CHINACHEM CHARITABLE FOUNDATION LTD v. THE SECRETARY FOR JUSTICE & OTHERS

Press Summary (English)

Press Summary (Chinese)

FACV 9/2014

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 9 OF 2014 (CIVIL)

(ON APPEAL FROM CACV NO. 44 OF 2013)

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AND

AND

AND

BETWEEN

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JUDGMENT
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Chief Justice Ma:

1. I agree with the judgment of Lord Walker of Gestingthorpe NPJ and with the orders contained in para 79 below.

Mr Justice Ribeiro PJ:

2. I agree with the judgment of Lord Walker of Gestingthorpe NPJ.

Mr Justice Fok PJ:

3. I agree with the judgment of Lord Walker of Gestingthorpe NPJ.

Mr Justice Chan NPJ:

4. I agree with the judgment of Lord Walker of Gestingthorpe NPJ.

Lord Walker of Gestingthorpe NPJ:

Introduction

5. This appeal is the last stage, or almost the last stage, in protracted and contentious litigation concerned with the will of Nina Wang (who is referred to in this judgment, as she was in the judgments below, as Nina).  At her death in 2007 Nina owned the Chinachem Group of companies, valued in 2012 at over HK$ 82 billion.  She was reputed to be the richest woman in Asia.  She left a will written in the Chinese language and dated 28 July 2002.  It was what is sometimes called a homemade will - that is, made without professional advice from a lawyer.  She was assisted in making it by her sister, Kung Yan Sum (“Mrs Tong”).  The will named Chinachem Charitable Foundation Limited (“the Foundation”) as the principal beneficiary, but difficult and technical legal issues have arisen as to the meaning and legal effect of her will.

6. These questions of construction were not however raised in legal proceedings until 2012, when the present proceedings were commenced by an originating summons issued by the Secretary for Justice.  One of the functions of the Secretary for Justice is to protect the interests of charities.  Charities are a matter of general public concern because their essential characteristic is that they are for the public benefit, or the common good.

7. This delay of five years was unavoidable because there were contentious probate proceedings raising the prior issue of whether Nina’s 2002 will was indeed her last will.  In those proceedings (HCAP 8/2007), commenced soon after Nina’s death, it was contended that her 2002 will had been superseded by another will allegedly made by her in 2006.  On 2 February 2010 Lam J (as he then was) pronounced in solemn form for the 2002 will. The Court of Appeal dismissed an appeal on 14 February 2011 and on 24 October 2011 this Court refused leave for a further appeal.

8. Nina’s will did not contain any appointment of executors.  Homemade wills seldom do.  On 26 March 2012 Joseph Lo Kin Ching and Derek Lai Kar Yan were appointed as interim administrators of her estate.  They were joined as the first defendant to the originating summons issued by the Secretary for Justice.  The summons was amended twice following changes in the administrators and the present administrators, Chan Wai Tong Christopher, Wong Tak Wai and Jong Yat Kit are the second respondent to this appeal.  The administrators have adopted a neutral position throughout the litigation.

9. The Foundation was the second defendant to the summons, and is the appellant in this Court, the Secretary for Justice being the first respondent to the appeal.  The third defendant to the summons, and the third respondent to the appeal, is Nina’s very elderly mother, who would be entitled to any part of Nina’s estate as to which she died intestate.  Nina’s mother entered an appearance in the proceedings but has taken no further part in them.

10. The agreed English translation of Nina’s will is set out in full in paragraph 25 below.  After introductory words it contained four clauses.  Clause 1 contained a gift of Nina’s property to the Foundation.  Clause 2 contained provisions about the appointment of a managing organisation to supervise the Foundation, and about the funding of “a Chinese prize of worldwide significance similar to that of the Nobel Prize”.  Clause 3 related to the Foundation’s management of the Chinachem Group.  Clause 4 contained provisions about the Foundation providing support for members of the family of Nina’s late husband Teddy Wang (“Teddy”), and staff of the Chinachem Group and their children.

11. The principal issue in the proceedings, raised by paragraph 1 of the originating summons, is whether Nina’s net residuary estate is held by her administrators

“in trust for –

(a) the Foundation absolutely, or

(b) the Foundation on terms that the Foundation holds the same in trust to give effect to all (or some) of the directions in clauses 2, 3 and 4 of the Will; or

(c) some other person or persons and, if so, whom.”

The third possibility – which might have been spelled out as devolution on intestacy – has not been adopted by any of the parties.  Nina’s mother has, as already mentioned, taken no active part in the proceedings.  It seems that the question was included in the originating summons because clause 4 appears to contain some sort of beneficial disposition (it is appropriate to put it in general terms in this introduction) of an unquantified part of the estate for purposes that are not charitable in the legal sense. It is settled law that the purposes of a trust must be wholly charitable if it is to be a valid charitable trust, with the well-known case of the will of Caleb Diplock (see Chichester Diocesan Fund v Simpson [1944] AC 341) as a stern warning of the possible consequences of infringing this principle.  The Secretary for Justice and the Foundation are united in wishing to uphold the validity of the will, and their counsel’s submissions on clause 4 have been carefully crafted so as, one way or another, to avoid any possible intestacy.

12. What divides the Secretary for Justice and the Foundation is whether the question in paragraph 1 of the originating summons is to be answered in terms of subparagraph (a) (“for the Foundation absolutely”) or subparagraph (b) (under which the Foundation would hold as a trustee and be obliged to give effect to all or some of the directions in clauses 2, 3 and 4).  Most non-lawyers, and indeed many lawyers, may find it hard to understand the intensity of the arguments on this abstract and technical issue.  It is common ground that the Foundation is a company with exclusively charitable objects, recognised since its incorporation in 1988 as exempt from tax under section 88 of the Inland Revenue Ordinance, Cap 112.  Its charitable objects are not narrowly restricted, but are expressed in wide terms.  The whole of its capital and income, after expenses, must be used for its charitable objects, and in the event of winding-up its surplus assets would be devoted to charity.  Whether these obligations arise within the framework of company law, and under the Foundation’s memorandum of association, or within the framework of trust law, with Nina’s will as the trust instrument, may seem little more than a technicality.  But the issue has been argued at length in elaborate and erudite written and oral submissions, first before Poon J, then in the Court of Appeal, and finally in this Court.

13. In his judgment handed down on 22 February 2013, after a three-day hearing, Poon J answered the main question in terms of subparagraph (b), and stated that the other questions that had been argued did not arise.  The general effect of his judgment was that the Foundation would hold as a trustee and be obliged to give effect to clauses 2, 3 and 4 of the will so far as possible.  The Foundation appealed to the Court of Appeal (Lam VP, Cheung and Kwan JJA), and the Court handed down judgment on 11 April 2014 after a three-day hearing.  The Court dismissed the appeal in a judgment of the Court given by the Vice-President.  The judgment concluded (paragraph 130) that

“…the Judge was correct in coming to the conclusion that the bequest to the Foundation under the Will is to settle the estate of Nina to it as a trustee holding it on a charitable trust under Clause 2 with discretionary power to make distribution during the perpetuity period under the power in Clause 4”.

14. The Court of Appeal directed that the originating summons should be restored at first instance for further directions.  The further appeal to this Court has postponed that step being taken, but the restoration of the case at first instance may be necessary in order to give full effect to this Court’s judgment.  That is why the proceedings before this Court may not be the very last stage in the litigation.  It is to be hoped that any further proceedings will be relatively brief and non-contentious.

The facts

15. The facts are not in dispute, and are fully and clearly set out in the judgment of Poon J.  The summary that follows is largely derived from his judgment.

16. Nina and Teddy both came from Shanghai, where Teddy’s father had started the Chinachem business.  They married in 1955, when Teddy was 20 and Nina was 18.  In the following years they worked hard to expand the business of the Chinachem Group, which became one of the largest property developers in Hong Kong.  In 2012 it employed about 3,300 people and had an annual operating profit of about HK$ 2.48 billion.  Nina was a philanthropist who made donations to many charities in Hong Kong, mainland China and elsewhere.  In 1988 she and Teddy incorporated the Foundation as a company limited by guarantee.  They were the first directors.

