THE SECRETARY FOR JUSTICE v. JOSEPH LO KIN CHING AND OTHERS

CACV 44/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 44 OF 2013

(ON APPEAL FROM HCMP NO. 853 OF 2012)

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BETWEEN

(By original originating summons and order to carry on)

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  Nina Wang passed away on 3 April 2007. On 2 February 2010, the court pronounced her will of July 2002 [“the Will”] in solemn form in HCAP 8 of 2007. That judgment was upheld on appeal in CACV 62 of 2010 on 14 February 2011. Application for leave to appeal to the Court of Final Appeal was refused by the Appeal Committee on 24 October 2011 in FAMV 20 of 2011.

2.  The Will is a homemade Chinese will.  It provides as follows:

“我, 龔如心謹立遺囑如下:

一. 「華懋慈善基金有限公司」 是我與我先生王德輝共同創立 。我所有財產于我離世之後全部撥歸 「華懋慈善基金有限公司」。

二. 「華懋慈善基金有限公司」 在我離世之後希望交託由聯合國秘書長、中國政府總理和香港特別行政區政府首長組成的管理機構監管，並在此監管下 「華懋慈善基金有限公司」除必須繼續自創立以來所進行的各項目，使其不斷發展，還要繼續達到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的目的。

三. 「華懋慈善基金有限公司」 之董事會必須在上述監管機構監管下切實管理好公司的業務和資金，維護與擴大 「華懋集團」 和我們開創的所有事業，確保 「華懋慈善基金有限公司」 之商業王國不斷壯大，並以其部分盈利將慈善事業不斷發展達至永遠。

四. 「華懋慈善基金有限公司」 必須繼續做到:

1. 對王氏家族的老一輩，王廷歆先生及任玉珍女士 ，須給予按其意願、令其滿意的供養。

2. 負責王德華的生活與醫療。及照顧其子女和深造之需要。至于我丈夫王德輝的其餘弟妹，如有需要公司也有責任給予照顧。其子女如升大學或深造公司均應負責。

3. 「華懋慈善基金有限公司」 有責任給予 「華懋集團」 的同事及其子女以關懷和幫助。鼓勵他們不斷進修，不斷自我增值。鼓勵他們一起為實現造福人類的理想共同努力 。”

3.  The certified English translation of the Will is as follows:

“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. 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. Under its supervision, not only must ‘Chinachem Charitable Foundation Limited’ continue all the projects which it has undertaken since its establishment to enable their developments continuously, but 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 businesses 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.”

4.  Though some points of translation were raised by this court, we shall proceed on the certified version.  For ease of reference, we will refer to the first sentence in Clause 2 of the Will as Clause 2(1), and the second sentence as Clause 2(2).

5.  The estate is enormous.  Nina, as the chairwoman of the Chinachem Group of companies, was reputed to be the richest woman in Asia.  According to the information supplied by the Administrators of the estate, its value in 2012 was about $82.86 billion with an operating profit of $2.48 billion in that year. 

6.  The 2^nd Defendant, Chinachem Charitable Foundation Limited [“the Foundation”], is a company established by Nina and her late husband in 1988.  It is a company limited by guarantee and it has been granted tax exemption status under Section 88 of the Inland Revenue Ordinance as a charitable institution.  It is named as the donee of the whole of Nina Wang’s estate under Clause 1 of the Will.

7.  After the issue as to the validity of the Will had been determined, the Secretary for Justice [“SJ”] issued proceedings in HCMP 853 of 2012 seeking the determination of the court on some construction issues in respect of the Will.  The main issue is whether the Foundation received the estate as an absolute gift (as contended by the Foundation) or as a trustee holding it on a charitable trust (as contended by the SJ).  There were other issues raised in the Originating Summons, which had been amended and re-amended.  At the trial before Poon J, the parties focused on paragraphs 1 to 5 of the Originating Summons, the other paragraphs were adjourned with liberty to restore.

8.  In his judgment of 22 February 2013, Poon J [“the Judge”] resolved the construction issues in favour of the SJ.  The Judge held that the gift to the Foundation under the Will is not an absolute gift. Rather, the Foundation is to hold the estate on a charitable trust.  The Foundation appeals against that decision.  Before us, the submissions of the parties focused on the challenge to the Judge’s conclusion that the bequest under the Will is subject to a charitable trust.  The appeal proceeded on the basis that this court would focus on this issue.  If our conclusion is that the Foundation holds the assets under a charitable trust, it is contemplated that there would be a second stage of the proceedings (by way of restoring the other paragraphs in the Originating Summons at the Court of First Instance) seeking directions from the court on the administration of the trust, including the approval of a scheme (to be submitted).  

The stance of the Foundation

9.  At the outset of the appeal, at the invitation of the court in light of what were set out in skeleton submissions, Mr Hinks QC informed us even if it were to be held that the bequest is an absolute gift, it is not the Foundation’s case that it would not be subject to any supervision at all.  Counsel said the Foundation accepted that as it is a charitable company, the SJ and the court have roles to play in the supervision of its affairs.  We were referred to several cases on the court’s power to intervene in the affairs of charitable companies, notably Construction Industry Training Board v Attorney General [1973] 1 Ch 173; Liverpool and District Hospital for Diseases of the Heart v Attorney General [1981] 1 Ch 193; In re ARMS (Multiple Sclerosis Research) Ltd [1997] 1 WLR 877; Ontario (PGT) v AIDS Society for Children (2001) 39 ETR (2d) 96.

