LEONG FOOK HO AND OTHERS v. LEONG FOOK KONG

H E A D N O T E

The existence of a personal representative's power of appointment under section 37 of the Trustee Ordinance, Cap. 29, cannot oust the court's power of appointment under section 63 of the Ordinance. But the court will respect the personal representative's power of appointment to this extent. In general, where that power exists, the court will not intervene under its own power of appointment unless it has good reason seriously to doubt that the personal representative would exercise his power of appointment in conformity with his duty to the beneficiaries. (See p. 7 E-J.)

(2) In the present case, the judge of first instance refused to exercise the court's under section 63, taking the view that the court should wait and see whether (and if so how) the personal representative exercises his power under section 37. Taking the view that firm intervention at once was called for, the Court of Appeal reversed the judge's decision, and ordered the appointment of a judicial trustee. (See p.6 A-E.)

IN THE COURT OF APPEAL

1994, No. 112
(Civil)

_______________

_______________

J U D G M E N T

_______________

Bokhary, J.A. (giving the judgment of the Court):

INTRODUCTION

1. Madam Cheong Sow Ching made her last Will on February 16, 1967. She died in Hong Kong on December 9, 1968. By her Will, she had appointed her husband, Mr Leong Che Kwan, her executor and the trustee of the trusts of her Will. He obtained probate of her Will on July 17, 1970. From now on, we will refer to her as "the mother" and to him as "the father".

2. Between the making of her Will and her death, the mother had expressed certain wishes inconsistent with her Will.

3. In order to give effect to those wishes, the father and the six children then living entered into a Deed of Family Arrangement dated October 28, 1971. By that Deed, the father was appointed the trustee of the trusts of that Deed. As such trustee, he held the mother's residuary estate on trusts for the six children, subject to his own life interest in such estate.

4. The father became ill and was hospitalised in November 1984. On December 2, 1985, he made a Will. By that Will, the father did two things. First, he left all his property to one of the children, the defendant. Secondly and more significantly for present purposes, he appointed the defendant the executor of his Will.

5. On April 14, 1992, the father died in Hong Kong. And it is with the defendant's position as his executor that we are concerned.

6. Turning to the plaintiffs, there are four; three of the other children and the executrix of another of them.

7. Forming the bulk of the mother's residuary estate is a valuable property known as No. 85 Queen's Road Central (to which we will refer as "No. 85").

8. Following the father's death, various beneficiaries under the Deed of Family Arrangement, including some of the plaintiffs, gave the defendant their powers of attorney for him to collect the rent from No. 85. All of those powers of attorney have been revoked.

ANALYSIS

9. By their Re-amended Originating Summons, the plaintiffs sought six items of relief. Essentially, they were:-

(1) A declaration that No. 85 is trust property under the Deed of Family Arrangement.

(2) An order that a judicial trustee be appointed to hold No. 85 on trust in accordance with that Deed.

(3) An order vesting No. 85 in the trustee appointed by the court.

(4) An order that the defendant render an account of all income from No. 85 which came into his hands since the father's death, and that he pay all such income to such trustee to hold on such trusts.

(5) All necessary inquiries for the purpose of and incidental to such accounting and payment.

(6) Costs.

10. The Re-amended Originating Summons was heard by Barnett J on May 13 this year.

11. By the judgment which he handed down on the 23rd of that month, he made the declaration sought, which was not opposed. But he refused to grant the plaintiffs any other relief. And he awarded the defendant costs.

12. The 2nd, 3rd and 4th plaintiffs now appeal to this Court.

13. In the course of the argument, we raised with Mr Fung for the plaintiffs certain shortcomings in the form of the relief sought originally by their Re-amended Originating Summons and subsequently by their Notice of Appeal. And we suggested that he submit a draft order setting out precisely what relief he submits is appropriate. Realistically, Mr Fung at once recognized those shortcomings. And helpfully, he promptly submitted such a draft order.