17. The main objects of the Foundation are set out in clause 3(1) and (2) of its memorandum:

“(1) To organise, promote, participate and carry out the following activities :-

(a) vocational, scientific and technical education programs.

(b) provision of books, equipment and student facilities to schools, colleges and universities.

(c) social survey and research projects.

(d) rural and community development and cultural programs.

(e) religious activities for the worship of God.

(f) relief of human sufferings of the poor, the aged, the disabled, the sick, weaklings, children or any other persons in need.

(g) relief to victims of fire, flood, famine, war, pestilence or other calamities.

(2) To grant donations, scholarships, financial or material assistance, including payment of passages, travel, living allowances and other incidental expenses and to subscribe funds to individuals and institutions for the furtherance of activities which appear to the Foundation to be of value to the community, or to attain any of the Foundation’s objects.”

18. In 2004 clause 3 was altered in two respects. In clause 3 (1) (b) the words “non-profit making” were added before “schools”.  In clause 3(3) the words “In furtherance of the objects, but not otherwise the Foundation may exercise any of the following powers:-” were inserted at the beginning, and the original subclauses (3) to (17) were renumbered as paragraphs 1 to 15 of subclause (3), so that (for instance) clause 3(3) became clause 3(3.1) and clause 3(17) became clause 3(3.15).  Poon J was correct in observing that these alterations did not change the substance of the objects. They clarified what had probably been the meaning of the original text.

19. Clause 5 of the memorandum provides that the Foundation’s income and property are to be applied solely in the promotion of its objects and that no income or property is to be distributed to its members.  Clause 8 provides that on the winding up of the Foundation any surplus assets are not to be distributed to the members but are to be transferred to a charitable institution or institutions, to be determined by the members or in default of such determination by a Judge of the High Court.

20. Under article 36 of the Foundation’s articles of association, its business is to be managed by a board of governors.  The first governors were Nina and her husband.  On 2 April 1990 two employees of group companies were appointed as additional governors.  On 10 April 1990 Teddy was kidnapped and was never seen again by his family or friends.  On 22 September 1999 the High Court made an order that he was to be presumed to be dead.  In the meantime one of the employee-governors had resigned and two other employees had been appointed.  There was no further change in the board until 1 April 2007 (two days before Nina’s death) when Nina’s brother Kung Yan Sum (“Dr Kung”) and her sisters Gong Zhong Xin and Mrs Tong were appointed as governors, and one of the employee-governors resigned.

21. Since Nina’s death on 3 April 2007 there has been no further change in the board of governors.  On 2 November 2007 the Foundation’s articles were amended (by articles 49(a) and (b)) to confer on the board power to invite persons to become patron and vice-patrons of the Foundation, and to set up a supervisory board to advise the board of governors on matters concerning the Foundation.

22. During Nina’s life, especially after her husband’s disappearance and presumed death, she was the moving force behind the Foundation.  The written evidence of Dr Kung was that she would decide what donations were to be made, and Chan Kam Por, one of the employee-governors, would arrange for money to be distributed to the Foundation by one of the group companies, so enabling the donations to be made. Dr Kung’s evidence also shows that donations were made to a wide variety of organisations and causes, most of which were clearly charitable.  But there were some gifts to political groups which could not be regarded as charities.  That is however past history and is not an issue in this appeal.

23. Nina’s sister, Mrs Tong, gave written evidence as to the circumstances in which Nina made her will, with Mrs Tong’s assistance, during July 2002.  There is no evidence that Nina was not then in good health. She was diagnosed with cancer early in 2004 but did not become gravely ill until 2006.  Mrs Tong’s evidence is admissible under section 23B of the Wills Ordinance, Cap 30, to assist in the interpretation of meaningless or ambiguous language in Nina’s will.  Paragraphs 4 to 10 of Mrs Tong’s affirmation dated 3 August 2012 are set out in full in paragraph 13 of Poon J’s judgment, which may be referred to for amplification of the summary that follows.

24. These were the salient points of Mrs Tong’s evidence.

(a) Nina telephoned Mrs Tong and asked for help with the preparation of her will.  Mrs Tong was surprised that she, rather than a lawyer, should be asked to help. She thought it was probably because she had in the past often helped Nina with documents to be written in Chinese.

(b) Mrs Tong was not surprised that Nina wished to leave her estate to charity, since she had expressed this wish several times before. Nina wished to leave her estate to the Foundation, and said that she hoped it could develop its charitable activities “to acquire worldwide influence similar to that of the Nobel prize.”

(c) Mrs Tong asked Nina “how to achieve internationality”.  Nina suggested that the Premier of the People’s Republic of China and the Chief Executive of Hong Kong should be involved in the supervision of the Foundation.  Mrs Tong then suggested the Secretary-General of the United Nations.  Nina “said laughingly on the phone that she hoped it could be achieved.”

(d) Nina hoped that the Foundation would exercise its control over the management of the Chinachem group.  She was aware that the Foundation would be replacing her in the control of the group as the Foundation’s “business empire.”

(e) In a later telephone call Nina referred to the need to provide for her late husband’s parents (Wang Din Shin and Madam Run Yuk Chun) and for his younger sister Wang Teh Hwa (referred to in the affirmation as Ah Hwa).  Nina also mentioned her wish to provide support for other siblings of Wang Teh Hwa if they needed it. Nina also mentioned providing care and assistance for staff of Chinachem Group companies and their children.

(f) Mrs Tong drafted a will.  It was amended on a few points which are agreed to be immaterial.  Nina executed it on 28 July 2002, and showed it to Mrs Tong a few days later.

25. The Chinese text of Nina’s will is set out in paragraph 15 of Poon J’s judgment.  The certified English translation is as follows (with the insertion in square brackets of further numbering used by counsel in the course of argument for the sake of clarity):

“ I, Kung Yu Sum, solemnly make my will as follows:

1. ‘Chinachem Charitable Foundation Limited’ was set up by me and my husband, Wang Teh Huei, jointly. After I pass away, all of my properties shall be bequeathed to ‘Chinachem Charitable Foundation Limited’.

2. [1] After I pass away, I wish to entrust ‘Chinachem Charitable Foundation Limited’ to the supervision of a managing organization jointly formed by the Secretary General of the United Nations; the Premier of the PRC Government as well as the Chief Executive of the Hong Kong Special Administrative Region. [2] Under its supervision,

[i] not only must ‘Chinachem Charitable Foundation Limited’ continue all the projects which it has undertaken since its establishment to enable their developments continuously, but

[ii] it must also continue to achieve the purpose of setting up a fund and a Chinese prize of worldwide significance similar to that of the Nobel Prize.

3. The Board of Directors of ‘Chinachem Charitable Foundation Limited’ shall practically manage the company’s businesses and capital under the supervision of the abovementioned supervising organization, to safeguard and expand the ‘Chinachem Group’ as well as all the business which we have set up, to ensure the continuous growth of the business empire of the ‘Chinachem Charitable Foundation Limited’ and with part of its profits, to continuously develop the charitable business till eternity.

4. ‘Chinachem Charitable Foundation Limited’ must continue to achieve:

(1) provide for the seniors of the Wang’s family, Mr Wang Din Shin and Madam Run Yuk Chun, which provision should be in accordance with their wishes and be satisfactory to them.

(2) support Wang Teh Hwa’s living and medical expenses, to look after her children as well as their needs of advanced studies. As regards the other siblings of my husband, Wang Teh Huei, if necessary, the company also has the obligation to look after them. If their children pursue university or advanced studies, the company should be responsible (for the costs).

(3) ‘Chinachem Charitable Foundation Limited’ has the obligation to provide care and assistance to the staff of the ‘Chinachem Group’ and their children, to encourage them to continue studying and keep on enhancing their own value, to encourage them to work hard together towards achieving the goal of bringing benefit to mankind.”