10.  Whilst there is no doubt that the court and the SJ have jurisdiction and power to monitor the affairs of a charitable company, the precise limits of that jurisdiction are in dispute.  The jurisdiction must stem from the parens patriae function of the court and the SJ.  Though it has often been said in the cases that a charitable company is in a position analogous to that of a trustee in relation to its corporate assets, it is also clear that neither the company nor its directors act as trustee in the strict sense in the exercise of power over the assets.  At the same time, the authorities suggest that such company owed fiduciary duties to the donor as well as the general public.  This is accepted by both Mr Hinks and Mr Taube QC, who appeared for the SJ.

11.  In Construction Industry Training Board v Attorney General [1973] Ch 173, Buckley LJ said at p.186-7:

“It is a function of the Crown as parens patriae to ensure the due administration of established charities and the proper application of funds devoted to charitable purposes. This it normally does through the instrumentality of the courts … Where the Crown invokes the assistance of the courts for such purposes, the jurisdiction which is invoked is, I think, a branch of the court’s jurisdiction in relation to trusts. In such cases the relief granted often takes the form of an order approving a scheme for the administration of the charity which has been laid before the court, but this is not the only way in which the court can exercise jurisdiction in respect of a charity or over charity trustees. … The court could, for instance, restrain trustees from applying charitable funds in breach of trust by means of an injunction. In the case of a charity incorporated by statute this might, as was suggested in the present case, be explained as an application of the doctrine of ultra vires, but I do not think that this would be a satisfactory explanation … Or, by way of further example, the court could order charity trustees to make good trust funds which they had misapplied, or could order them to account, or could remove or appoint trustees, or could exercise any other kind of jurisdiction available in the execution of trusts other than charitable trusts. In every such case the court would be acting upon the basis that the property affected is not in the beneficial ownership of the persons or body in whom its legal ownership is vested but is devoted to charitable purposes, that is to say, is held upon charitable trusts. …”

12.  It seems that up to this point in the judgment the learned judge was referring to the different types of control the court may exercise over charitable trusts.  But in the next paragraph, he referred to charity set up by means other than a trust:

“It has long been recognised that, where a charity is established by an Act of Parliament, the court will not exercise its jurisdiction in any way which will conflict with the provisions of the Act (In re Shrewsbury Grammar School (1849) 1 Mac & G 324,333), but this does not mean that in such a case the jurisdiction of the court is entirely ousted. In In re Shipwrecked Fishermen and Mariners’ Royal Benevolent Society [1959] Ch 220, Danckwerts J expressed the view (in which I respectfully concur) that the court has power to sanction a scheme in relation to a charity established by an Act of Parliament in respect of matters not in conflict with the provisions of the Act, and even in respect of those matters which are regulated by Act of Parliament the court can entertain an application by charity trustees to consider whether they should apply to Parliament for an amending Act: In re Shrewsbury Grammar School (1849) 1 Mac & G 324. It seems that the position may be similar in the case of a charity incorporated by Royal Charter: In re Whitworth Art Gallery Trusts [1958] Ch 461.”

13.  One must read the reference to “charity trustee” bearing in mind the following observations of Slade J in Liverpool and District Hospital for Diseases of the Heart v Attorney General [1981] 1 Ch 193 at p.209:

“The expressions ‘trust’ and ‘trust property’ may be, and indeed have been, used by the court in rather different senses in different contexts. … In a broad sense a corporate body may no doubt aptly be said to hold its assets as a ‘trustee’ for charitable purposes in any case where the terms of its constitution place a legally binding restriction upon it which obliges it to apply its assets for exclusively charitable purposes. In a broad sense it may even be said, in such a case, that the company is not the ‘beneficial owner’ of its assets. In my judgment, however, none of the authorities … establish that a company formed under the Companies Act 1948 for charitable purposes is a trustee in the strict sense of its corporate assets, so that on a winding up these assets do not fall to be dealt with in accordance with the provisions of section 257 et seq of that Act. They do, in my opinion, clearly establish that such a company is in a position analogous to that of a trustee in relation to its corporate assets, such as ordinarily to give rise to the jurisdiction of the court to intervene in its affairs; but that is quite a different matter. …”

14.  And further at p.214:

“In my judgment the so-called rule that the court’s jurisdiction to intervene in the affairs of a charity depends on the existence of a trust, means no more than this: the court has no jurisdiction to intervene unless there has been placed on the holder of the assets in question a legally binding restriction, arising either by way of trust in the strict traditional sense or, in the case of a corporate body, under the terms of its constitution, which obliges him or it to apply the assets in question for exclusively charitable purposes; for the jurisdiction of the court necessarily depends on the existence of a person or body who is subject to such obligation and against whom the court can act in personam so far as necessary for the purposes of enforcement. …”

15.  The extent of assimilation of the powers of the court and the SJ in the supervision of a charitable trust with those in respect of a charitable company or corporation has not been subject to any detail analysis and discussion in the cases.  In England, as in Canada, there are statutory regimes governing charities in general (including charitable corporations) which are absent in Hong Kong.  In view of such legislative lacuna, whether the common law in Hong Kong will develop in similar vein as in England or Canada would have to be considered on a case by case basis.  As pointed out by Cullity J in Asian Outreach Canada v Hutchison (2000) 28 ETR (2d) 275 at 284 para 27:

“… the fact that, in supervising charitable corporations, principles that are also applicable to charitable trusts are very often applied, does not mean that all the implications of corporate personality and the requirements of corporate law are to be ignored. The difficulty is to determine how the principles interact and to identify the situations in which the inherent jurisdiction may, in effect, override the rules applicable to corporations in general.”

