LAW WING YEE WENDY v. LAW SHUK HOI

HCA 1820/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1820 OF 2007

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J U D G M E N T

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1.  By a summons of 17 December 2010, the Defendant applies to strike out the Writ of Summons and the Statement of Claim. The Writ was actually issued on 27 August 2007 and the Statement of Claim was filed on 7 November 2007. In other words, the strike out application was issued more than 3 years after the filing of the Statement of Claim. The Defence was filed on 30 January 2008.

2.  The lapse of time was partly due to the stay of the action ordered by Deputy Judge Mayo on 16 October 2008 pending the hearing of the construction summons in HCMP 1053 of 2008.  That construction summons was heard on 6 July 2010 and the construction issues raised by the parties were determined in the judgment of the court of 26 July 2010.  Although other parties also appeared at that hearing, the real protagonists were the Plaintiff (together with her father and other relatives who were represented also by Mr Yu SC and Ms Tong) and the Defendant.

3.  The judgment of 26 July 2010 was subject to appeal.  On 30 June 2011, the Court of Appeal delivered its judgment in CACV 203 of 2010.  The appeal was allowed by a majority to a limited extent as set out in that judgment, in particular para. 33.

4.  For present purposes, it suffices to state the upshot of the construction summons in the following terms: the Defendant held 1/3 of the assets devolved to him by the Letter of Wishes as trustee under a discretionary trust in accordance with Clause B(3)(a) [“the Clause”] and he is obliged to exercise his discretion whether to make a distribution from time to time, when the criteria laid down in that Clause are satisfied.

5.  Given parties’ familiarity with the background of the case (partly set out in the judgments of 26 July 2010 and 30 June 2011) and bearing in mind this is only a strike-out application and the grounds of the application focused within a narrow confine (as explained below), I do not intend to repeat what had been said in those judgments.  The Plaintiff’s claim in this action is based on her allegation that she is within the class of discretionary beneficiary pursuant to the Clause and she sought relief on the basis that the Defendant ignored requests by the potential beneficiaries in 2007 for account of the trust assets (see paras. 10 to 12 of the Statement of Claim).

6.  The substantive relief claimed in the Writ was,

“An order that the Defendant do provide a full and accurate account of the state and whereabouts of the properties and assets subject to the Trust”

7.  In the Statement of Claim, it was formulated in the prayer as,

“An order compelling the Defendant to,

(i) Provide a full account to the Plaintiff of the status and whereabouts of the Trust Assets and his dealings in relation thereto since 23 April 1996; and

(ii) Allow the Plaintiff to inspect accounts and/or documents in relation to the affairs of the Declaration of Trust and the Trust Assets.”

8.  In the course of the hearing, this court raised the question whether the present action should be regarded as an ordinary private personal dispute between the Plaintiff and the Defendant only or a set of Order 85 proceedings.  Mr Yu submitted that it is an action within the scope of Order 85 Rule 2(3) whilst Mr Chan SC contended that it was an ordinary hostile action between the two parties.

9.  Usually Order 85 proceedings are commenced by originating summons.  Mr Yu informed this court (and he was in turn told by his junior) that the action was commenced by writ in view of a dispute of fact as to whether accounts had actually been rendered. But counsel was not able to refer to any pre-action correspondence since the point was not contemplated.

10.  In my experience in dealing with Order 85 matters, it is not infrequent that disputes as to whether adequate account has been rendered were raised in the context of an originating summons.  Very often, the court can either deal with such disputes summarily or give directions for accounts to be taken before a master.  Be that as it may, the Rules of the High Court do not prescribe that Order 85 proceedings have to be commenced by originating summons.

11.  In the present case, I note the Defendant took the position that the Letter of Wishes did not give rise to any valid discretionary trust (see para. 9 of the Defence).  Assuming that to be the position taken before the issue of the Writ, it may account for the commencement of the action by writ. But this position, as I understand from the submissions advanced by Mr Chan, is no longer maintained in the light of the judgments in respect of the construction summons.