26. The “seniors of the Wang’s family” mentioned in clause 4(1) of the will both died in 2010.  As to clause 4(2), Teddy had four siblings and five nephews and nieces, none of whom was supported by the Foundation during Nina’s lifetime.  As to clause 4(3), during Nina’s lifetime neither the Chinachem Group nor the Foundation had any scheme for assistance of group staff and their children.  Since Nina’s death the Chinachem Group has established such a scheme for its staff, and has been consulting about an educational scheme for the children of its staff. As at 2012 it had spent about HK$3.45m on the staff scheme.

The construction of wills

27. A will has two legal characteristics which have in the past tended towards the construction (that is, interpretation) of wills being regarded as different from the construction of other legal documents.  First, it is a wholly unilateral instrument.  It embodies, not a bilateral or multilateral commercial arrangement, but the will-maker’s personal wishes and directions as to the disposition of his or her estate.  Second, it is an ambulatory instrument in the sense that it has no effect until the maker’s death, which may not occur for many years.

28. These two features are still very relevant to the construction of wills.  But the modern tendency is for the court, while recognising the points of difference between wills and commercial documents, to place still more emphasis on principles that are applicable to the construction of all legal documents.  This tendency is referred to in the judgments below (in particular,  Poon J at paragraphs 33 and 34, and the Court of Appeal at paragraph 34) but they did not have the advantage of the important recent judgment delivered by Lord Neuberger in the Supreme Court of the United Kingdom in Marley v Rawlings [2015] AC 129.  That will was concerned with an extraordinary situation in which a husband and wife, each of whom wished to make a new will, each contrived to sign the will prepared for the other, without either of them, or the witnesses, or the solicitor who prepared the wills, noticing the mistake.

29. That is not of course the position in this case, but Lord Neuberger’s general observations on the construction of wills call for citation at length:

“17 Until relatively recently, there were no statutory provisions relating to the proper approach to the interpretation of wills. The interpretation of wills was a matter for the courts, who, as is so often the way, tended (at least until very recently) to approach the issue detached from, and potentially differently from the approach adopted to the interpretation of other documents.

18 During the past 40 years, the House of Lords and Supreme Court have laid down the correct approach to the interpretation, or construction, of commercial contracts in a number of cases starting with Prenn v Simmonds [1971] 1 WLR 1381 and culminating in Rainy Sky SA v Kookmin Bank [2011] 1 WLR 2900 .

19 When interpreting a contract, the court is concerned to find the intention of the party or parties, and it does this by identifying the meaning of the relevant words, (a) in the light of (i) the natural and ordinary meaning of those words, (ii) the overall purpose of the document, (iii) any other provisions of the document, (iv) the facts known or assumed by the parties at the time that the document was executed, and (v) common sense, but (b) ignoring subjective evidence of any party's intentions. In this connection, see Prenn, at pp 1384–1386 and Reardon Smith Line Ltd v Yngvar Hansen-Tangen (trading as H E Hansen-Tangen) [1976] 1 WLR 989, per Lord Wilberforce, Bank of Credit and Commerce International SA v Ali [2002] 1 AC 251, para 8, per Lord Bingham of Cornhill, and the survey of more recent authorities in Rainy Sky, per Lord Clarke of Stone-cum-Ebony JSC, at paras 21–30.

20 When it comes to interpreting wills, it seems to me that the approach should be the same. Whether the document in question is a commercial contract or a will, the aim is to identify the intention of the party or parties to the document by interpreting the words used in their documentary, factual and commercial context. As Lord Hoffmann said in Kirin-Amgen Inc v Hoechst Marion Roussel Ltd [2005] 1 All ER 667, para 64, “No one has ever made an acontextual statement. There is always some context to any utterance, however meagre.” To the same effect, Sir Thomas Bingham MR said in Arbuthnott v Fagan [1995] CLC 1396, 1400 that “courts will never construe words in a vacuum”.

21 Of course, a contract is agreed between a number of parties, whereas a will is made by a single party. However, that distinction is an unconvincing reason for adopting a different approach in principle to interpretation of wills: it is merely one of the contextual circumstances which has to be borne in mind when interpreting the document concerned. Thus, the court takes the same approach to interpretation of unilateral notices as it takes to interpretation of contracts: see Mannai Investment Co Ltd v Eagle Star Life Assurance Co Ltd [1997] AC 749, per Lord Steyn at 770C–771D, and Lord Hoffmann at 779H–780F.

22 Another example of a unilateral document which is interpreted in the same way as a contract is a patent—see the approach adopted by Lord Diplock in Catnic Components Ltd v Hill & Smith Ltd [1982] RPC 183, 243, cited with approval, expanded, and applied in Kirin-Amgen at paras 27–32 by Lord Hoffmann. A notice and a patent are both documents intended by its originator to convey information, and so, too, is a will.

23 In my view, at least subject to any statutory provision to the contrary, the approach to the interpretation of contracts as set out in the cases discussed in para 19 above is therefore just as appropriate for wills as it is for other unilateral documents. This may well not be a particularly revolutionary conclusion in the light of the currently understood approach to the interpretation of wills (see eg Theobald on Wills, 17th ed (2010), chapter 15 and the recent supplement supports such an approach as indicated in Royal Society for the Prevention of Cruelty to Animals v Sharp [2011] 1 WLR 980, paras 22, 31). Indeed, the well known suggestion of James LJ in Boyes v Cook (1880) 14 Ch D 53, 56, that, when interpreting a will, the court should “place [itself] in [the testator's] arm-chair”, is consistent with the approach of interpretation by reference to the factual context.

24 However, there is now a highly relevant statutory provision relating to the interpretation of wills, namely section 21 of the 1982 Act (“section 21”). Section 21 is headed “Interpretation of wills—general rules as to evidence”, and is in the following terms:

‘(1) This section applies to a will— (a) in so far as any part of it is meaningless; (b) in so far as the language used in any part of it is ambiguous on the face of it; (c) in so far as evidence, other than evidence of the testator's intention, shows that the language used in any part of it is ambiguous in the light of surrounding circumstances.

‘(2) In so far as this section applies to a will extrinsic evidence, including evidence of the testator's intention, may be admitted to assist in its interpretation.”

Section 21 of the English Administration of Justice Act 1982 was the pattern for section 23B of the Wills Ordinance, Cap 30.  Indeed, they are in identical terms.

30. This is a valuable statement of the modern law but it does, with respect, pass over one of the characteristics by which a will or codicil is still in a class of its own – that is, its ambulatory character. A will speaks from the will-maker’s death.  Although the “arm-chair principle” looks to context as at the time that the will is made, any general description of a class of property or a class of beneficiaries will (in the absence of a special context) look to the position as it is at the will-maker’s death.  This rule is statutory as regards property (section 19 of the Wills Ordinance, Cap 30) but is equally clear as regards a class of beneficiaries.  If a married man makes a testamentary gift “to my children in equal shares” the gift is to a class ascertained as at his death, so as to include any later-born children and exclude any children who die in their father’s lifetime.  This point calls for brief mention as the judgments below may possibly have gone a little too far in their enthusiasm for the “arm-chair principle” (which is limited to facts known at the time the will is made).

31. Two all-important general principles of construction are that words must be read and understood in their context, and that the will must be read as a whole.  In Charter Reinsurance Co Ltd v Fagan [1997] AC 313, 384, Lord Mustill neatly combined the two principles in a single phrase, referring to the need to read words “in the landscape of the instrument as a whole”.  But how, in practical terms, is the court to go about its task of reading the will as a whole?  Some helpful guidance was given, again by Lord Neuberger, in his dissenting judgment (upheld by the Supreme Court) in Re Sigma Finance Corporation.  In the Supreme Court Lord Mance said ([2010] 1 AER 571, paragraph 12),

“Lord Neuberger was right to observe that the resolution of an issue of interpretation in a case like the present is an iterative process, involving ‘checking each of the rival meanings against the other provisions of the document and investigating its commercial consequences’.”

This applies to a will also, if “commercial” is read as “practical”.  The iterative process is often laborious.  It may require the court to go forwards and backwards painstakingly between the various words and phrases, occurring in different parts of the document, which give rise to the problem.  That is the process that must be followed in construing Nina’s will.

