HONGKONG BANK TRUSTEE LTD v. HO SHAI LAI AND OTHERS

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JUDMENT

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1. I have before me two originating summonses, the first issued under the Trustee Ordinance and the second under the Variation of Trusts Ordinance by the plaintiff the executor and trustee of the will of Sir Robert Ho Tung deceased (the testator).

2. The testator died on the 26th April 1956 and probate of his will dated the 4th July 1955 and four codicils was granted to the plaintiff on the 26th May 1956. Pursuant to the terms of the will the plaintiff holds half of the residuary estate in trust to pay the income to the testator's second son Ho Shai Lai the first named defendant during his life and after his death upon trust as to capital and income for his child or children who being male attain the age of twenty one or being female attain that age or marry, and if more than one in equal shares absolutely. Ho Shai Lai is aged 78 and is married to Hesta Ho Hung Ki Fun who is 77. They have two children a son Robert Ho Hung Ngai and a daughter Ho Min Kwan both of whom are sui juris. They are the second and third named defendants.

3. The testator's elder son Ho Shai Kim is now dead and the other moiety of the residuary estate has already been distributed.. The testator's daughter Daisy who was entitled to certain benefits druing her life is also dead. The first and second named defendants live in Hong Kong whilst the third named defendant resides in the United States where she has lived for 10 years with her husband. She has 4 children all of whom live in the United States.

4. The main part of the trust property in Hong Kong consists of leasehold properties estimated to be worth approximately US$55,000,000. The remainder is principally invested in shares and securities abroad valued at about US$15,000,000.

5. The originating summons issued under section 56 of the Trustee Ordinance seeks an extension of the plaintiff's powers under the will whilst the originating summons under section 3(1)(c) of the Variation of Trusts Ordinance seeks the court's approval to an arrangement enlarging the powers of the plaintiff as trustee or other trustees for the time being of the issue on behalf of persons unborn. Both summonses seek orders appointing the second and third defendants to represent all persons unborn who might become beneficially entitled to an interest in the moiety. The defendants and all persons unborn have been separately represented in these proceedings

 

Section 56(1) of the Trustee Ordinance reads: -

"Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure, or other transaction, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, if any, as the court may think fit and may direct in what manner any money authorize to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.".

Previous orders have been made by the court under this section to enable the plaintiff to exercise powers of developing, leasing, selling and exchanging the leasehold properties which were not included in the will. Section 3(1)(c) of the Variation of Trusts Ordinance provides:-

6. As the three defendants are all sui juris they could consent to the proposed scheme without the necessity of the court's approval. However, as there is a remote possibility that further remaindermen not yet born would be entitled to share in the moiety of Ho Shai Lai upon his death, and several beneficiaries referred to in the will have now disappeared and cannot be traced the approval of the court to the scheme is required. The possibility that a beneficiary might charge or alienate his interest which is prohibited by Clause 26 of the will must also be taken into account although it is most unlikely.

7. The defendants have signified their assent to the proposals whilst Mr. Mills-Owens, Q.C. who represented all persons unborn has given an opinion that they are for their benefit.

8. The reason for the application and details of the proposals are set out in an affidavit of Mr. D.B. Minns the plaintiff's managing director and I quote from the relevant paragraphs:-

"5          Having regard to the future changes in the administration of and sovereignty over Hong Kong and to the Basic Law which will provide the future constitutional basis for Hong Kong and uncertainty as to how far trust and property law and rules of equity will be affected by the Basic Law, the Defendants have requested the Hong Kong Trustee to formulate an Arrangement enlarging the powers and discretions of the trustees of the Will and including appropriate powers to ensure that the trusts affecting the Trust Property will be administered in the future in accordance with the Testator's wishes and as nearly as possible in the way in which the trusts have hitherto been administered, notwithstanding any constitutional administrative or legal changes which will affect Hong Kong after sovereignty is assumed by the people's Republic of China. In consultation with the Hong Kong Trustee's legal advisers an Arrangement enlarging the trustee's management and administrative powers under the will has been framed with these objects as well as the interests of unborn persons in mind ...........

6.         The Arrangement will not alter nor is it intended to alter in any way the beneficial interests under the Will, its object being to confer powers and directions upon the trustee of the Will to administer and manage the Trust Property in a more affective way and to enable such trustee to alter the manner in which the Trust Property may be held to protect the interests of the Defendants and any unborn children of the said Ho Shai Lai.

7.         The Hong Kong Trustee has recently been advised that there is doubt as to whether the investment powers in Clause 19 of the Will authorise the acquisition of gold bullion as part of the Trust Property. At the request of the said Ho Shai Lai the Hong Kong Trustee has in recent years applied part of the corpus of the Trust Property in the purchase of gold bullion and the Defendants Robert Ho Hung. Ngai and Ho Min Kwan are aware of this fact and have raised no objection. To remove any doubts the Hong Kong Trustee now desires express power to permit it to hold, acquire, sell and exchange gold bullion. The Hong Kong Trustee may wish from time to time to vary the holding of gold bullion forming part of the Trust Property.

8.         The present liability to Kong Kong estate duty on the death of thesaid Ho Shai Lai is not clear because of the effective repeal of Section 6(1)1(b) of the Estate Duty Ordinance by Section 6(3) thereof and the uncertain application of Section 5 to life interests which cease on death. The Hong Kong Trustee considers that. in those circumstances powers should he included in the Arrangement enabling the trustee to take steps to mitigate estate duty or similar taxes whether in Hong Kong or elsewhere on the death of any of the beneficiaries so far as it is legally possible to do so.

