WAN SIU FONG AND OTHERS v. WAN CHI SUN

DCCJ4636/2007

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 4636 OF 2007

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J U D G M E N T

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1.  The three plaintiffs are the beneficiaries of the estate of the deceased, Madam Lok Ching-lin under clause 3 of her last will and testament (“the said will”).  The defendant is the executor of her estate appointed under the said will.  The deceased passed away on 1 September 1997.  Probate was granted by the Probate Registry to the defendant as the executor on 29 July 2004 under grant No. HCAG004083 of 2004.

2.  Clause 3 of her said will provides the following:

“I give all my benefit and interest of and in the property known as Ground Floor, DD227, Lot No. 758, Tai Po Tsai Village, Clear Water Bay Road, Kowloon, Hong Kong to my daughter, Wan Siu-fong, holder of Hong Kong ID card No. G 514933 (8); my grandson, Kwong Chi-yiu, holder of Hong Kong ID card No. Z 655210 (3); and my granddaughter, Kwong Chi-wai, holder of Hong Kong ID card No. Z 243906 (A) as joint tenants in equal shares absolutely upon the said Kwong Chi-yiu and Kwong Chi-wai shall attain the age of 21 years respectively.”

3.  After the deceased’s death, the three-storey house where she used to reside at DD227, Lot No. 758, Tai Po Village, Clear Water Bay Road (“the property”) was let out for rental income by the defendant, the executor.

4.  Under clauses 3, 4 and 5 of the said will, the testator bequeathed the ground floor of the property to the three plaintiffs.  The 1st plaintiff was her daughter; the 2nd and 3rd plaintiffs, her grandson and granddaughter respectively.  She further bequeathed under clause 4 of the said will the 1st floor of the said property to her second daughter, Wan Siu-fun, and her two children.  Under clause 5 of the will, she bequeathed the 2nd floor of the said property to her daughter-in-law, Chan Po-ling, and her two children, who are grandchildren of the deceased.

5.  The wordings in clauses 3, 4 and 5 of the will are identical except for the names and particulars of the respective beneficiaries.  Under clause 6, the final clause of the said will, she bequeathed the residue of her estate not disposed of under the will or codicil to her son and executor, the defendant.

6.  The 2nd plaintiff was born on 27 March 1985 while the 3rd plaintiff was born on 3 December 1980.  Both have by now attainted the age of majority and reached the age of 21.  On 1 December 2008, the ground floor of the property was conveyed to the three plaintiffs by the defendant, the executor of the estate.

7.  In the present action, the three plaintiffs are pursuing against the defendant the recovery of the accumulation of rental income between 1 September 1997 and 20 July 2006.  They conceded the amount accumulated to be $713,087. 

8.  The defendant, however, claimed that the accumulated rental income between 1 September 97 and 20 July 2006 derived from the ground floor of the said property fell into the residuary estate which the deceased had disposed of under clause 6 of the said will.  He claimed that the gift to the three plaintiffs was a contingency legacy which would only become vested upon the attainment of the age of 21 of the 2nd and 3rd plaintiffs.

9.  The preliminary issues in this case are the following:

(1)  whether the gift became immediately vested in the three plaintiffs at the death of the testator, Madam Lok, or whether the gift was contingent upon the attainment of the age of 21 of the 2nd and 3rd plaintiffs;

(2)  whether the will made provisions for a gift over. 

10.  Should the gift be immediately vested on the plaintiffs upon the death of the testator, the executor is liable to account all of the rental income after deduction of the usual expenses such as rates and estate duties (if any), funeral expenses, legal expenses and management fees on the property.

11.  Should the gift be a contingent legacy until the 2nd and 3rd plaintiffs attain the age of 21 years, the defendant executor will benefit as the beneficiary of the residue or accumulation from the interests and/or income from the estate between 1 September 1997 and 20 July 2006.

The Arguments

12.  Mr Mui, counsel for the defendant, the executor, argued that under clause 3 of the will, the testator had only bequeathed the gift to the three plaintiffs upon the 2nd and 3rd plaintiffs attaining the age of 21 years.  He agreed, however, that the bequest to the three beneficiaries under clause 3 rendered them joint tenants in equal shares.  Therefore, should the 1st plaintiff pass away before the 2nd and 3rd plaintiffs attaining the age of 21 years, her interest in the gift will pass to the 2nd and 3rd plaintiffs upon their reaching the age of 21 years.  Should either the 2nd and 3rd plaintiffs pass away before attaining 21, his or her share will be shared between the other two survivors, i.e. the 1st plaintiff and the 2nd plaintiff or the 1st plaintiff and the 3rd plaintiff.

13.  Mr Mui further submitted that in the event that should neither the 2nd and 3rd plaintiffs attain the age of 21, the 1st plaintiff will take the whole gift based on the fact that the gift was to all three of them in joint names and therefore survivorship would apply.