32. In undertaking that task the court may, and should, take account of the fact that the will was not drafted, or even considered, by a lawyer.  Lord Sterndale MR said in Re Taylor [1923] 1 Ch 99, 105,

“When a will is obviously not drawn by a skilled lawyer, as is the case here, the words used may be looked at less strictly than is the case where it is so drawn”.

That approach can be traced back to Lord Chancellor Parker in Forth v Chapman (1719) 1 P Wm 663,666, who said that a testator who is “inops consilii” (that is, deprived of advice) may be supposed to use words in a common, and not in a legal sense.

33. Professionally drafted wills usually follow the same general pattern.  First comes the appointment of executors, sometimes accompanied by directions as to the funeral.  Then come minor gifts, usually in the form of specific and pecuniary legacies.  There may also be gifts of annuities, and specific gifts of immoveable property.  Then come the constitution and disposition of the residuary estate, accompanied by more or less elaborate administrative powers and provisions if all or part of the residuary estate is to be held in trust.  The typical home-made will, by contrast, tends to begin with what is most important to the will-maker.  Then other, perhaps less important, matters occur to the will-maker and are dealt with, not always in a logical order.  This sort of process can easily lead to ambiguities and apparent contradictions.

34. It is appropriate to refer at this point to the principle variously known as the rule in Lassence v Tierney (1849) 1 Mac & G 551 (in which it was held that the rule did not apply, on the language of that particular will) or the rule in Hancock v Watson [1902] AC 14 (in which the rule was not only stated, but also applied).  It was stated in the latter case by Lord Davey (at p22) in a passage cited in paragraph 26 of the Court of Appeal’s judgment:

“It is settled law that if you find an absolute gift to a legatee in the first instance, and trusts are engrafted or imposed on that absolute interest which fail, either from lapse or invalidity or any other reason, then the absolute gift takes effect so far as the trusts have failed to the exclusion of the residuary legatee or next-of-kin as the case may be”.

35. The Court of Appeal went on to say that the rule in Hancock v Watson is not a rule of construction.  That is, with great respect, a surprising view.  Rules, or principles, of construction are not all of a kind.  The rule that a will must be construed as a whole is obviously a different sort of rule from that which lays down the normal legal meaning of the word “money” (see Perrin v Morgan [1943] AC 399, especially Lord Romer at pp 420-421) and terminology can vary.  But numerous authorities, and the leading textbooks, describe the rule in Hancock v Watson as a rule or principle of construction: see for instance Fyfe v Irwin [1939] 2 All E R 271 at pp 273, 277 and 281.  Its scope is not restricted to subsequent limitations which are struck down by the rule against perpetuities or are void for uncertainty; as the citation from Lord Davey makes clear, it also covers failure by lapse or any other reason.  In all those situations it might have been argued that even though the subsequent limitation has failed, its presence in the will (and the need to read the will as a whole) shows that the initial absolute gift cannot be taken at face value, as it were (that line of thought is reflected in paragraph 32 of the Court of Appeal’s judgment).  But the rule says otherwise, and the court will normally be guided by the rule, unless there are compelling reasons for reaching another conclusion.  Extrinsic evidence of the will-maker’s intentions, where admissible by statute, might in some cases provide such a compelling reason, but the extrinsic evidence is not decisive in this case.

36. The application of the rule would not, with great respect to the Court of Appeal, involve a blinkered approach (the expression used in paragraph 32 of its judgment).  On the contrary it would, properly understood, be an aspect of reading the will as a whole. Thus Lord Romer said in Fyfe v Irwin at p281,

“My Lords, it sometimes happens that a will contains two dispositions of the same property which, if literally construed, are inconsistent with one another. In such cases, the court always endeavours to reconcile the dispositions, and will, if it be possible, so construe them that neither has to be rejected altogether.”

Charitable corporations and charitable trusts

37. Reference has already been made (in paragraph 12 above) to the abstract and technical nature of the main issue between the contending parties – that is, whether the Foundation is entitled to Nina’s estate but must hold it subject to particular charitable trusts set out in clauses 2 and 3 of her will, or whether the Foundation is to hold the estate for the general objects set out in clause 3 (1) and (2) of its memorandum, and not on any more particular or limited trusts.  It is clear that a charitable corporation may hold some of its funds as a trustee.  For instance incorporated educational charities (such as, in England, Oxford and Cambridge colleges) hold their main endowments for their general charitable purposes, but do over the years receive numerous gifts and bequests which are held in trust for particular charitable purposes such as the funding of a scholarship or prize, or the endowment of a studentship or professorial chair.  The Foundation has an express power, under clause 3 (3.2) of its memorandum, to undertake the trusteeship of any particular charitable trust consistent with its main objects.

38. It may be said that an incorporated charity holds its general funds “beneficially”, but that expression may be a little misleading.  Human beneficial owners of property, if of full age and sound mind, can dispose of their property as they like, but a charitable corporation may use its resources only for its charitable objects.  So in practical terms it is not very different from a charitable trust, especially as the law imposes on the individuals who manage the corporation’s affairs the same fiduciary obligations (in relation to deriving personal profit from their office, and similar matters) as are imposed on trustees: see for instance Re French Protestant Hospital  [1951] Ch 567.  The officers of a charitable corporation are not trustees in the strict sense, but they are in “at least an analogous position”, as Buckley LJ ( a judge with great expertise in charity matters) said in Von Ernst & Cie v Inland Revenue Commissioners [1980] 1 WLR 468, 479.  Slade J expressed the same view in Liverpool and District Hospital for Diseases of the Heart v Attorney General [1981] Ch 193, 209.

39. Where there is a gift to an incorporated body with wholly charitable objects, the court does not readily construe words expressing a testator’s motives or wishes as imposing a charitable trust on a gift which is already (because of the recipient’s objects) destined to be applied for charitable purposes.  In Re Vernon [1972] Ch 300, 303, Buckley J, having dealt with a gift to an unincorporated body, contrasted the position where the donee is an incorporated charity:

“A bequest to a corporate body, on the other hand, takes effect simply as a gift to that body beneficially, unless there are circumstances which show that the recipient is to take the gift as a trustee. There is no need in such a case to infer a trust for any particular purpose. The objects to which the corporate body can properly apply its funds may be restricted by its constitution, but this does not necessitate inferring as a matter of construction of the testator’s will a direction that the bequest is to be held in trust to be applied for those purposes: the natural construction is that the bequest is made to the corporate body as part of its general funds, that is to say, beneficially and without the imposition of any trust. That the testator’s motive in making the bequest may have undoubtedly been to assist the work of the incorporated body would be insufficient to create a trust.”

Poon J quoted the whole of this passage (in paragraph 40 of his judgment) whereas the Court of Appeal (in paragraph 35 of its judgment) quoted only the second part of the first sentence.

40. Mr  Green QC (appearing as leading counsel for the Foundation  in this court) has referred on this point to the Canadian case of Roman Catholic Archiepiscopal Corp of Winnipeg v Ryan (1957) 12 DLR (2d) 23.  In that case there was a testamentary gift to the incorporated charity, which was identified by its name, and was not referred to as a trustee.  But the will stated the testator’s purpose as being to benefit a particular church in the archdiocese, or, in the corporation’s discretion, the work of the archdiocese, and thereby to promote the spiritual welfare of Roman Catholic communicants within the archdiocese.  Davey JA asked himself (at page 28) whether this express purpose was “so inconsistent with an intention that the Corporation should take absolutely that a trust for such purpose must be implied” and concluded that there was no need to imply a trust.

The courts’ jurisdiction to make a scheme

41. The court has an inherent jurisdiction over the administration of charitable trusts, originally based on the notion of the sovereign as parens patriae(parent of the nation).  This jurisdiction could be invoked by the Attorney General (now, in Hong Kong, the Secretary for Justice) as the sovereign’s forensic representative.  Where the court exercises its jurisdiction to clarify or modify the purposes of a charitable trust, or to improve the administration of a charitable trust, it does so by making a scheme – that is, a written instrument approved by the court to regulate, in whole or in part, the future management and administration of the trust.