14. Clearly, the judge had jurisdiction under section 63 of the Trustee Ordinance, Cap. 29, to appoint a judicial trustee to hold No. 85 on trust in accordance with the Deed of Family Arrangement. He declined to make such an appointment because he took the view: that the defendant had power under section 37 of that Ordinance to appoint a trustee to so hold No. 85; that he had not shown himself unsuitable to exercise that power; and that the court should wait and see whether (and if so how) he exercises it. As to that last point, the judge said:-

"If he fails to make an appointment within a reasonable time, or appoints a person who is plainly unsuitable or who shows himself to be unsuitable from the manner in which he discharges his trusteeship, it will be open to the plaintiffs to apply to this court for the removal of that trustee and the appointment of a suitable person in his stead."

15. Of course, that approach was adopted by the judge for the very best of motives. And we can understand his approach. But we are unable to uphold it. For, in all the circumstances, it appears to us highly probable that only firm intervention by the court at once can save these parties from further costly forensic warfare - both guerilla and set piece - which will in the bitter end demand judicial intervention anyway.

16. Of course, the power of the personal representative (here the defendant) of the last surviving trustee (here the father) to appoint a trustee in the deceased's trustee's place is derived from the will itself, so that a grant of probate merely confirms that power of appointment. But only such a grant can provide proof of the existence of such power. The defendant has not obtained probate of the father's Will. And the plaintiffs are contesting that Will. So unless and until the court steps in under section 63, things will remain in a state of limbo unless the defendant starts a probate action, and that threatens to be a long drawn out affair. Plainly, a "wait and see" approach would not meet the needs of the present case.

17. That is not the only respect in which we feel constrained respectfully to part company with the judge. He took the view that everything turned on whether the personal representative (here the defendant) had shown himself unsuitable to exercise his power under section 37. In truth, such suitability is only one factor which goes into the ultimate question, which is whether the court should exercise its power under section 63.

18. This must be remembered. A personal representative's power under section 37 is one to be exercised in the interests of the beneficiaries. He has a duty to them under that section. And the court also has its duty. For the court's power under section 63, like all judicial powers, carries an overriding duty to do practical justice under the relevant legal principles as they apply in the circumstances which emerge.

19. The existence of a personal representative's power of appointment under section 37 cannot oust the court's power of appointment under section 63. Of course, the court will respect the personal representative's power of appointment to this extent. In general, where that power exists, the court will not intervene under its own power of appointment unless it has good reason seriously to doubt that the personal representative would exercise his power of appointment in conformity with his duty to the beneficiaries.

20. In our view, the material before the judge disclosed good reason seriously to doubt that the defendant would do that. And what has happened since the judge handed down his judgment has done nothing to decrease such doubt.

21. We do not wish to say more than necessary. What we consider it right to say is this. On the whole of the material before the judge, there is at the very least real cause for concern that the defendant has: (i) failed properly to render the account due from him in respect of No. 85 to the beneficiaries under the Deed of Family Arrangement; (ii) mixed up trust money derived from No. 85 with his own money; and (iii) withheld from those beneficiaries material information about No. 85 which they were entitled to expect from him.

22. As to what has happened since the judge handed down his judgment, this is the position. By a letter dated June 24 this year, the plaintiffs' solicitors wrote to the defendant's solicitors seeking his undertaking not to appoint himself trustee of No. 85 pending an appeal to this Court. On the 29th of that month, without prior notice to them, by an appointment under his hand and seal, he calmly so appointed himself.

RESULT

23. We allow this appeal. And we make an order in terms of the draft order submitted by Mr Fung, subject to: an addition to paragraph 5 by way of clarification; a change of substance to paragraph 7; and leaving costs to be dealt with after we have heard counsel thereon.