12.  As submitted by Mr Chan, the question as to the nature of this action should be determined by reference to the substance and the contents of the claim instead of simply focusing on the relief sought.  Thus, I would not regard this as Order 85 proceedings simply because the Plaintiff asked for account and inspection of documents.

13.  But I cannot accept the submission of Mr Chan that it is not Order 85 proceedings because the Statement of Claim contains hostile allegations as to breach of trust.  There are many Order 85 proceedings where hostile allegations were raised, including allegations which in substance are allegations of breach of trust.  In many cases the court is able to resolve the real issues that needed to be determined in the context of Order 85. 

14.  In the present action, what is the substance of the allegation as to breach of trust? As pleaded in para. 3 of the Writ and para. 12 of the Statement of Claim, the breach is confined to the failure to give account, to inspect documents and to inform the Plaintiff of the trust. There is no allegation of misappropriation of trust properties or wilful default in terms of loss of assets due to his breach of duty.  Nor is there any allegation of breach of duty causing a loss to the trust estate.

15.  In my judgment, the substance of the claim is a simple claim for account based on the usual duty on the part of a trustee to give an account for the trust assets.  I see no reason why this cannot in principle be regarded as Order 85 proceedings.

16.  As shown in the submissions advanced before this court, both parties appreciated that the Plaintiff is evoking the court’s supervisory jurisdiction over the administration of the trust and cited Schmidt v Rosewood [2003] 2 AC 709 as authority for guiding how the jurisdiction should be exercised.  Typically, the jurisdiction is exercised in the context Order 85.

17.  Mr Chan submitted that the Plaintiff did not commence the action in any representative capacity. But Order 85 does not require a plaintiff to issue proceedings in a representative capacity.  Order 85 Rule 3(2) provides that there is no need to join all the beneficiaries at the outset. The practice, in my experience, is that at the direction hearing the court will consider in the light of issues before the court whether directions should be given for either notice to be given to some or all other persons who might have an interest or to join them formally as parties.

18.  I am of the view that this action should properly be regarded as a set of Order 85 proceedings. Once this is recognized, this would have a bearing on how the action is to be proceeded in the future, assuming that it is not struck out at this stage.  In particular, the question as to notice to other potential beneficiaries or joinder of them as parties need to be addressed. 

19.  Mr Chan contended that even if the action is an Order 85 proceedings, the jurisdiction of the court can only be evoked by someone having the necessary locus.  Counsel submitted that the Plaintiff does not have such locus.  Since this is a strike out application, Mr Chan can only succeed if he can demonstrate it is plain and obvious that the Plaintiff has no locus as falling within the class of potential beneficiary.

20.  I can now turn to the arguments of Mr Chan as to why it is contended that the Plaintiff does not have locus. Putting aside the pleading point (which, Mr Chan accepted, if the court is not with him on his other submissions, could be cured by the necessary amendments and as such would only have bearing on costs), the crux of the contention is that the Plaintiff’s interest is too remote to trigger the exercise of the jurisdiction to order disclosure of trust document, citing the approach laid down by the Privy Council in Schmidt v Rosewood [2003] 2 AC 709.  At the heart of the approach are paras. 66 and 67 of the judgment,

“66. Their Lordships have already indicated their view that a beneficiary’s right to seek disclosure of trust documents, although sometimes not inappropriately described as a proprietary right, is best approached as one aspect of the court’s inherent jurisdiction to supervise, and where appropriate intervene in, the administration of trusts. There is therefore in their Lordships’ view no reason to draw any bright dividing line either between transmissible and non-transmissible (that is, discretionary) interests, or between the rights of an object of a discretionary trust and those of the object of a mere power (of a fiduciary character).

67.    However, the recent cases also confirm … that no beneficiary (and least of all a discretionary object) has any entitlement as of right to disclosure of anything which can plausibly be described as a trust document. Especially when there are issues as to personal or commercial confidentiality, the court may have to balance the competing interests of different beneficiaries, the trustees themselves, and third parties. Disclosure may have to be limited and safeguards may have to be put in place. Evaluation of the claims of a beneficiary (and especially of a discretionary object) may be an important part of the balancing exercise which the court has to perform on the materials placed before it.  In many cases the court may have no difficulty in concluding that an applicant with no more than a theoretical possibility of benefit ought not to be granted any relief.”