42. The approval of a scheme may sometimes, but does not always, require the court to have recourse to the cy-près doctrine.  This was explained by Maugham J in Re Robinson [1931] 2 Ch 122, 128-129:

“I should point out that a scheme directed by this Court in relation to gifts for charitable purposes is not necessarily or, I think, generally a scheme for the application of the fund cy près. It is well known that a charitable gift in this country does not fail merely because there is an uncertainty as to the mode of carrying out the gift. In numerous cases of gifts for charitable purposes it is necessary to fill up a number of details in regard to which the testator or the donor has not described his wishes in clear terms. In such cases the gift does not fail, but the Court fills up the details of the donor's charitable intention by means of a scheme: there is no question of selecting objects cy près, because the objects to be benefited are the very objects pointed out by the testator, but the Court is doing no more than completing the trusts to carry out objects which, on the assumption with which I am dealing, have been indicated in sufficiently clear terms by the testator.”

43. The cy-près doctrine consists of a group of rules which enable a charitable trust to be remoulded by the court so as to preserve the trust, rather than that it should fail because the charitable purposes of the charity’s founder cannot (or can no longer) be carried out precisely in accordance with the founder’s expressed wishes.  The doctrine is non-statutory in origin, although in England and some other parts of the common law world (but not in Hong Kong) its scope has been extended by statute.  The origin of the Norman French phrase “cy-près” is the subject of debate, but one plausible view is that it is an abbreviation of “aussi pres que possible” – as near as possible.  The doctrine was stated as follows by Lord Eldon LC in the leading case of Moggridge v Thackwell (1802) 7 Ves 31, 69 (affirmed by the House of Lords (1807) 13 Ves 416):

“…if the testator has manifested a general intention to give to charity, the failure of a particular mode, in which the charity is to be effectuated, shall not destroy the charity but, if the substantial intention is charity, the law will substitute another mode of devoting the property to charitable purposes though the formal intention as to the mode cannot be accomplished.”

Neither side contended that it would be necessary or appropriate to have recourse to the cy- près doctrine if the second part of the clause 2, referred to for convenience as clause 2(2) of Nina’s will declares charitable trusts which fully dispose of her estate. It is not therefore necessary, for present purposes, to explore the doctrine in more detail.

44. The court’s inherent jurisdiction over charitable trusts is also exercisable, subject to some constraints and qualifications, in relation to charitable corporations, even though their property is not held in trust in the strict sense.  The constraints and qualifications arise from the variety of constitutional sources from which a charitable corporation may derive its corporate status.  These including incorporation by royal charter and incorporation by a special Act of Parliament, which may go so far as to confer public law functions on the body so incorporated: see the judgment of Lightman J in Royal Society for the Prevention of Cruelty to Animals v Attorney General [2002] 1 WLR 448, especially at pp 458-459, comparing the position of the RSPCA to that of the National Trust, whose status had been considered in Scott v National Trust for Places of Historic Interest or Natural Beauty [1998] 2 All ER 705.  (Both cases were concerned with these charities’ attitudes to fox-hunting and deer-hunting with hounds.)

45. In such cases it may be inappropriate for the court to interfere with administrative machinery approved by the legislature. Moreover some charitable corporations (especially universities and colleges) have a “visitor” (often the holder of some high office such as a bishopric) who has a function similar to that of a domestic arbitrator.  The court will not normally intervene so as to oust the powers of a visitor.  The best summaries of the position are in the judgment of Buckley LJ in Construction Industry Training Board v Attorney-General [1973] Ch 173, 185-188, and in the judgment of Slade J in Liverpool and District Hospital for Diseases of the Heart v Attorney-General [1981] Ch 193, 213-215.  But again it is unnecessary, for present purposes, to explore this technical area in any more detail.

Nina’s will :preliminary

46. Nina’s will must be construed as a whole in accordance with the principles already considered.  In order to do that the court must undertake the “iterative” process (the expression used by Lord Neuberger in Re Sigma Finance Corporation, paragraph 31 above) of fitting together all the (sometimes conflicting) indications of the will-maker’s intentions, like pieces of a jigsaw puzzle, so as to end up with a coherent whole.  In this case this is not an easy task.  The indications of Nina’s intentions are a disparate mixture, some purely verbal, some contextual, some derived from established principles of construction, and some based on admissible extrinsic evidence. 

47. The most important matters to be considered are as follows. 

(1) Matters of language and context

(a) The imperative nature of the language of the will, especially in its choice of auxiliary verbs (in the agreed translation, “must” used twice in clause 2 and once in clause 4, and “shall” in clause 3, together with the imperative sense of “obligation” twice in clause 4); all these in comparison to “I wish” at the beginning of clause 2.

(b) The meaning of “all the projects which [the Foundation] has undertaken since its establishment” in clause 2. 

(c) The meaning of “the purpose of setting up a fund and a Chinese prize of worldwide significance similar to that of the Nobel prize” in clause 2.

(d) Whether the purpose identified at (c) above is within the foundation’s existing objects.

(e) The significance of the references (clause 2(1), 2(2) and 3, in slightly different terms) to “the supervision of a managing organisation”.

(f) The meaning and contextual significance of clause 3, especially as an indicator as to the meaning of the will as a whole.

(g) The meaning and validity of clause 4.

(h) Finally there is the general question of how Nina’s non-technical, layman’s language, to the extent that it is found to be imperative rather than precatory, is to be given effect by resort to the technical legal concepts of trusts, powers, charges and conditions.

(2) Principles of construction

The two principles of construction most in point are the general rule that a gift to a charitable company is a gift to the company beneficially unless it is sufficiently clear that the imposition of a trust was intended (Re Vernon [1972] Ch 300, 303), and the rule in Hancock v Watson [1902] AC 14, 22, as to the effect of an absolute gift followed by engrafted trusts which do not exhaust the beneficial interest.

(3)  Extrinsic evidence

The most important extrinsic evidence, admissible under section 23B of the Wills Ordinance, Cap 30, is in the affirmation of Nina’s sister, Mrs Tong.

48. These matters are considered below.  They must perforce be taken one at a time, but they must not be considered in isolation. Each is likely to have an impact on the others.  But it is useful to look first at how these matters were dealt with in the courts below.  The numbering below corresponds to that in the last paragraph.

(1) (a) Imperative language

This was the heading to section G2.1 of the judgement of Poon J.  That section covers paragraphs 54 to 83.  He came to the firm conclusion that by the clear and imperative language of clauses 2, 3 and 4 Nina did intend to impose a trust. The Court of Appeal came to a similar conclusion (paragraphs 37 to 42) but made an exception for the first sentence of clause 2 (referred to for convenience as clause 2(1)) as being no more than an expression of hope, which did not however detract from the binding force of clauses 2(2) and 3, despite its importation into those provisions.  These views are to be found in paragraphs 45 to 52 of the Court of Appeal’s judgment, the last paragraph ending, “Reading the Will as a whole, the Judge was clearly correct in finding that Nina intended and expected her directions to be firmly binding, with or without the managing organisation”.

(b)  “Projects”

The Judge (paragraph 70) and the Court of Appeal (paragraph 64) agreed that this expression could only sensibly apply to any activities within the Foundation’s charitable objects.  They reached this conclusion despite the context of the words “all the projects which [the Foundation] has undertaken since its establishment,” apparently on the supposition that there were no such projects.

(c)  “The purpose of setting up a fund and a Chinese prize”

The Judge considered (paragraph 75) that there was no “uncertainty or subjectivity” about this part of the will, and concluded that “Nina must have intended that the Prize should resemble the Nobel Prize in all material respects”.  The Court of Appeal did not agree that the Chinese prize must closely resemble the Nobel Prize (paragraphs 121 to 126) but refrained from expressing any definite view about its precise scope.