14.  This last hypothetical submission I find to be contrary to Mr Mui’s earlier submissions.  If the gift only became vested upon the attaining of the age of 21 of the 2nd and 3rd plaintiffs and it was a contingent gift on the condition of the attaining of the age of 21 of the 2nd and 3rd plaintiffs, logically speaking, the 1st plaintiff would be divested of any interest should both the 2nd and 3rd plaintiffs pass away before the age of 21 because the contingent event never took place on the basis the gift was a contingent gift.

15.  Miss Chan, counsel for the plaintiffs, on the other hand, submitted that the gift to the three plaintiffs was an absolute gift and became vested in the three plaintiffs upon the death of the testator.  She based her case on the wordings used in the said will, “bequeathing the gift to the three plaintiffs.”  The will stated: “I give all my benefit and interest of and in the property known as ……….. to my daughter, Wan Siu-fong; my grandson, Kwong Chi-yiu; and my granddaughter, Kwong Chi-wai, as joint tenants in equal shares absolutely.”

16.  Miss Chan argued that the word “absolutely” meant it was an unconditional gift.  It was therefore not contingent upon the 2nd and 3rd plaintiffs reaching the age of 21 years because “absolutely” means without conditions attached.

17.  She further argued the word “respectively,” which came after the words “the said Kwong Chi-yiu and Kwong Chi-wai shall attain the age of 21 years,” meant the testator had intended each of her grandchildren to inherit their respective share as and when they attained the age of 21; meaning the gift to the three plaintiffs shall not fail if only one of the two grandchildren should attain 21, and that each shall have an equal share as “joint tenants”. 

18.  Miss Chan further argued that there was no provision for a gift over in the bequest under the will, i.e. no direction that a third person shall inherit the legacy should the gift fail or in the interim before the minors attained the age of 21 years or if any of the minors should not survive before attaining 21.  Neither was there provisions for any rental income or interest in the said will; therefore the three plaintiffs, according to Miss Chan’s argument, must be entitled to the accumulation derived from the legacy.

The Law

19.  I have been referred to the rule in Saunders and Vautier [1841] 4 Beav 115 (49 ER 282), which Lord Davey explained in Wharton v Masterman [1895] AC 186 at page 198:

“This being so, the principle of Saunders v Vautier,would at once be applicable if this were the case of a gift to an individual. That principle is this: that where there is an absolute vested gift made payable at a future event, with direction to accumulate the income in the meantime, and pay it with the principal, the court will not enforce the trust for accumulation in which no person has any interest but the legatee or (in other words) the Court holds that the legatee may put an end to an accumulation which is exclusively for his benefit.  The principle is stated, as well as elsewhere, by Lord Hatherley in the passage from his judgment in Gosling v Gosling (2) which was read by Lindley LJ in the Court of Appeal.  There is no condition precedent to happen or to be performed in order to perfect the title of the legatees, and there is no other person who has any interest in the execution of the trust for accumulation, or who can complain of its non-execution.  The reason for the rule has been variously stated.  It may be observed, however, that the Court of Chancery always leant against the postponement of vesting or possession, or the imposition of restrictions on the enjoyment of an absolute vested interest.”

20.  In the case of In re Couturier [1907] 1 Ch. 470, Joyce J. referred to Wood V.C.’s dictum in Gosling v Gosling at page 473 of his judgment:

“Where a legacy is directed to be set apart for the legatee without more, that, in my opinion, is sufficient to carry the income from the date of the setting apart unless a contrary intention appears by the will.  So that here the legacy, with interest, is for the legatee, subject to the directions following with respect to the mode or times of payment.  If these directions as to the periods of payment were absent, there would still, I think, be sufficient left to give an immediate vested legacy, with the interest or income thereof.”

at the 5^th line of the last paragraph on page 473, he continued:

“In Gosling v Gosling, Wood V.C. thus state the law: “The principle of this court has always been to recognise the right of all persons who attain the age of 21 to enter upon the absolute use and enjoyment of the property given to them by a will, notwithstanding any directions by the testator to the effect that they are not to enjoy it until a later age:- unless, during the interval, the property is given for the benefit of another.  If the property is once theirs, it is useless for the testator to attempt to impose any fetter upon their enjoyment of it in full so soon as they attain 21.  And upon that principle, unless there is in the will, or in some codicil to it, a clear indication of an intention on the part of that testator, not only that his devisees are not to have the enjoyment of the property he has devised to them until they attain 25, but that some other person is to have that enjoyment, - or unless the property is so clearly taken away from the devisees up to the time of their attaining 25 as to induce the Court to hold, that, as to the previous rents and profits, there has been an intestacy the court does not hesitate to strike out of the will any direction that the devisees shall not enjoy in full until they attain the age of 25 years.

Here, there is no express direction to accumulate or as to interest; but, as I have already observed, a direction to set apart for the benefit of A, the income not being otherwise disposed of, in my opinion applies that A is to have the income as well as the principal from the time of setting apart or from the time when the setting apart is directed to take place.  There is here no gift over or other express disposition of the principal in the event of the legatee dying before the period fixed for payment.  Upon the whole I consider these bequests equivalent to a gift of a legacy to the legatee payable as to part at 21, further part at 25, and the balance at 30.  According to the principle of the decision in Gosling v Gosling, I am, therefore, of the opinion that each of these legatees upon attaining 21 is entitled to the payment of his legacy with the immediate interest or income, and that the legal personal representative of any legatee who survived the testatrix and died before actual payment is entitled to the legacy or balance remaining unpaid of both income and principal.”