21.  Mr Chan said the Plaintiff’s interest in the trust falls within the situation mentioned in the last sentence of para. 67.  Counsel advanced this submission on the basis that the Plaintiff does not fall within the criteria laid down in the Clause because,

(a)     The character “和” in the criteria (which I would, by way of shorthand, referred respectively as “outstanding performance” criterion and “financial difficulty” criterion) has to be construed as conjunctive and the Plaintiff does not satisfy the “financial difficulty” criterion;

(b)    Despite the evidence filed, the Plaintiff does not satisfy the “outstanding performance” criterion.

22.  On (a), Mr Yu submitted that the construction as to the character “和” was not raised in the construction summons and it would not be right for the court to decide that point in the context of this strike-out application without hearing other persons who might have an interest in the trust assets.  Further, counsel contended it is arguable that the character should be construed by giving it a disjunctive meaning.

23.  I agree with Mr Yu it is not plain and obvious that the character “和” should be given a conjunctive meaning. The character appears twice in the Clause,

(a)     In the first part of the Clause: “用作資助「羅氏家族子孫」日後在香港脱出遭遇可能出現困境和突破”; and

(b)  In the last part of the Clause: “突破指在學業上,事業上,行為上,成績表現卓越,見義勇為或為家族或為民族爭光但因財力出現困難之資助和為此之奬賞及鼓勵”.

24.  I see the force of Mr Yu’s submission that by definition, “奬賞及鼓勵”is unlikely to occur in conjunction with “因財力出現困難之資助”.  Conceptually, the latter is about aids whilst the former is about awards.

25.  Further, if the requirement of “財力出現困難”is an essential ingredient of “突破”it would subsume “突破”under “困境”. Such interpretation would render the reference to “突破”in the first part of the Clause otiose.

26.  I think it is arguable that a descendant only needs to satisfy either one of the two criteria before he or she should be considered as a potential beneficiary under the Clause.

27.  As regards the “outstanding performance” criterion, the Plaintiff set out her achievements in the Voluntary Particulars filed on 6 October 2011. She also provided evidence in that respect in her affirmation of 12 January 2011 and her second affirmation of 6 October 2011 (in respect of which I grant leave to refer to it for the purpose of this application).  It is not plain and obvious to me that she does not meet the criterion.

28.  The Defendant said in his second affirmation of 14 February 2011 that he had not been informed of the achievements of the Plaintiff.  Further, he said at para. 5 that having regard to what were set out in the Plaintiff’s affirmation of 12 January 2011, he still did not consider that she had achieved any breakthrough.

29.  In the judgment of 26 July 2010, at para. 20, the court said the following with regard to the criteria,

“… The [Defendant] would have to decide whether a descendant of the Deceased satisfied these criteria. But the power to make such a decision is not an exercise of discretion. Rather it is the performance by the [Defendant] of his duty in the management of the assets in accordance with the terms of the Settlement.”

30.  And, further, at para. 27,

“… The [Defendant] is not given a general mandate to select some members from the descendants of the Deceased for distribution. Rather the first question that the [Defendant] should address is whether a particular person satisfied the criteria laid down under the Clause in that he or she is a descendant of the Deceased and he or she achieves breakthrough and/or in a state of destitute/adversity. I have explained why in my view, subject to cases where the descendant status is doubtful, the [Defendant]’s consideration of this question should not be regarded as a true discretion.”

31.  In other words, the Defendant must apply the criteria properly in addressing the question whether a particular person satisfied those criteria.  Though the majority of the Court of Appeal held that the power given to Defendant under the Clause is a mere power as opposed to a trust power, I do not think they intended to reverse what were said in these paragraphs. This is clear from what Tang VP said at para. 32 regarding the duty of the Defendant as trustee with a mere power by reference to the judgment of Lord Reid in In re Gulbenkian’s Settlement [1970] AC 508 at p. 518. I only need to refer to parts of it,