16.  In the present appeal, the Foundation accepted and offered by way of acknowledgement  (in a draft minute of order submitted by Mr Hinks to the Judge) that it is subject to the following obligations in any event:

1. In no circumstances can the objects of the 2^nd Defendant be altered so as to extend the same to the objects which are not exclusively charitable;

2. The 2^nd Defendant will not alter the provisions stated 3^rd, 5^th and 8^th in its Memorandum of Association without the prior written consent of the Plaintiff or the approval of the Court;

3. The 2^nd Defendant as a corporate charity is subject to the supervisory jurisdiction of the Court exercisable in relation to charities;

4. The memorandum and articles of the 2^nd Defendant should be amended so as to make provision for a supervising body of the nature envisaged in the first sentence of clause 2 of the Will and in so far as practicable consistently with the wishes of Nina expressed therein, the constitution of such supervising body to be as agreed between the present governors of the 2^nd Defendant and the Plaintiff and in default of agreement to be determined by the Court;

5. The 2^nd Defendant will use its best endeavours to create in the name of Nina Wang a Chinese prize of worldwide significance;

6. The 2^nd Defendant in administering its affairs will use its best endeavours to maintain a proper balance between:

6.1 safeguarding and expanding the business comprised within the Chinachem Group;

6.2 developing and fulfilling the charitable objects of the 2^nd Defendant; and

6.3 being a caring employer of staff employed from time to time within the Chinachem Group.”

17.  From the submissions advanced before us, the following is the main difference between Mr Hinks and Mr Taube in respect of the court’s jurisdiction in respect of the affairs of the Foundation if it takes the gift as absolute owner: whether the Foundation can change its object clauses in its constitution without the approval of the court: though Mr Hinks was prepared to accept (1) and (2) in para 16 above, he submitted that the Foundation could alter its object clauses so long as it would not result in a fundamental change of its charitable objects; on the other hand, Mr Taube submitted that there could not be any change unless the court approved it by way of a cy-prѐs scheme.  This was debated in the context of question 2 in the Re-amended Originating Summons.

18.  Whilst we note the position of the Foundation as stated above, it does not directly assist us in resolving the primary issue in this appeal: whether the bequest is an absolute gift or the setting up of a charitable trust.  We understand that this stance of the Foundation was put forward to us in answer to Mr Taube’s skeleton submission suggesting that in case of absolute gift the Foundation would have a free hand in dealing with the assets.  To be fair to Mr Taube, what he actually said was that if there was no trust, the governors of the Foundation would have a free hand to decide how to apply its assets among its objects and nobody would have legal standing to compel the Foundation to give effect to Nina’s mandatory direction in Clause 2(2).  Mr Taube advanced this contention to make the point that to give full effect to Clause 2(2), and thus to construe the Will in accordance with its language holistically, absolute gift to the Foundation is not the right conclusion.

19.  Mr Hinks submitted that even in the context of an absolute gift the Foundation would still be obliged to give proper weight to Nina’s wishes set out in Clause 2(2) in the same way as a discretionary trustee is obliged to pay regard to letters of wishes provided by the settlor.  Counsel referred to Lewin on Trusts (18^th ed) paras 29-149 to 29-152 and Kain v Hutton [2005] WLTR 977 at p.1024F.  Mr Hinks submitted that if the wishes expressed are capable of performance and expressed with sufficient clarity and no special circumstances exist justifying payments to other objects or for other purposes, the trustees may be sued by the potential beneficiaries under the letter of wishes for breach of trust in the same way as a beneficiary under an express trust.

20.  Referring to the same authorities, in particular Lewin, op cit, para 29-151, Mr Taube submitted that the duty to pay proper regard to a settlor’s wishes is an obligation of a very limited nature. In Kain v Hutton [2005] WLTR 977, at para 301, the court said:

“… The legal position with reference to a statement or letter of wishes is clear, namely that trustees must take serious account of the settlor’s wishes but always appreciating that the ultimate decision is theirs. It follows that trustees may properly decide to act contrary to the settlor’s wishes after taking account of all the relevant circumstances …”

21.  This is not the occasion to delve into detail discussion on the extent of the duty of a discretionary trustee in respect of the wishes of a settlor.  It cannot be disputed (and we do not understand Mr Hinks to dispute) that such a duty, even if it is one that could be applied by analogy to the Foundation with reference to Clause 2(2) in the context of an absolute gift, it is not as stringent as that of the Foundation holding the assets on trust under the terms of the Will.  We agree with Mr Taube that the authorities do not go so far as suggested by Mr Hinks in terms of the duty of a discretionary trustee over a letter of wishes.  