(d)  Compatability of the prize with the Foundation’s objects

The Judge concluded (paragraphs 45,73 and 74) that the Foundation’s objects as set out in clause 3(1)(a),(c),(d) and (g) of its memorandum, coupled with clause 3(2), were not wide enough to enable it to establish the Chinese prize.  The Court of Appeal’s view on this point is not entirely clear.  It concluded (paragraph 129) that there was no ultra vires problem in relation to the Chinese prize or clause 4 of the will.  As regards the prize its view seems to have been that any ultra vires problem could be avoided by adjusting the precise scope of the prize.

(e)  The supervising organisation

The Judge dealt with this at paragraphs 62 to 67.  He observed (by reference to the evidence of Mrs Tong, among other matters) that Nina must have realised that the Secretary-General of the United Nations might not be able or willing to join the proposed supervisory body.  He concluded (paragraph 67) that Nina’s directions were not conditional on the supervisory body being established, and that Nina “must have intended and expected the Foundation and its Directors to faithfully follow and abide by those directions, which are firmly binding, with or without the Managing Organisation.” 

(f)  Clause 3

The Judge considered clause 3 primarily at paragraphs 78 to 81.  Counsel for the Foundation had argued that its language is too uncertain to create enforceable obligations.  The Judge took a different view, and held that there is a binding direction for the Foundation to retain all its shares in Chinachem Group companies indefinitely, since (paragraph 81) “The Foundation can meaningfully perform [the functions specified in clause 3] only if it remains the sole and ultimate beneficial shareholder of the Chinachem Group.”  The Court of Appeal differed from the Judge as to this point (paragraphs 73 and 74), but agreed with him as to the generally imperative language of the clause.

(g)  Clause 4

The Judge accepted (paragraph 103) the submission of Counsel for the Secretary for Justice that clause 4(2) and (3) should be given effect as conferring on the Foundation discretionary powers exercisable in favour of the non-charitable objects of those provisions, subject to the rule against perpetuities as modified by section 8 of the Perpetuities and Accumulations Ordinance, Cap 257.  The Court of Appeal must be taken to have agreed with the Judge, since his order on this point was not varied, but the Court of Appeal seems to have considered clause 4 only so far as it might be relevant to the main issue of whether a charitable trust was imposed by clauses 2 and 3 (paragraphs 78 to 91).

(h)  Trust, power, charge, condition?

The Judge, having decided that the language of clauses 2 and 3 is imperative, concluded that they operate to impose a trust.  It was not argued before him that the non-technical language, drafted by Mrs Tong, which Nina used in those clauses could or should be interpreted as imposing a personal obligation (arising not from a trust but from the implied acceptance of a condition), with or without the support of an equitable charge.  Arguments on those lines were addressed to the Judge on clause 4(2), but were rejected by him, primarily on the ground of the uncertainty of the supposed obligation (paragraphs 98 to 101).  In the Court of Appeal the submissions as to personal obligations were again addressed only to clause 4, and were considered only in the context of the main (trust or no trust?) issue (paragraph 83).  The Court of Appeal considered the topic briefly (paragraphs 84 to 86) before concluding (paragraph 87) that Nina must have intended potential beneficiaries under clause 4 to have some recourse to her estate.  In short, the argument that clause 2(2), if binding, takes effect as a personal obligation (arising from acceptance of an implied condition) has been raised for the first time in this Court.

(2)  Principles of construction

It is possible to cover the remaining matters much more briefly.  Both the Judge and the Court of Appeal accepted the principle stated in Re Vernon [1972] Ch 300, 303, but held that the language of the will was sufficiently clear and imperative to impose a charitable trust: Poon J at paragraph 44, developed at length in the following paragraphs; the Court of Appeal at paragraph 35, developed in the following paragraphs.  Poon J did not refer to Hancock v Watson [1902] AC 14, and it may not have been cited to him.  The Court of Appeal did refer to it at some length (paragraphs 26 and 32) but (as already noted in paragraph 35 above) did not consider it to be a principle of construction.

(3)  Extrinsic evidence

Both the Judge (paragraph 63) and the Court of Appeal (paragraph 45) placed some reliance on the evidence of Mrs Tong, while indicating that they would in any case have been disposed to accept that Nina cannot have been confident of securing the participation of the Secretary-General of the Untied Nations in the governance of the Foundation. Both courts rejected the view that any events which occurred after Nina made her will on 18 July 2002 could be relied on as “arm-chair evidence”.

Imperative words, and their effect in a home-made will

49. The Judge and the Court of Appeal reached a clear conclusion as to the imperative nature of the language used in clauses 2, 3 and 4 of Nina’s will.  There is no reason to differ from this conclusion as to the binding force of the language rendered in the official translation as “must” and “shall”.  The only area of real doubt (considered separately below) is whether the provisions as to a supervisory body (originally introduced in clause 2(1), but repeated in clause 2(2) and clause 3) should be understood as an essential part of Nina’s intentions.

50. The issue which has been debated at length is how the imperative nature of Nina’s intention is to be given effect in legal terms.  Counsel for the Foundation has pointed out, correctly, that Nina was not a lawyer and cannot be supposed to have been familiar with the technicalities of trust law.  But by the same token, she cannot be supposed to have been familiar with other legal technicalities such as personal obligations enforceable in equity under the “benefit and burden” principle, whether or not backed by an equitable charge.

51. In these circumstances a court of construction must give effect to Nina’s intentions, expressed as they were in non-technical terms, by interpreting them into the most appropriate legal terms of art.  It is a commonplace that the nuances of meaning can get lost in translation.  Nina’s will has already been translated into English from the original Chinese text, and the English text must now undergo a further process akin to translation, that is the process of being expressed in legal terms.  The most appropriate legal terms are those that most naturally and simply give effect to Nina’s intentions.

52. The correct interpretation of clause 2(2) is that it imposes a trust for charitable purposes.  The argument that clause 2(2) imposes some sort of obligation or condition which is specifically enforceable in equity, but does not amount to a trust, is complicated and unnatural.  It is also unworkable, since the obligation to establish the Chinese prize is expressed in very vague and uncertain terms.  That uncertainty can be cured and clarified by the law’s benevolent treatment of charitable trusts.  It cannot be cured by an analysis which relies on a personal obligation that does not amount to a charitable trust.

53. Mr Green submitted, in arguments directed to clause 4(3) of the will as well as to clause 2(2), that a personal obligation arising from the “benefit and burden” principle need not be precisely quantifiable.  He relied mainly on some Australian authorities including Gill v Gill (1921) 21 SRNSW 400 (approved by the High Court of Australia in Muschinski v Dodds (1985) 160 CLR 583), Bective v Federal Commissioner of Taxation (1932) 47 CLR 417 and Hourigan v The Trustees Executors and Agency Company Limited and Others (1934) 51 CLR 619.  None of those cases was concerned with a gift for charitable purposes.  Bective and Hourigan were concerned with provisions for the maintenance of minor children.  Such provisions involve an element of discretion but they have always been regarded as being in a special category, as appears from the judgments of Dixon J in Bective at pp 420-421 and in Hourigan at pp 645-646.  As Dixon J said in the latter case at p 646,

“However difficult it may be to decide what is the amount to be applied, it is treated as an obligation capable of measurement, or ascertainment, and enforcement.”

The Court of Chancery regarded itself as having particular expertise as to the maintenance and education of minors, because of its ancient wardship jurisdiction, and was sometimes ready to substitute its own view as to the exercise by guardians or trustees of discretionary powers of maintenance: Pitt v Holt [2013] 2 AC 108, para 64.

54. The obligations imposed by clause 2(2) of Nina’s will (and especially that relating to the Chinese prize) are of a character wholly different from the familiar obligation to maintain a minor child (especially where that obligation is imposed on a parent who is in any case subject to a legal or moral duty to look after the child).  They are obligations to spend unquantifiable (but by any normal standards, very large) sums of money for purposes described (as regards the Chinese prize) in the sketchiest terms. Mr Green cited from Harvey J in Gill (at pp 406-407),

“In [a case of personal obligation under the ‘benefit and burden’ principle] no higher degree of certainty is required by the Court than is required for the creation of a trust.”

