SHAON LAL HIRANAND AND OTHERS v. PADMA HARI HARILELA AND ANOTHER

CACV 403/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 403 OF 2005

(ON APPEAL FROM HCA 2401 OF 2004)

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JUDGMENT

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Hon. Yuen JA:

1.  This is an appeal by the Defendants from a decision of Deputy Judge Saunders (now Saunders J) who gave leave to the Plaintiffs to amend their statement of claim and then allowed their appeal from a master who had struck out the action.

Background

2.  The Plaintiffs are the children of Lal M. Hiranand (“the father”).  The 1^st Defendant is the father’s sister (“the aunt”) and the 2^nd Defendant is her husband (“the uncle”).

3.  Unfortunately all was not well in the Hiranand household.  There were marital differences between the father and his wife, the children’s mother.  There were also differences about the distribution of the estate of the children’s paternal grandfather, which resulted in proceedings in which the father and the children were rival claimants. 

4.  At some stage the father told the children that he would not pay for their wedding expenses, a threat which caused them a good deal of concern because in the Indian community, wedding celebrations are costly affairs.

5.  The children expressed their concerns to the aunt who then interceded on their behalf.  The result of the intercession was that on or about 3 June 1998 the father paid a sum of $6 million (“the Money”) to the aunt.  (For present purposes, it would appear that no distinction needs to be made between the position of the aunt and that of the uncle).   

6.  The payment was not accompanied by any written instructions to the aunt or uncle as to the application and disposal of the Money.  However it is accepted on all sides that the aunt and the uncle themselves were not intended to benefit personally from the payment.

The children’s argument

7.  On the children’s side, it is argued that the father had told them that he had given the Money to the aunt to hold it on trust for them but “with a view that the said sum should only be applied towards paying for the [children’s] wedding expenses as and when they should get married”.  It is argued that although the trust may have been expressed as a purpose, it was directly or indirectly for the benefit of individuals (namely the children) and therefore the trust did not fail for want of a beneficiary (Re Denley’s Trust Deed  [1969] 1 Ch 373).  It is argued that this gave each of the children a contingent beneficial interest in the Money, vesting on the occasion of his or her marriage (ignoring for the time being the question whether each of the children would be entitled to an equal 1/3 share of the sum, or a portion at the discretion of the aunt and uncle).  It is argued that this entitled the children to enforce the trust to the extent of demanding that the trustees reconstitute the trust, although it is now accepted that (as none of the children has married yet) they would only be entitled to terminate the trust jointly with the father as “remainderman”, there being a resulting trust in his favour if the Money is not exhausted (for instance, if the sum exceeds the children’s total wedding expenses, or if they die without marrying). 

The aunt and uncle’s argument

8.  On the side of the aunt and uncle, it is accepted that they held the Money as trustees, but they say on trust for the father not for the children.  They say that “[the father] did give [the aunt] a sum of HK$6 million to be used for the sole purpose of paying the expenses of the [children’s] weddings as and when they take place” and that “the object, purpose and intention of the entire arrangement was that pending application of the Money in accordance with his instructions, [the father] would remain the beneficial owner of the Money.  As such beneficial owner, [the father] had the full power to deal with the Money  in any way he wished, including in particular the power to revoke his instructions regarding how the money was to be applied”.  So they complied with the father’s instructions when in November 2000 (more than 2 years after the money was transferred to the aunt), the father wrote to them saying that he “revoke[d] any previous instruction or request that the abovementioned funds are to be used to pay the expenses of the marriages of my children” and gave instructions to them to deal with the money otherwise than for the children’s wedding expenses.

Way to determine issue

9.  The issue whether the aunt and uncle held the Money on trust for the children and the father (as the children argue), or only on trust for the father (as the aunt and uncle argue), falls to be determined by ascertaining the father’s intention (viewed objectively) when the trust was established.  Unfortunately as I have said, nothing was put in writing when that was done. 

10.  Normally when such a dispute is brought to a head, one would expect litigation to proceed with evidence from the father (and possibly the aunt and/or  uncle) about his intention, which would be tested against the backdrop of events at the time and subsequent declarations against his interest (there being in this case some meetings minuted by third parties).

CACV 74/2004

11.  However events took a different turn in this case.  The children and the aunt and uncle were involved in other proceedings (HCAP 15/2000) in which the children were ordered to pay costs to the aunt and uncle.  They failed to do so, and the aunt and uncle then issued statutory demands against them.  The children then sought to set aside the statutory demands, claiming that they have a counterclaim for the Money which the aunt and uncle held in trust for them.  Their allegation at the time was that as they comprised all the beneficiaries under the trust, they could put an end to the trust under the rule in Saunders v Vautier (1841) 4 Beav. 115 and so they could call upon the aunt and uncle to immediately pay the money to them.

12.  Deputy Judge Gill dismissed the children’s application to set aside the statutory demands and on appeal in CACV 74/2004, this court (Rogers V-P and Le  Pichon JA) dismissed the children’s appeal.    

HCA 2401/2004

13.  Two days before the hearing of CACV 74/2004 the children launched these proceedings in which they claimed (originally) an order that the aunt and uncle pay them the Money. 