22.  As we see it, ultimately, it is a matter of construction of the Will as a whole in accordance with those well established principles set out by the Judge in his judgment at paras 28 to 36.  If (as found by the Judge) the true intention of Nina as reflected in the language used in the Will is that the Foundation is to apply the assets strictly in accordance with what she provided under the terms of the Will, we do not think Mr Hinks’ submissions on the potential obligations on the part of the Foundation (assuming it takes the assets as absolute gift) could advance his client’s case further.  Taking Mr Hinks’ submissions on the duty of the Foundation (in the scenario of absolute gift) to their highest, the Foundation will not be legally obliged to strictly apply the assets in accordance with the stipulated objectives in the Will.

23.  Thus, we must turn back to the question of construction on which this appeal must be decided.    

Approach on construction of wills

24.  As observed above, the Judge set out the principles governing the construction of a will at paras 28 to 36 of his judgment.  Those principles are not in dispute in this appeal.  We respectfully adopt the same in this judgment.  In light of the contentions advanced before us, we only need to comment on some aspects in the general approach on construction of wills.

25.  First, on the application of the approach of benignant construction alluded to at para 36 of the judgment, Mr Hinks submitted that it only disposes the court in favour of charitable bequests to be upheld in circumstances where they would otherwise fail.  He submitted that approach has no relevance in the present circumstances where the contest is between a construction in favour of a charitable trust and a construction in favour of absolute gift to a charitable corporation.  In either event, counsel submitted, there is a valid charitable bequest. We do not have any problem with this submission.  At the same time, there is no suggestion that the Judge came to his conclusions on construction of the Will on the mistaken basis that a benignant construction would favour a charitable trust as opposed to an absolute gift in favour of a charitable corporation.

26.  Second, Mr Hinks placed much reliance on the rule in Hancock v Watson [1902] AC 14 at p.22:

“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.”

27.  In the present context, Mr Hinks submitted that if Clause 2(2) does not declare a valid trust and Clauses 2(1), 3 and 4 cannot take effect as trust administrative directions and trust powers, under that rule Clause 1 will take effect as an absolute gift to the Foundation.

28.  In our judgment, the rule in Hancock v Watson is not a rule on construction and as such it has no role to play in the construction exercise gearing towards giving effect to the intention of the testatrix.  Instead, it is a substantive rule of law governing the legal consequence where a provision in a will cannot be valid by reason of some substantive legal reasons like the infringement of the rule against perpetuity or a trust being void for uncertainty of objects or uncertainty of subject matter.

29.  On the facts of that case, a gift was made by the testator in his will to SD in trust for her life for her separate use, and after her death in trust for her children upon attaining a certain age and in default of such issue a gift over to the children of another person C.  SD died without having had a child.  There were children of C who satisfied the condition of the default gift over.  It was held that the whole gift over (viz the gift over to SD’s children and the default gift over to C’s children) was void for remoteness.  By reason of the invalidity of the whole gift over, the original absolute gift remained and therefore the assets passed to her representatives upon her death.

30.  It is clear from what was said by Lord Davey at p.22-23 after the dicta cited by Mr Hinks that the court had found as a matter of construction in that case that the provision in the will in favour of SD was an absolute gift to her.  In particular, His Lordship said:

“Mr Levett contended that there are words in the will which confine her interest in the allotted portions to her life. But that is not what the testator has said: he has directed that during her life she shall have only the income of her share for her separate use without power of anticipation. But that is quite consistent with a power to dispose of the capital after her death so far as it should not be exhausted by the trusts declared of it and with the right of her representatives to claim it. …”

31.  In the present appeal, we can deal with the main issues before us in two stages:

(a) The construction of the Will in terms of giving effect to the intention of Nina as set out in the language used in the Will as a whole; and

(b) The consideration of the legal effect of the Will in light of the challenges presented by Mr Hinks against the validity of a charitable trust.

32.  At stage one, the rule in Hancock v Watson cannot be relied upon to justify a blinkered approach towards the construction of the Will.  Clause 1 is not a stand-alone provision and it must be construed together with other clauses in the Will.  It is only if the court concludes at stage one that the bequest was an absolute gift to the Foundation with a trust grafted upon it by way of gift over, and the court considers at stage two that the gift over failed for some legal reasons, then the rule will apply to save the absolute gift.      

33.  Third, Mr Hinks and Mr Taube disagreed with each other as to the scope of admissible extrinsic evidence in the construction of the Will.  At paragraph 65 of the judgment, the Judge held that what Nina did or did not do after the execution of the Will in terms of the setting up of the managing organization and the appointment of the three siblings to be Governors of the Foundation is inadmissible evidence for the construction of the Will. Mr Taube supported the Judge’s approach.  Mr Hinks submitted evidence of Nina’s conduct after the execution of the Will could cast light on her intention at the time the Will was made.

34.  With respect, we cannot accept the subsequent conduct of Nina in terms of the appointment of her siblings as Governors and her lack of progress in setting up the managing organization as admissible evidence for the purpose of construing the Will.  No authority has been cited by Mr Hinks to support such a generous approach in the admissibility of extrinsic evidence.  Even assuming that the liberal approach of Lord Hoffmann in ICS  Ltd v West Bromwich [1998] 1 WLR 896 is applicable for the construction of will, we do not think the subsequent conduct relied upon by Mr Hinks come anywhere near to the underlying factual matrix pertaining to the making of the Will.  In this regard, we are in agreement with the Judge.