Mr Green deftly sought to turn this proposition round: no greater certainty is required, he said, for a personal obligation that is not a trust, than for one that arises under a trust.  That may be correct if the trust in question is a private, family trust.  But clause 2(2) of the will demonstrates that it is not correct if the trust in question is a charitable trust.

55. In short, the performance of the personal obligation imposed by clause 2(2) calls for mature fiduciary judgment exercised single-mindedly for the common good.  It is the sort of personal obligation which the law classifies as a trust for charitable purposes, and that is how Nina’s will must be interpreted.

“Projects”

56. Mr Green submitted that the Courts below erred in construing the first part of clause 2(2) as referring to all the Foundation’s charitable activities (or objects) as set out in clause 3(1) of its memorandum of association.  That construction was wrong, he said, because it ignored the words “which it [the Foundation] has undertaken since its establishment.”  He submitted that those words limit the obligation to the completion of projects which had been undertaken by the Foundation, but not brought to completion, at the time of Nina’s death.

57. That is a possible construction as a matter of language, if the words in the first part of clause 2(2) are taken in isolation, but it is wholly inconsistent with the general spirit and intention of the will as expressed in clauses 2 and 3.  As Fok PJ pointed out in the course of the argument, clause 2(2) is expressed in the familiar double form of “not only…but also…”  In that form of expression the first part of the couplet typically relates to what is already known and uncontroversial; it serves as an introduction to the second part of the couplet, on which the main emphasis falls.  It seems highly improbable that Nina intended, in the first part of clause 2(2), to refer to no more than a limited number of projects that might happen to be incomplete at her death, whenever that might occur.  The context is much more consonant with a reference to the charitable activities of the Foundation rather than to on-going and uncompleted projects. The Court of Appeal was correct in its view that that construction was “narrow and unreal”.  In coming to that conclusion the Court of Appeal rightly attached a good deal of weight to the final words of clause 3:

“… and with part of its profits, to continuously develop the charitable business till eternity.”

58. Nina was a very experienced businesswoman and she must have realized that the Foundation would, after her death, have resources far greater than those available to it during her lifetime.  Her intention was that in the future the Foundation’s charitable activities should continuously increase.  Moreover, as Chan NPJ has pointed out, the Chinese characters 項目, rendered in the agreed translation as “projects”, do not have a limited or technical meaning.  They might have been translated by the use for a more general word such as “items” or “things”.  Had Nina really intended to limit the scope of the “not only…” part of clause 2(2) in the way for which the Foundation contends, she (and Mrs Tong as her amanuensis) would surely have used more precise language to make that intention clear.

59. When clause 2(2) is understood in this way, there is no possibility that the charitable trusts which it declares will not absorb the full resources of the trust property.  There is no possibility of there being a surplus of funds not disposed of by the trusts of clause 2(2).  The rule in Hancock v Watson [1902] AC 14 loses any relevance.

The purpose of setting up a fund and a Chinese prize of worldwide significance similar to that of the Nobel Prize

60. Before coming to the main issues it is convenient to deal first with two uncontroversial verbal points mentioned by Chan NPJ in the course of the hearing.  First, the part of the will which includes the Chinese characters translated as “a fund and a Chinese prize” [設立中國的類似諾貝爾獎的具有世界性意義的獎金和基金] actually refers to “prize” before “fund”.  The two words are part of a single composite expression.  It is not an essential part of Nina’s intention that the Chinese prize should have its own endowment fund administered separately from the rest of the charitable trust funds, although that is something that might be decided on as a matter of administration.  Second, the Chinese characters [設立中國的類似諾貝爾獎的具有世界性意義的獎金和基金] have a flexible meaning and allow for the Chinese prize to be similar to the Nobel Prize either in terms of “worldwide significance” or more generally.

61. The Court of Appeal was correct in its view that the Chinese prize need not resemble the Nobel Prize in all respects.  But that leaves the intended content of the expression in a good deal of uncertainty. The Chinese prize is no doubt intended to bring further renown to the People’s Republic of China, in the same way as the Nobel Prize focuses international attention on Sweden at the time of the Nobel awards.  But Nina cannot have intended that the prize should be limited to excellence in Chinese literature, or Chinese music, or any specifically Chinese cultural activity, since that would be inconsistent with her clear intention that the prize should be international in character – “of worldwide significance”.  Probably Nina had in mind that the prize would be administered, and its award ceremonies held, in Beijing (or possibly Hong Kong).

62. These are all matters which the board of governors of the Foundation will need to consider very carefully, with appropriate guidance (considered in the final section of this judgment).  What is essential is that the Chinese prize should be a proper charitable purpose. A prize of this sort is charitable only if it is for the public good, in encouraging the general public to strive for excellence in scientific, social and cultural activities which are beneficial to mankind.  The public good which such a prize achieves is reflected, not so much in the conferment of a large financial benefit on a celebrity who may already be well provided for, as in the incentive that it gives to hundreds of thousands of people who do not win the prize, but are encouraged to strive for excellence.  So the subject matter for which the prize is awarded is highly material.  This is illustrated (to descend from the sublime to a very humble level) by the judgment of Vaisey J in Re Dupree [1945] Ch 16, which concerned the validity of the £5,000 endowment of an annual prize for a chess competition open to schoolboys in the English city of Portsmouth.  Vaisey J said (at p 20)

“One feels, perhaps, that one is on rather a slippery slope. If chess, why not draughts? If draughts, why not bezique, or so on, through to bridge and whist…”

Vaisey J may have been wrong to feel any doubt about the educational value of chess, but he was right to make clear that not every prize is automatically charitable in nature.

63. Clause 3 is administrative in nature in that it is concerned (at least for the most part) with the administration and management of the trust property rather than with the application of its income or capital for charitable purposes.  Its language is imperative but some of its apparent requirements must, as a matter of common sense, be taken as aspirational. No controlling shareholder, however experienced and far-sighted, can ensure the continuing and indefinite prosperity and growth, year on year, of a group of trading companies.  Mr Green described the clause as “declaratory” in character.  That seems to be correct in that Nina was (whether or not she was aware of it) laying down what would in any case be the most basic obligation of her trustees, to safeguard the trust property and to exercise skill and prudence in its management.

64. The Court of Appeal was correct in its view that clause 3 does not require the Foundation to remain as 100% shareholder of each of the many companies (this Court was told that there are about 200) in the Chinachem Group.  Experience shows that effective control of a corporate business can often be maintained with far less than 100% voting control.  But is goes further than that.  Experience shows that it is prudent for trustees to achieve some degree of diversification of their investments: see the judgment of Hoffmann J (as he then was) in Steel v Wellcome Custodian Trustees Ltd [1988] 1 WLR 167.

65. That case was concerned with the Wellcome Trust, which is the second largest medical charity in the world.  By his will Sir Henry Wellcome (who died in 1936) directed his trustees to retain indefinitely all his shares in Wellcome Foundation Ltd (which was, contrary to what its name might suggest, a trading company).  In 1985 the trustees, with the authority of the Charity Commission, sold 25% of the shares, but the remaining 75% had by 1988 come to represent 90% of the fund.  This particular investment was therefore spectacularly successful, but a degree of diversification was nevertheless appropriate. The experience of the Wellcome Trust may be contrasted with that of the Nuffield Trust, a medical charity founded by William Morris (later Viscount Nuffield), one of the pioneers of the British motor industry.  His trustees were directed to retain indefinitely their shares in Morris Motors Ltd, but fortunately (and again, with the authority of the Charity Commission) the trustees diversified their investments before the British motor industry went into the steepest phase of its long-term decline.

66. For present purposes – that is, for the purposes of construing Nina’s will – the main issue on clause 3 is whether it provides guidance as to the meaning of clause 2(2).  Mr Taube QC (for the Secretary for Justice) submitted that it does provide guidance, with its references to the continuous growth of the Foundation’s “business empire” and the continuous development of its “charitable business”, these being regarded as a single unit.  Mr Green submitted that there is no real emphasis on the unity of the charity, and that the reference to the Foundation’s charitable business is to its objects under its memorandum on the footing that it is beneficial owner.  Mr Taube’s submission is to be preferred.  It provides further support, as already noted, for the wider interpretation of the first part of clause 2(2).