9.         In brief outline, the result of the steps the Hong Kong Trustee proposes taking if the Arrangement is approved by this Honourable Court will be that the assets situate in Hong Kong will be held by the trustee of a unit trust to be established in Nauru such trustee being a corporation incorporated in Nauru. All the shares in such corporation will be held as part of the Trust Property by the trustees of the will. The units in the unit trust. Will be held as to all but two units by a company incorporated in Jersey, such two units being held as part of the Trust Property by the trustees of the Will. The shares in the Jersey company will also be held as part of the Trust Property by the trustees of the Will. The Jersey company, besides owning the majority of the units in the unit trust, will also own all the assets comprised in the Trust property which are situate outside Hong Kong......................................................................

A summary of the proposals to achieve these objects is then set out.

13.         I am informed by the Hong Kong Trustee's legal advisers and verily believe that the steps outlined in paragraph 9 above should have the effect of avoiding estate duty in Hong Kong on the death of the said Ho Shai Lai in respect of the Trust Property.

14.         As mentioned above it is proposed that the Nauru Corporation will acquire from the Hong Kong Trustee the Hong K one Leaseholds by way of exchange for full value for gold bullion and I am advised by the said legal advisers that this exchange should not attract stamp duty.

15.         As mentioned above, it is proposed that the Hong Kong Trustee will resign and will appoint Hongkong and Shanghai Bank Trustee (Jersey) Limited and two of its authorised officers resident in Jersey as new trustees of the Will. Hong kong and Shanghai Bank Trustee (Jersey) Limited has undertaken trustee business in Jersey for many years. I am conversant with the trust law of Jersey and the Trusts (Jersey) Law 1984 and I can confirm that the rights of the beneficiaries would be protected by the Jersey court and their rights to have the trusts of the Trust Property administered would be fully enforceable by the Jersey Court.".

Mr. Gerard Horton, a barrister-at-law in private practice in Hong Kong who is conversant with the laws of Nauru has confirmed that the draft deed establishing the private unit trust there will be effective.

17.         Having regard to the almost total absence in the Will of trustees powers of management and administration that are necessary in modern economic conditions I am advised that the Hong Kong Trustee should seek from this Honourable Court the enlarged powers set out in Clause 3 of the Arrangement ...............  Significant changes in investment practice have taken place since the date of the Testator's death and in modern wills and settlements, especially with respect to large trust funds, wide powers of investment, management and administration are common form. Wide powers and discretions are now required to enable trustees to protect and maintain the value of trust funds to keep pace with inflation and changes in foreign currency values and I can confirm from my own knowledge that such wide powers and discretions are a common feature in modern wills and deeds of settlement. There are clear advantages in trustees possessing wide flexibility to invest in any part of the world, and to have a wide choice of investment depending on economic and political conditions prevailing from time to time and to sell transpose and vary the assets of the trust. Moreover the necessity to avoid or reduce the impact of taxes and duties, to take appropriate measures in the face of changes in tax and duty laws and political changes and uncertainties, and generally to safeguard the assets of the trust make it desirable for trustees to have flexible powers of management and administration including powers to adjust the manner of holding the trust assets and to appoint foreign trustees and to move the forum for the administration of the trust abroad. The Arrangement contains appropriate general powers to enable the trustees properly to manage and administer the Trust Estate in current economic conditions to the best advantage of the beneficiaries and empowering the trustees of the Will to implement the procedures set out in paragraph 9 of this my Affidavit.".

Mr. Wright who appeared for the plaintiff cited several authorities which show that the court has power to extend the investment powers and other powers generally where in the management or administration of trust property it is in the opinion of the court expedient see In re Shipwrecked Fishermen and Mariners Royal Benevolent Society [1959] 1 Ch. 220 and Mason v. Farbrother [1983] 2 A111 E.R. 1078. Again there is ample authority for the court to exercise jurisdiction for the appointment of a foreign resident as a trustee of an English settlement see In re Seale's Marriage Settlement [1961] 1 Ch. 574, In re Windeatt's Will Trusts (1969) 1 W.L.R. 692 and In re Whitehead's Will Trusts (1971) 1 W.L.R. 833. Further it is settled law that there is nothing improper nor contrary to public policy in approving the variation of trusts for the purpose of avoiding or reducing tax liability see In re Weston's Settlement [1969] 1 Ch. 223 although the court refused to sanction the proposed arrangement in this case on its own facts. Each case to extend a trustee's powers is to be decided on its own facts and merits see British Museum Trustees v. A.G. (1984) 1 W.L.R. 418.

9. The great changes that have taken place in economic conditions and investment practice since the Will was executed and the deficiencies revealed by the lack of adequate powers in the Will provide cogent reasons for sanctioning the scheme of arrangement while the uncertainties caused by the political situation justify the fears that have been expressed for the future administration of the trust. The future legal system of Hong Kong is very much in doubt particularly as the Basic Law which is intended to provide the constitutional basis for Hong Kong is not likely to be completed for several years. The other advantages that have been canvassed before me such as the mitigation of estate duty and stamp duty are ancillary to the dominant reasons. The law of trusts which is now administered in Jersey will provide a safe haven under its present stable political climate while the construction of the will and the codicils will continue to be governed by Hong Kong law.

10. In my view the proposals that have been put forward by the plaintiff a company with a wealth of experience and standing are eminently sensible and pragmatic. I am therefore of the opinion that the scheme of arrangement is for the benefit of the beneficiaries and for those who are unborn. The orders sought by the plaintiff are therefore granted. May I finally express my thanks to Mr. Wright for his thorough and lucid exposition of the facts and the law which proved to be of invaluable assistance.