35.  Fourth, Mr Hinks referred us to several authorities to support the proposition that in the absence of other terms, a bequest to a charitable corporate body operates as an absolute gift to that body instead of creating a trust for charitable objects: Bowman v Secular Society [1917] AC 406, at 440-1; In re Vernon’s Will Trusts [1972] 1 Ch 300; In re ARMS (Multiple Sclerosis Research) Ltd [1997] 1 WLR 877. We have no disagreement with this general proposition.  However, the principle is only applicable if there is nothing in the terms of the bequest to indicate that the corporate body only receives the assets as trustee.  Thus, Buckley J in Vernon qualified the proposition at p.303E: “… unless there are circumstances which show that the recipient is to take the gift as a trustee …” Likewise, in Bowman Lord Parker made the observation at p.440 that “the testator says nothing as to how he desires his residuary estate to be applied in the hands of the society …”.

36.  In the present case, the dispute is whether the terms of the Will, properly construed, show that a trust is created as opposed to an absolute gift to the Foundation.  It depends on the construction of the Will.  If upon proper construction, Nina intended the Foundation to hold the assets on trust for charitable purposes, this principle has no application.

The wordings of the Will

37.  As the Judge said at para 29 of his Judgment, the starting point in the construction exercise must be the ascertaining of the intention of the testator by reference to the natural meaning of the words used by Nina in the Will, reading the Will as a whole and in its entire context.

38.  The Will was written in Chinese.  Though Clause 1 of the Will provides for a bequest to the Foundation, the Will does not stop there.  Clause 1 has to be read together with the other clauses in the Will before one can determine whether the bequest is intended to be an absolute gift or a charitable trust.

39.  Counsel agreed that Clause 2 can be divided into two parts.  As mentioned earlier, and adopting the mode of reference by counsel, we would identify the first part of Clause 2 as Clause 2(1).  It is expressed as a wish (希望) that the Foundation would be subject to the supervision of a managing organization.  In contrast, Clause 2(2) contained direction as to the objects which the Foundation must achieve and it is worded in firm and imperative language: “必須” (must); “還要繼續達到” (must also continue to achieve).

40.  Clause 3 is again expressed in strong mandatory language: “必須” (must), “確保” (shall ensure). Though it primarily addresses the conduct of the business of the Chinachem Group, it also stipulated that the object is to ensure that part of the profit derived from the commercial activities of Chinachem shall be used to develop charitable business forever: “並以其部分盈利將慈善事業不斷發展達至永遠”.  Thus, Nina specifically highlighted her wish to use the profit of Chinachem for charitable purposes as opposed to ploughing everything back to its business development.   

41.  Clause 4 is also expressed in imperative terms: “必須繼續做到” (must continue to achieve) in the opening sentence; “須給予”(must provide for)  under  sub-clause  (1);  “負責”(responsible), “有責任給予”(has the obligation to provide) and “均應負責”(obliged; should be responsible for) under sub-clause (2); “有責任給予”(has the obligation to provide) under sub-clause (3).  It deals with provisions for non-charitable objects.

42.  In our judgment, the natural and plain meaning of these clauses is that Nina intended the assets she passed onto the Foundation to be applied in accordance with her stipulations in Clauses 2 to 4.  In short, we agree with the Judge’s observation at para 66 of his judgment that Nina’s choice of language strongly militates against the argument that the directions in Clauses 2 and 3 are precatory or mere guidance.  

43.  Mr Hinks attempted to negate the effect of the natural and plain meaning of these provisions in the Will by the following arguments:

(a) Clause 2(1) can only be a pious hope on the part of Nina and it is not mandatory.  Because of that the whole of Clause 2 as well as Clause 3 should be construed as aspirational and at most intended by Nina to be guidance with limited legal effect similar to the letter of wishes of a settlor in the context of a discretionary trust;

(b) Nina did not have any power to declare any trust in respect of the pre-existing assets of the Foundation prior to the bequest under the Will.  Therefore, the reference in Clauses 2 to 4 as to what the Foundation should do after she passed away can only be aspirational;

(c) Clause 2(2) cannot be part of a charitable trust as it did not refer to any  subject matter;

(d) The fulfilment of the objects and provisions in Clauses 2(2) to 4 would only require a very small proportion of the expected income to the estate.  Therefore it could not have been Nina’s intention to require her vast estate to be utilised for such limited purposes;

(e) Clause 3 cannot be construed as having any binding effect.  Otherwise it would impose artificial controls on the business and, on the Judge’s finding, it would create fetter upon the disposal of any part of Chinachem by the Foundation. That could not be the intention of Nina;

(f) Clause 4, construed as a power (as advocated by Mr Taube and accepted by the Judge), provides for use of the assets for non-charitable purpose.  As such, it infringes against the rule that a charitable trust must be exclusively charitable;

(g) Clause 4(3) is uncertain and aspirational in character.  It also infringes the rule as to certainty of subject matter and it taints the whole scheme, including that under Clauses 2(2) to 4(2).  Therefore no valid charitable trust could be established;

(h) The Foundation cannot act as trustee in respect of a trust which (according to the Judge) extends beyond its objects.  The Judge held that part of the Chinese prize is beyond the objects of the Foundation.  Further, Clause 4 presents problem in this regard.  