Clause 4

67. Clause 4(1) is no longer capable of taking effect, as Teddy’s parents both died in 2010.  The objects of the discretionary provisions in clause 4(2), however those provisions are characterised in legal terms, are Teddy’s two sisters and two brothers, whose present ages range from about 68 to 74 years.  Between them they have five children, all adults in their thirties or forties.  The discretions exercisable in favour of these beneficiaries are not identical.  The younger sister Wang Teh Hwa, who has long-standing health problems, is singled out for support for her living and medical expenses, and her only child (a 38-year-old financial analyst) may come within the words “to look after her [Wang Teh Hwa’s] children as well as their needs of advanced studies”.  Teddy’s other siblings are to be looked after “if necessary”.  Their children qualify only for the costs of “university or advanced studies.”

68. All these discretions, however limited, are powers whose exercise the Foundation is under an obligation to consider from time to time.  Each is most naturally characterised as a “power in the nature of a trust” or a “fiduciary power in the full sense” (the expression used by Chitty J in Re Somes [1896] 1 Ch 250, 255, quoted and adopted by Warner J in Mettoy Pension Trustees Ltd v Evans [1990] 1 WLR 1587, 1614.  It is not a power capable of being released (that is, extinguished) in the way that a power of appointment conferred on an individual can be released by the donee’s free choice.

69. The discretions conferred by clause 4(2) are rather closer to the sort of child-maintenance provisions considered in Bective and Hourigan, but they are by no means on all fours with them.  The most importance difference, which is decisive, is that clause 4(2) cannot be explained as operating to impose a personal obligation on the Foundation on the “benefit and burden” principle, since the Foundation does not take any part of the residuary estate beneficially.  The Foundation takes it all in a fiduciary capacity, as trustee.

70. The court may not distort or misconstrue the language of a will so as to avoid a perpetuity difficulty, or so as to achieve some tax advantage.  These points are considered here in relation to clause 4(2), and then separately below in relation to clause 4(3).  It seems most unlikely that any perpetuity problem will arise under clause 4(2), as all nine possible beneficiaries now in existence are lives in being for the purposes of the modified rule.  That is the effect of section 8(3), (4)(a) and (5)(b)(iii) of the Perpetuities and Accumulations Ordinance, Cap 257, coupled with the wide definition of “power of appointment” in section 2(1).

71. The needs of the clause 4(2) beneficiaries, even if met on the most ample and generous scale, cannot possibly call for more than a tiny part of the resources of the residuary estate.  If there is any danger of this tiny non-charitable disposition having adverse tax consequences for the estate as a whole, consideration should be given to the appropriation of a separate (and in relative terms very small) fund which will be amply sufficient to provide (by its income and capital) for the needs of the clause 4(2) beneficiaries. It should be added that in his reply Mr Green put forward adverse tax consequences as a possibility rather than as a clear and present danger.

72. Clause 4(3) must also be treated as a fiduciary power in the full sense, for similar reasons.  But analysis of the perpetuity position may be different because it may be administratively impossible to identify with sufficient certainty the thousands of staff and children of staff of Chinachem Group companies who were lives in being on Nina’s death, now more than eight years ago.  So here the permissible period may be 21 years, under section 8(4)(b) of the Ordinance.  Even if the task was not impossible, it would undoubtedly be inconvenient and burdensome.  A better practical solution would be, as briefly discussed in the course of Mr Green’s opening, for the Foundation to achieve the clause 4(3) objective indirectly by encouraging the establishment of appropriate schemes at the corporate level.  Practical steps have already been taken in that direction (see paragraph 26 above).  Express authority could be given for this (and for an appropriation under clause 4(2)) by a scheme approved by the court.

The issue of supervision, and the need for a scheme

73. The Court of Appeal regarded clause 2(1) as precatory only, even though it is incorporated quite prominently into the mandatory provisions of clause 2(2) and clause 3 (but not into clause 4).  The Court of Appeal was no doubt correct, both as a matter of the ordinary probabilities and on the strength of Mrs Tong’s evidence, to hold that the whole of Nina’s testamentary dispositions was not to be made conditional on the acceptance of office by the President of the People’s Republic of China, the Chief Executive of Hong Kong and the Secretary-General of the United Nations.  But it does not follow from that that it was not an essential part of Nina’s intentions to have some supervisory board, composed of individuals of real distinction, to guide the Foundation in the prudent management of her business empire and in the wise application for charitable purposes of the much greater distributed corporate profits that would be available after her death.  As Ribeiro PJ observed in the course of argument, it does seem very likely that Nina regarded a new managing organisation as an important part of her plans for her estate.

74. The language of clause 2(1) is unusual.  Nina stated that she wished “to entrust” the Foundation to the supervision of a managing organisation.  The language suggests that she saw the Foundation itself as being within her gift, and that she wished (as Chan NPJ observed) to commit it to the care of a new body which was outside the Foundation, and over the Foundation, rather than being simply an organ of the Foundation itself.  That is a matter that comes well within the court’s scheme-making power, as is the detailed working-out of Nina’s intention to establish the Chinese prize.

75. Paragraphs 6 to 8 of the reamended originating summons are in the following terms:

“6. further or alternatively that the Court may execute any trusts contained in the Will;

7. if and so far as may be necessary that the Court may approve and direct a cy pres scheme for the application of the residuary estate of the Deceased;

8. Such further necessary or consequential directions, accounts and inquiries.”

These paragraphs are not formally before this Court on this appeal, but counsel’s submissions have largely anticipated the issues which they raise. It should also be noted that paragraph 7 does not in terms refer to a scheme less far-reaching than a cy-près scheme, but the greater may be understood as including the less.

76. In the circumstances it is right for this Court to express the clear view that there should be a scheme for the administration of the charitable trusts of Nina’s will.  There is a strong public interest in this important benefaction having a clear and sounder legal basis than the language of Nina’s home-made will.  A scheme should be prepared and submitted to the High Court for approval after consultation (which will, it is to be hoped, be full and cooperative) between the Foundation’s board of governors and the Secretary for Justice as the guardian of the public interest.  The scheme should have two principal objectives: the establishment of a supervising body, including its terms of reference and its membership; and the detailed working-out of arrangements for the Chinese prize.

77. The members of the new body should be individuals of unquestionable integrity, experience and judgment.  They will no doubt bringing a variety of skills to their task, but between them they should be skilled in corporate governance and investment, and have deep knowledge of the fields in which the charity is likely to be active (such as medical and scientific research, education at all levels, disaster relief, social progress, and music, literature and fine arts).  The new supervising body will also have a part to play in the detailed provisions for the Chinese prize, although one or more specialised prize committees may be thought appropriate once the subject-matter of the prize (or prizes) has been settled.  The statutes of the Nobel Foundation (exhibited to the affidavit of Siu Wing Sze) provide one possible template, but there is no requirement for them to be followed closely.

78. The preparation of a scheme will also enable some other matters to be provided for.  These include a possible appropriation in respect of the clause 4(2) beneficiaries (paragraph 71 above) and the possibility of the court approving provision at the corporate level for the clause 4(3) beneficiaries (paragraph 72 above).  It may also be appropriate to review the Foundation’s articles, in order to consider whether the Executive Council (paragraph 54) will still have a useful function, and whether the provisions as to remunerated trustees (paragraph 55) are still appropriate, especially if the quorum for the board (paragraph 45) is still one.

Disposal

79. The appeal should be dismissed.  Counsel should endeavour to agree minutes of order covering all matters except costs.  Written submissions as to costs should be lodged by the Foundation within 21 days after the handing down of this judgment; submissions on costs by the Secretary for Justice and the administrators within 21 days thereafter; and any submissions in reply by the Foundation within 14 days after the lodging of the Secretary for Justice’s submissions.