14.  After the court held in CACV 74/2004 that it was not arguable that there was an outright or absolute gift of the Money to the children, the children’s claim in HCA 2401/2004 for an order that the aunt and uncle pay them the Money immediately became subject to issue estoppel.  The aunt and uncle applied to strike out the action and the master duly struck out the claim and dismissed the action.

15.  The children then sought leave to amend the statement of claim, deleting their claim for an order that the aunt and uncle actually pay them the Money immediately, and replacing that with a claim that the aunt and uncle as their trustees should be ordered to reconstitute the trust.  (As a matter of completeness I should add that the amended claim also sought other reliefs and pleaded other causes of action such as breach of contract.  However the causes of action and relief have not been subjected to discrete analysis and Mr Horace Wong SC counsel for the aunt and uncle was content to deal with the claim as a whole).    

16.  The judge held that in this amended form, the children had an arguable case that they had a contingent beneficial interest in the Money and as such a right to enforce the trust by calling for its reconstitution.

No issue estoppel

17.  Counsel for the aunt and uncle has argued that the children are estopped from raising the amended claim by reason of this court’s decision in the statutory demand appeal.  With respect I think that is taking the decision in that appeal too far.  As Le Pichon JA put it, at the statutory demand appeal the question which arose was “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” (para. 8).  For the purposes of setting aside the statutory demands, nothing less would have done for the children.  It was in the context of that necessarily more ambitious argument that the court found that the Denley principle was not of assistance (para. 8) and suggested that “if anything, the circumstances appear to bear the hallmarks of a Quistclose trust” (para. 14), which it held was “arguable” (para.15).

18.  If in the statutory demand appeal, the court had actually held that the aunt and uncle held the Money on a Quistclose trust and that the father was entitled to revoke it even at a time when the stated purpose was still capable of being carried out, then of course issue estoppel would apply.  But that was not the basis on which the court determined the statutory demand appeal.  As I read the judgment, the appeal was decided on the narrower ground that the children did not have the immediate right to call for the Money – which was the case they needed to establish to set aside the statutory demands (and which the court emphasized in paras. 6, 8 and 9 of the judgment).

Arguable case of contingent beneficial interest

19.  Mr Wong’s alternative argument was that the amended claim should be struck out as it was obviously unsustainable.   The judge held in the exercise of his discretion that the case was arguable and I agree. 

20.  Mr Wong argued that this was a Quistclose trust and therefore the children had no beneficial  interest whatsoever in the Money.  He relied on Lord Millett’s speech in Twinsectra Ltd v Yardley [2002] 2 AC 164 where he said (para. 100):

“I ...hold the Quistclose trust to be an entirely orthodox example of the kind of default trust known as a resulting trust.  The lender pays the money to the borrower by way of loan, but he does not part with the entire beneficial interest in the money, and in so far as he does not it is held on a resulting trust for the lender from the outset.  Contrary to the opinion of the Court of Appeal, it is the borrower who has a very limited use of the money, being obliged to apply it for the stated purpose or return it.  He has no beneficial interest in the money, which remains throughout in the lender subject only to the borrower’s power or duty to apply the money in accordance with the lender’s instructions.  When the purpose fails, the money is returnable to the lender, not under some new trust in his favour which only comes into being on the failure of the purpose, but because the resulting trust in his favour is no longer subject to any power on the part of the borrower to make use of the money.  Whether the borrower is obliged to apply the money for the stated purpose or merely at liberty to do so, and whether the lender can countermand the borrower’s mandate while it is still capable of being carried out, must depend on the circumstances of the particular case”.  (Emphasis added).             

21.  Quistclose trusts can no doubt arise in many situations but generally they arise in commercial settings to provide for impending situations, e.g. in Quistclose itself (Barclay’s Bank Ltd v Quistclose Investments Ltd [1970] AC 567), the lender lent money to a company in order that it may pay declared dividends and in Twinsectra,the lender paid money to a solicitor against his professional undertaking that the money would be released only for his client’s purchase of a specific property. 

22.  In the present case, in a family setting where a father was providing for his children (apparently as an act of conciliation after intercession from the aunt) and where no weddings were imminent, it is I think arguable that the father had transferred the Money to the trustees for the benefit of the children albeit to vest only at their marriage and for use for their wedding celebrations.  After all it would be the children who would be the “stars” of the events, and as such they would benefit directly or indirectly from the trust fund.  If the father had intended to retain the beneficial interest in the Money throughout, then one wonders what purpose was being served at all by his payment of the Money to a third party (the aunt and uncle), and why he communicated that to the children (as they have alleged), and why he left the Money with the aunt and uncle for such a long period of time divesting himself of its use. 

23.  Further even if there was a Quistclose trust, the purpose (the payment of wedding expenses) is still capable of being carried out, and as Lord Millett emphasized in the last sentence of the passage I have quoted, whether the payer can countermand the trustees’ mandate when it is still capable of being carried out depends on the circumstances of the particular case.  Legal analyses of Quistclose trusts are still being developed, and interesting as they are, it would not be appropriate to express any conclusions at this stage of these proceedings.

Order

24.  For the reasons set out above, I would dismiss the appeal with an order nisi that the costs of the appeal be paid by the Defendants to the Plaintiffs to be taxed if not agreed.  As a matter of completeness, I would indicate that should these proceedings carry on, one would expect the father to be joined as a party so that all parties would be before the court.

Hon. Lam J:

25.  I agree and have nothing to add.