44.  In our view, (a) to (e) are pertinent to the proper construction of the Will and we shall deal with them in such context. However, (f) to (h) are in substance challenges to the validity of the intended trust and they should be considered in that context.  We say so because the Will is a homemade will and there is no suggestion that Nina had obtained any legal advice on it before its execution.  There is no evidence to suggest that Nina was aware of the intricacies of the law on charitable trust.  Therefore the arguments of Mr Hinks under (f) to (h) could not have any bearing on the pure question of construction.  Having said so, we would need to deal with those arguments at the latter part of this judgment because we have to address them in order to reach a proper conclusion as to the true legal effect of the Will.

The impact of Clause 2(1) on the other parts of the Will

45.  Since the Will should be construed as a whole, one must have regard to Clause 2(1) when construing the rest of the Will.  Mr Hinks’ argument (a) is based on the following underlying factual matrix. According to the evidence of Mrs Tong, the idea of having a managing organisation stemmed from Nina’s wish to elevate the international status of the Chinese prize by having some eminent supervisors.  Nina was amused by Mrs Tong’s suggestion to have the United Nations Secretary General appointed as a member of the managing organisation.  Her evidence was that when this was suggested, Nina said laughingly that this could be tried and she hoped it could be achieved.  She did not address the issue as to how the three eminent members of the managing organisation shall work with each other in respect of the affairs of the Foundation.

46.  Mr Hinks also referred to the fact that she took no substantive step in the creation of this managing organisation during her lifetime.  As mentioned earlier, we do not think this is admissible evidence for the construction of the Will.

47.  We accept that Nina only expressed a hope to have a managing organisation under Clause 2(1).  Thus, in contrast with Clause 2(2), she did not use imperative wordings in Clause 2(1).

48.  Mr Hinks submitted that because Clause 2(2) starts with the reference to the supervision by this managing organisation, though the objectives are expressed in stronger and firmer language, the whole clause should be read as precatory in nature.

49.  We cannot accept this submission.  Such a construction in effect places the operation of Clause 2(2) conditional upon a managing organisation with a composition as per Clause 2(1) being set up.  Reading the Will as a whole, we are of the firm view that this could not have been Nina’s intention.  It is plain that Clause 2(2) sets out the main objectives of the bequest under the Will.  This is highlighted by the emphasis she placed on the charitable use of the profit of Chinachem Group at the last sentence of Clause 3.  It is common ground that the objectives set out under Clause 4 are not charitable business.  Thus, Clause 2(2) which set out the charitable objectives for the bequest should be read as the principal objectives.

50.  Clauses 3 and 4 are worded in imperative language.  There is no basis for suggesting that they are conditional upon the setting up of the managing organisation under Clause 2(1).  If the objectives under Clause 4 are not conditional, it is difficult to understand why Nina would intend the principal objectives under Clause 2(2) should depend on the fulfilment of Clause 2(1) which, as she was obviously aware, was not within her power to achieve.

51.  We would respectfully differ from the Judge as regards the significance to be attached to Clause 2(1) in terms of outside control.  In view of the evidence of Mrs Tong and the unlikelihood of all the three specified high profile public figures agreeing to take up the task and the lack of provision in the Will on how the managing organisation will operate, we do not regard Clause 2(1) as having much significance in determining whether the bequest is an absolute gift or a charitable trust.    

52.  Having said so, in our judgment the natural and plain meaning of the imperative words used in the Will, even considered against the factual matrix mentioned at para 45 above, are sufficient to lead us to agree with the Judge’s conclusion at para 67 of his judgment that Nina did not intend her directions in Clauses 2 and 3 to be conditional on the creation of the managing organisation.  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.

Subject matter of the directions in Clauses 2 to 4

53.  We can consider Mr Hinks’ arguments (b) and (c) (as highlighted at para 43 above) together.  As a matter of law, it is correct that Nina did not have the power to set up any trust in the Will in respect of the assets which had already been owned by the Foundation before her death.  It is also correct that legally Nina did not have the power to direct in the Will how the internal affairs of the Foundation are to be managed after her death (as opposed to directing how her estate passed upon death is to be applied).

54.  But one must bear in mind that this is a home-made will.  Further, before her demise, Nina was in full control of the affairs of the Foundation.  At para 61of the judgment, the Judge set out his findings on how the Foundation had operated before Nina’s demise:

“… During her life time after Teddy’s disappearance, Nina was the person in control of the Chinachem Group and the Foundation. In the case of the Foundation, although there were other Governors, who were employees of the Chinachem Group, it was she and she alone who decided to whom and how much the Foundation should donate. …”

55.  Further, at para 69, the Judge said:

“… it is not in dispute that during Nina’s life time, the Foundation had no projects as such. It only channeled donations as instructed by Nina.”

56.  And at para 92:

“… there is simply no evidence to support the assertion that the Foundation had its own funds and other resources of income other than funds received from the Chinachem Group before Nina’s death or her bequest thereafter.”