“In my view it must follow that the trustees are to act in their fiduciary capacity. They are given an absolute discretion. So if they decided in good faith at appropriate times to give none of the income to any of the beneficiaries the court cannot pronounce their reasons to be bad…. A settler or testator who entrusts a power to his trustees must be relying on them in their fiduciary capacity so they cannot simply push aside the power and refuse to consider whether it ought in their judgment to be exercised. And they cannot give money to a person who is not within the classes of persons designated by the settler: the construction of the power is for the court.” (my emphasis)

32.  Thus, a trustee who interprets the terms of his power (even though it is a mere power) wrongly can be subject to challenge.  It flows from the right of a potential beneficiary to have a discretionary trust administered properly.  As Thomas & Hudson, The Law of Trusts, 2^nd Edn put it at para. 7.39, in respect of the right of the objects of a fiduciary mere power,

“However, the objects of such a power, have a range of additional rights which the objects of a non-fiduciary power do not have, such as a right to be considered as potential recipients of benefit. They also have rights by which they may ensure that the trustees carry out their various fiduciary duties honestly and properly, in accordance with the terms of the particular power or discretion, and only in furtherance of the purpose(s) for which the power or discretion was conferred.” (my emphasis)

33.  In the context of the present application, it is not necessary for me to decide whether the Defendant’s determination that the Plaintiff did not meet the Outstanding Performance criterion is correct as a matter of proper interpretation of the Clause.  I simply point out that the determination is not conclusive and, as far as this court is concerned, there is room for argument that the Plaintiff did satisfy this criterion.  If necessary, the point can be revisited and argued in full at the trial.

34.  In any event, I do not think it is necessary for the Plaintiff to show that she has already fulfilled the criteria in the Clause before she could commence the present action.  This brings me back to Schmidt v Rosewood [2003] 2 AC 709 which actually was a case about disclosure of trust documents rather than the duty of a trustee to render account.  Since both sides advanced submissions on the basis that the same approach applies to the obligation to render account, I will assume that this is correct.

35.  Apart from paras. 66 and 67 of the judgment which I have already cited, it is also important to have regard to what Lord Walker said at para. 51,

“Their Lordships consider that the more principled and correct approach is to regard the right to seek disclosure of trust documents as one aspect of the court’s inherent jurisdiction to supervise, and if necessary to intervene in, the administration of trusts. The right to seek the court’s intervention does not depend on entitlement to a fixed and transmissible beneficial interest. The object of a discretion (including a mere power) may also be entitled to protection from a court of equity, although the circumstances in which he may seek protection, and the nature of the protection he may expect to obtain, will depend on the court’s discretion …”

36.  Then, at para. 54, His Lordship described the discretion of the court as follows,

“It will be observed that Kirby P said that for an applicant to have a proprietary right might be sufficient, but was not necessary. In the Board’s view it is neither sufficient nor necessary. Since In re Cowin 33 CH D 179 well over a century ago the court has made clear that there may be circumstances (especially of confidentiality) in which even a vested and transmissible beneficial interest is not a sufficient basis for requiring disclosure of trust documents … There are three such areas in which the court may have to form a discretionary judgment: whether a discretionary object (or some other beneficiary with only a remote or wholly defeasible interest) should be granted relief at all; what classes of documents should be disclosed, either completely or in a redacted form; and what safeguards should be imposed (whether by undertakings to the court, arrangements for professional inspection, or otherwise) to limit the use which may be made of documents or information disclosed under the order of the court.”

37.  By the same token, it is not necessary for the Plaintiff to show that she has at present fulfilled the criteria.  If she is able to do that, her interest is less remote and as such a matter to be taken into account in the overall exercise of discretion.  However, even assuming she is not able to do so presently, neither can the Defendant say that she could never meet the criteria.  Mr Chan tried to persuade this court that the possibility is remote. In my judgment, it is arguable that the possibility is not so remote that the court’s discretion in ordering account to be rendered should not be exercised at all.

38.  For these reasons, it would not be appropriate to strike out the Writ or the Statement of Claim.  The Defendant’s summons is dismissed.

39.  Instead of making of an order nisi as to costs, I propose to hear parties on the same as well as directions as to future conduct of the action, especially in the light of what I said above as to the nature of the action.