise in Denley.

9.  Mr Chan relied on a trilogy of cases said to support the applicants’ claim to the corpus.  The earliest in time was Re Skinner’s Trusts (1860) 1 John & H 102 where the testator bequeathed manuscripts and a sum of money towards printing them to trustees for his grandson “that they may provide for the said books being published to the best advantage, for the interest of the said child, so as to contribute towards raising a fund to assist him when he goes to Trinity College, Oxford …”.  The executors were advised that the manuscripts should not be printed.  The issue before the court was put in these terms (at page 107-108):

“Did the testator assume that he was making a beneficial gift to the petitioner to support him at college?  Or do you find directions given, not for the benefit of the legatee, but for the testator’s own gratification?  Was affection for his children and grandchildren, or affection for his own manuscripts, the motive?  The question is, whether it is a gift on condition of printing the volume, or a gift of £1000 for the benefit of the grandson, with a direction that it shall be applied for his benefit in this particular way?”

Vice-Chancellor Sir W Page Wood opined that the case appeared to be near the borderline, but on the whole, he considered that the primary intention was to benefit the legatee who was entitled to the money.

10.  In re Bowes [1896] 1 Ch 507 was also a case concerning a legacy – to be laid out in planting trees on an estate, the trustees “to have regard to the wishes of the person for the time being entitled to the possession of the … estate”.  As the legacy had not failed inasmuch as the owners of the estate did not refuse to have any trees planted on it, the question was where the money was to go.  North J came to the view that the fund was devoted to improving the estate for the benefit of those beneficially entitled to it but a declaration to the effect that the life tenant and the tenant in tail were together beneficially entitled to the legacy would only be made upon the production of a disentailing deed and the consent of the prior encumbrancers. 

11.  Finally there was In re Lipinski’s Will Trusts [1976] 1 Ch 235 where the court had to consider the validity of a bequest to the Hull Judeans (Maccabi) Association in memory of the testator’s late wife to be used solely in constructing and improving the new buildings for the association.  On the face of the will, there was a gift to an unincorporated non-charitable association.  The question which arose was the effect of the specification by the testator of the purposes for which the legacy was to be applied and whether that detracted from the gift being an absolute and beneficial one.  Oliver J approached the matter thus at page 247A-C:

“If a valid gift may be made to an unincorporated body as a simple accretion to the funds which are the subject matter of the contract which the members have made inter se – and Neville Estates Ltd. v. Madden [1962] Ch. 832 and In re Recher’s Will Trusts [1972] Ch. 526 show that it may – I do not really see why such a gift, which specifies a purpose which is within the powers of the association and of which the members of the association are the beneficiaries, should fail.  Why are not the beneficiaries able to enforce the trust or, indeed, in the exercise of their contractual rights, to terminate the trust for their own benefit?  Where the donee association is itself the beneficiary of the prescribed purpose, there seems to me to be the strongest argument in common sense for saying that the gift should be construed as an absolute one within the second category – the more so where, if the purpose is carried out, the members can by appropriate action vest the resulting property in themselves, for here the trustees and the beneficiaries are the same persons.”

It is apparent from the judgment that from the evidence the court was unable to conclude that the testator had any specific building in mind, that the reference to “the” building for the association meant no more than whatever the association might have or might choose to erect a acquire and the reference to improvements reflected the testator’s contemplation that the association might purchase a structure which might require improvement or conversion.  Oliver J therefore concluded that the association was to have the legacy to spend in that way for the benefit of its members.

12.  What principle or proposition of law is to be derived from this trilogy of cases?  Re Skinner’s Will Trusts, In re Bowes and Lipinski’s all involved the construction of testamentary bequests.  The crucial issue in each case was to ascertain whether there was an intention on the part of the testator to confer the beneficial interest on the legatee.  The intention to make a gift is more readily ascertainable in a testamentary context, it being apparent in the case of a legacy that it was “given away from the residuary legatees”: see per Vice-Chancellor Sir W Page Wood (at page 107) in Re Skinner.  So, where the construction of a will is doubtful, the court acts on the presumption that the testator did not intend to die wholly or partially intestate provided that on a fair and reasonable construction there is no ground for a contrary conclusion.  See, for example, In re Harrison Turner v Hellard (1885) 30 Ch D 390 at 393-4.  All things being equal, the courts would seek to uphold testamentary gifts.  In my view, these cases do not remotely support the proposition Mr Chan would appear to be advancing that whenever a trust is created by the transfer of monies to a third party to be applied for a specific purpose which also benefits X, X (if he is sui juris) becomes absolutely entitled to the monies so transferred and the specific purpose can be disregarded.

13.  Here, there was an inter vivos transfer of funds into the hands of uncle and aunt of the applicants after a complaint by the 1^st applicant that their father had previously refused to pay for his marriage.  The aunt intervened and the funds were then transferred to be applied for a specific purpose: to defray the applicants’ wedding expenses.  A number of matters are to be noted.  First, there is no certainty that the applicants will marry.  Second, the expenses may not necessarily exhaust the funds.  Moreover, the father cannot be said to be wholly disinterested in the purpose for which the monies are to be applied having regard to the fact that in the Indian community, the parents as much as their children who are to be married can reasonably be said to have an interest in how the marriage is to be celebrated since that inevitably reflects on their status and standing. 

14.  Had the father’s overriding intention been to give the beneficial interest to the applicants, he could have made outright gifts to them since as at the date of the transfer they were all sui juris.  But that did not happen.  Rather, the moneys were paid to the defendants which, even on the 1^st applicant’s version, was “to hold on trust for the Applicants to provide for [their] weddings”.  If anything, the circumstances appear to bear the hallmarks of a Quistclose trust.  See Barclays Bank v Quistclose Investments Ltd [1970] AC 567 and Twinsectra Ltd v Yardley and Others [2002] 2 AC 164 at paras 68-69, 99. 

15.  In my view, whilst it is arguable that a Quistclose trust can be said to have arisen, it is not remotely arguable that an outright or absolute gift to the applicants was intended at the time of the transfer.  Accordingly, the applicants have failed to make out a viable case that they are together entitled to put an end to the trust (assuming a trust did exist) and to call for the capital to be paid over to them.  That being so, they have not established any triable issue that they have a counterclaim against the defendants which exceeds the amounts due under the statutory demands.