57.  At paras 3 to 12 of the judgment, the Judge set out the relevant background information in respect of the Foundation.  At para 12, the Judge observed:

“Undoubtedly, the Foundation was very important to Nina. In interviews she gave, she explained that she and Teddy had set up the Foundation as their joint idea. They had agreed for some time that they would leave their immense wealth to charitable works, rather than to family members. …”

58.  In respect of the subject matter which Nina intended to be subject to her directions in Clauses 2 to 4, Mrs Tong’s evidence was very clear.  At para 5 of her affirmation of 3 August 2012, quoted by the Judge at para 13 of the judgment, she said:

“I asked [Nina] about the general contents of the will and what terms should be included. [Nina] told me that she wished to apply all her assets for charitable purposes. Actually, before receiving [Nina]’s telephone call, [Nina] had repeatedly mentioned to me that she wished to apply all her assets for charitable purposes. Therefore, I did not feel odd about it. [Nina] subsequently said that she wished to give all the assets to the Foundation such that the Foundation could use those assets for charitable purposes…”

59.  Against such factual matrix, whilst there are provisions in the Will which on a literal reading may be construed as directly intervening in the affairs of the Foundation as opposed to directing how the assets transferred to the Foundation under the bequest should be applied, it is quite plain that the intention of Nina was to give directions concerning her entire estate to be transferred to the Foundation upon her death as stipulated under Clause 1.

60.  Insofar as the directions in Clauses 2 to 4 may be construed as encompassing assets already held by the Foundation before Nina’s death, we do not regard this as a problem.  First of all, at the highest it would only render the directions ineffective as regards such assets.  It cannot deprive the directions of their effects in respect of the assets passed to the Foundation under the Will.  Second, Mr Hinks himself advocated the analysis of benefit and burden in respect of Clause 4: thus, by the same token, the compliance of the conditions under Clauses 2 and 3 can be regarded as the burden which the Foundation must assume (as far as the assets held by it before Nina’s death are concerned) in order to take the benefit of the bequest under the Will.

The construction of the first part of Clause 2(2)

61.  Turning now to argument (d) at para 43, Mr Hinks submitted that the reference to projects and development in the first part of Clause 2(2) should be construed as projects which had already been started during the lifetime of Nina and their continuous development after her death. That being the case, Mr Hinks submitted that the development of such projects, the setting up of the Chinese prize under the second part of Clause 2(2) and the non-charitable provisions under Clause 4 cannot possibly exhaust the income generated from the commercial activities of Chianchem Group.  Thus, counsel argued, it could not have been Nina’s intention that her estate is to be applied solely for these purposes with a vast surplus not being dealt with.  For this reason, Mr Hinks submitted that Clause 2(2) should not be construed as setting up a charitable trust.

62.  It is not disputed that as at the date of the making of the Will, the donations made by the Foundation in each year were only a small portion of the overall income of the Chinachem Group.  The Will was made in February 2002.  Between 1996 and 2001, the donations made by the Foundation ranged from $170,000 (2001) to $56,231,477.84 (1997) per year.  As the Judge observed at para 11 of the judgment, no discernible pattern emerged from the donations over the years and the donees and donations embraced a very wide range of organisations and causes.  Actually, some donations were clearly not for charitable objects.

63.  By way of comparison, the operating profit of the Chinachem Group in the financial year ended 30 June 2012 was approximately $2.48 billion.  Though counsel did not refer us to the corresponding figures at the time when the Will was made, the Judge accepted that the size of the estate was so large (estimated by the Administrators at $82.86 billion on or around 30 September 2012) that Nina could not have intended to restrict the charitable activity of the Foundation to those similar to what it had been donating in the past.

64.  We do not accept Clause 2(2) should be construed in the manner as suggested by Mr Hinks.  We do not think the focus on Clause 2(2) is on past projects.  Rather, the focus is on the development of the Foundation and reading it together with the last phrase in Clause 3: “並以其部分盈利將慈善事業不斷發展達至永遠”(and with part of its profits to continuously develop the charitable business till eternity), the direction of Nina is that part of the profit of the Chinachem Group shall be used for the development of the charitable undertakings of the Foundation till eternity.   We agree with the Judge that the charitable activities of the Foundation are those set out in the Memorandum of Association of the Foundation.

65.  With respect, Mr Hinks’ construction is completely unreal when it is examined against the underlying factual matrix at the time when the Will was made.  Before 2002, the Foundation had merely acted as a conduit for making donations.  It had not undertaken any charitable works on its own.  Even if the word “projects” in Clause 2(2) can be construed as a reference to such donations (which we doubt in view of the lack of discernible patterns in them and the Foundation was merely acting as a conduit), we cannot accept it was the intention of Nina to confine her direction to the making of further donations in the future when she referred to the development and expansion of the Foundation in Clause 2(2) and Clause 3.  That would be contrary to what Mrs Tong said to be the wish of Nina at para 5 of her affirmation.  We refuse to adopt such a narrow and unreal construction of Clause 2(2).

66.  The object for development referred to in Clause 2(2) in the phrase “使其不斷發展”(to enable their developments continuously) must be the Foundation as opposed to the donations that had been made in the past. It simply does not make sense for one to talk about development of past donations.  Whilst the identification of part of a clause by a label may serve as a short-hand reference, the coining of this part of Clause 2(2) as the Project Continuation Provision (as the Foundation did in the submissions on its part) should better be avoided as it steered towards a skewed approach in its construction.  