21.  On page 601, paragraph 43-22 of Theobald on Wills, 16th edition, the learned authors said the following: 

“Where there is a clear gift, an additional direction to pay when the legatee attains a given age, will not postpone the vesting, the gift being considered debitum in presenti solvendum in futuro.  Thus, a gift to A payable at 21, is vested, and it makes no difference whether the gift precedes or follows the direction for payment, provided a clear immediate gift can be found in the will.  The difficulty in these cases is to decide whether there is a substantive gift and a direction to pay, or whether the only gift is in the direction to pay.  Where there is a clear gift, a direction to accumulate the interest and to pay the principal an accumulation at 21 will not affect the vesting.”

22.  Mr Mui relied on the case of In re Francis [1905] 2 Ch. 295 where Swinfen Eady J. held on the devise of two freehold houses to the testator’s niece Hilda “when she shall attain the age of 25 years”:

“Standing alone and not preceded by any intermediate interest, is contingent, and the attainment of 25 is condition precedent to the estate vesting in her.  It is a case of a devise which is in form contingent, and which stands alone and without any context to enable the court to hold it to be vested.”

Findings

23.  As the aforementioned authorities indicated, should the wordings of the bequest in the will be “to A when he shall attain the age of 25 years” and should these words stand alone and not preceded by any intermediate interests, the gift is contingent.  However, in the present case, the testator had by the words of the bequest made the gift to the three plaintiffs in joint tenancy and in equal shares absolutely.  The gift must be an absolute one.  Though she followed it by the words “upon the 2nd and 3rd plaintiffs attaining the age of 21 years respectively,” one should look at the crucial word “respectively.”

24.  Though there may be a condition that when the 2nd and 3rd plaintiffs attain the age of 21 years they were meant to inherit their respective shares in the gift on the date that each of them shall attain the age of 21. The condition is not: unless both should attain the age of 21 or the gift would fail or that the gift to all three plaintiffs would fail.  The condition is: they should take the gift on the day they attain the age of 21 years respectively.  

25.  In my opinion, the gift under clause 3 of the will gave a vested interest in the property to all three plaintiffs upon the death of the deceased (the testator).  The bequest to the 1st plaintiff was vested on the 1st plaintiff absolutely on the death of the testator.  It must also be vested on the 2nd and 3rd plaintiffs absolutely upon the death of the testator.  The condition was that they shall each take their share when they attain the age of 21, and they could be paid or given their interests at that age.

26.  Should the 2nd and 3rd plaintiffs not survive 21 years, it is not disputed that the 1st plaintiff would take the whole of the ground floor of the said property under survivorship.  This is a point the defendant does not dispute.

27.  At page 795 of Williams on Wills, volume 1, 9th edition, the author said:-

“Where the donee is given an interest until a specified age and the remainder of the will is worded on the assumption that he takes absolutely at that age, he takes an absolute interest though the will does not give it to him in express terms.”

28.  It is therefore clear when the gift is an absolute one with no gift over or provision for accumulation should the specific gift fail, the gift is absolute and vested upon the death of the testator.  It is clear to me, therefore, that clause 6 is not a gift over direction for clauses 3, 4 and 5.  It is merely a direction for disposition of the residuary estate.

29.  For the aforesaid reason, I find the accumulation of the rental income after deduction of the necessary expenses, estate management fees, legal expenses, etc. should go to the three plaintiffs.

Ruling on Costs and Interest

30.  As to the matter of quantum and interest, I would leave the matter to be worked out by the parties as indicated during the hearing on quantum. The executor, who has a duty to account to the beneficiaries, should account the income accumulations to the beneficiaries.  I will give leave to the parties to restore this matter should the parties be unable to resolve the matter. 

31.  The same applies to the interest rate.  No doubt the plaintiffs should have the interests so far as the action is concerned, from the date of the writ to the date of the judgment.  There is of course more than the interest from the date of the writ which the defendant should account to the beneficiary, that is why I am leaving the actual interest to be worked out between the parties, you can come back to Court should you be unable to resolve it.

32.  So far as cost is concerned: costs should follow the event.  I do not think that costs should be borne, however, by the executor personally.  Mr Mui did inform me at the hearing that the executor, the defendant, was advised against paying out the accumulation although he did settle with the other beneficiaries under the same will.  He was advised differently this time.  So it is a matter as to whether he was wrongly advised, he may have an action against the legal representative who wrongly advised him, or it may be something that he did not foresee and he preferred the matter to be left to the court to decide.

33.  In any event, costs should not be borne by him personally.  It is not his fault, and it should be borne therefore by the estate.  I would allow costs on a more generous basis and order costs to be taxed on a common fund basis, with certificate for counsel.