24. Together with the additions to which we just referred, which we put in italics, the draft order submitted by Mr Fung reads as follows:-

"1. The appeal be allowed and the Judgment of the Honourable Mr Justice Barnett dated May 23, 1994, be set aside save for the declaration that the property registered in the Land Registry as the Remaining Portion of Inland Lot No. 1622 and known as No. 85 Queen's Road Central, Hong Kong ("the Property") is trust property subject to a trust in favour of the plaintiffs, the defendant and Leong Pek Har alias Leong Teck Yong under clause 2 of a Deed of Family Arrangement dated October 28, 1971, and made between one Leong Che Kwan (now deceased), the plaintiffs, the defendant and the said Leong Pek Har alias Leong Teck Yong.

2. Billy Ma Wah Yan of Messrs Hobson & Ma, Solicitors, be appointed as Judicial Trustee pursuant to section 63 of the Trustee Ordinance, Cap. 29, to hold the Property and all the income and proceeds therefrom, after deduction of all necessary or reasonable expenses, disbursements and costs, on trust for the following beneficiaries and in the manner set out below:-

(i) As to 2/10th shares thereof for the estate of Leong Hoi alias Leong Fook Hoi, deceased;

(ii) as to 2/10th shares thereof for Leong Fook Kong;

(iii) as to 2/10th shares thereof for Leong Fook Ho alias Leong Fook Haw;

(iv) as to 2/10th shares thereof for Leong Peck Lan;

(v) as to 1/10th share thereof for Leong Pek Har alias Leong Teck Yong; and

(vi) as to the remaining 1/10th share thereof for Leong Peck Wan.

Such appointment of Billy Ma Wah Yan as Judicial Trustee is in substitution of the defendant who appointed himself as the trustee of the Property by a Deed of Appointment dated June 29, 1994, and executed by himself.

3. Billy Ma Wah Yan be at liberty to make distribution of any surplus income or proceeds in his hands to the beneficiaries under the trust from time to time as he may think fit.

4. The Property do vest in Billy Ma Wah Yan in his capacity as Judicial Trustee.

5. The defendant do hand over all the title deeds and other documents relating to the Property in his possession custody and control to Bill Ma Wah Yan within 14 days from the date of this Order.

6. Billy Ma Wah Yan be at liberty to charge remuneration for his work as Judicial Trustee of the trust as follows:-

(i) Acceptance fee at HK$150,000-;

(ii) Rental Collection Fee at the rate of 5% of the gross monthly rental from the Property;

(iii) In the event of a sale of the Property, a management fee of 0.5% of the net proceeds of sale of the Property which covers all work (other than legal work) relating to the sale of the Property, including but not limited to negotiation with all potential purchasers in order to achieve the best available offer or deal with the sale in accordance with the instructions of the beneficiaries or any order of the Court.

No withdrawal fee or distribution fee should be charged by Billy Ma Wah Yan.

7. Security by Billy Ma Wah Yan for acting as Judicial Trustee is dispensed with save in so far as the sale of the Property or any part thereof is concerned. It is directed that Billy Ma Wah Yan as Judicial Trustee seek the direction of the High Court as to security before involving himself in any such sale.

8. Billy Ma Wah Yan as Judicial Trustee be at liberty to employ agents, advisers and legal advisers (including his own firm Messrs Hobson & Ma) to act for himself or the trust as may be necessary and the costs of employing such agents, advisers and legal advisers shall be deducted and payable from the income or proceeds from the Property.

9. The defendant do serve on Messrs Susan Liang & Co., the solicitors for the appellants, within 28 days from the date of this Order, an account of all income from and expenditure on the Property since April 14, 1992, such account to be verified by an affirmation of the defendant.

10. Billy Ma Wah Yan and all beneficiaries under the trust be at liberty to apply to the High Court for further directions, in particular, in relation to the administration of the trust and the account to be rendered by the defendant."

25. That is the order which we allow this appeal to make.

26. We thank counsel on both sides for their assistance, and now invite them to address us on costs.

27. [After hearing argument on costs, it was ordered that costs here and below be to the appellant to be taxed on the common fund basis.]