67.  In our judgment, Clause 2(2) directs the Foundation to do two things, (1) to develop its charitable works; and (2) to set up the Chinese prize.  In the development of its charitable works, Clause 2(2) does not purport to restrict the Foundation to continue with the making of donations as in the past.  Plainly, Nina intended the Foundation to expand on its charitable activities and one of which is the setting up of the Chinese prize.

68.  On this construction (which, in our view, is the proper construction) of Clause 2(2), Mr Hinks’ difficulty with Clause 2(2) being regarded as a charitable trust would not arise.  Further, as submitted by Mr Taube, in respect of surplus assets in the administration of a charitable trust, the court can direct a cy-prѐs scheme to deal with the same.

The construction of Clause 3

69.  Mr Hinks submitted that if Clause 3 were construed as imposing binding obligations on the Foundation, it would be contrary to the principle that the law favours alienability, citing the maxim alienatio rei praefetur juri accredscendi and Broom’s Legal Maxims 10^th edn p.288-299.

70.  At paragraph 81 of the judgment, the Judge said:

“…In Clause 3, Nina directed the Foundation, as the sole and ultimate shareholder of the Chinachem Group, to safeguard and expand the businesses; to ensure its continuous growth; and to decide how much of the profits are to be ploughed back to the Foundation for its charity business. The Foundation can meaningfully perform these functions only if it remains as the sole and ultimate beneficial shareholder of the Chinachem Group. So as rightly submitted by Mr Taube, in instructing the Directors in Clause 3 as she did, Nina was directing them to hold her shares in the Chinachem Group as investments and to maintain its status as the ultimate shareholder so that it can exercise its rights in that capacity to give effect to her directions. Her directions are not mere guidance. They define the scope of the Foundation’s duties as a trustee, although in discharging the duties, the Foundation and its Directors would have to exercise a considerable degree of judgment.”

71.  Mr Hinks submitted that such a holding positively prevents the Foundation from disposing of any part of Chinachem as constituted at the date of death.  Counsel said such an “uncommercial outcome” could not possibly be the intention of Nina as she should recognise that she could not anticipate the future commercial direction of Chinachem or the needs of the Foundation.

72.  With respect, we do not find the reference to the maxim to be of much assistance in the present context.  In particular, on the issue in this appeal, viz whether the bequest is made to the Foundation as an absolute gift or as a trustee in a charitable trust, we are of the view the most significant part of Clause 3 is the last phrase quoted at paragraph 64 above and the imperative language used in the clause.  These features, read together with the other parts of the Will, clearly show the intention of Nina to impose binding legal obligations on the Foundation as to the purposes for which her estate is to be used after her demise.

73.  At the same time, we do not think Clause 3 prescribes that the Foundation cannot dispose of any part of the Chinachem Group as constituted at the time of death.  Chinachem Group is a very big business conglomerate.  From time to time business decisions may have to be made by way of the disposal of unprofitable or less profitable subsidiaries and the acquisition of potentially more profitable companies.  In the commercial setting, these would often be achieved by way of merger and acquisition which would entail some changes in the shareholding structure in some companies within the group.  Though Clause 3 directs the Foundation to safeguard and expand on the businesses of Chinachem Group, there is no restriction on how this should be achieved except that the Foundation should play an active role in the management of the Chinachem Group.

74.  In our judgment, Clause 3 directs the Foundation to hold the shareholdings of Nina in the Chinachem Group primarily as investments.  As submitted by Mr Taube, it directs the Foundation to consider how to manage the investments which will require it to consider how to use its powers to vote the shares on company resolutions to achieve the safeguarding and expansion of the businesses of Chinachem Group as a whole.  We must emphasise that the safeguard and expansion of the group as a whole does not entail any restriction on the disposal or reduction of interest in a particular part of the group.  It would be a matter of commercial judgment and the Foundation should exercise its voting power bearing in mind the commercial interest of the group as a whole.  We believe this is what the Judge had in mind at para 81 of the judgment and insofar as he had, unwittingly perhaps, gone beyond that we would respectfully differ.

75.  Thus, we do not find Mr Hinks’ submission in this regard to be of much assistance to him in terms of advancing his case that the bequest is an absolute gift as opposed to a charitable trust.

Clause 4

76.  Both Mr Hinks and Mr Taube took the stance that Clause 4 created binding obligations though they differed as to the legal analysis of such obligations.  Mr Hinks contended that Clause 4 imposes personal obligations on the Foundation by way of conditions which the Foundation must accept in taking the absolute gift under Clause 1.  Such obligations are enforceable in equity at the instance of the person benefitted by the obligations: Mr Hinks cited, amongst other authorities, Jacobs’ Law of Trusts in Australia 7^th Edn para.234; Jay v Jay [1924] 1 KB 826; In re Lester [1942] Ch 324 and Gill v Gill (1921) 21 SR (NSW) 400.

77.  On the other hand, Mr Taube submitted that Clause 4 should be construed as powers which the Foundation is obliged to exercise notwithstanding the presence of discretionary elements in each sub-clause as to how the powers are to be exercised.  Thus, taking Clause 4(1) as an example, the Foundation is obliged to make provisions for the parents of Teddy though the exact levels of provision are subject to its discretion.  The validity of these powers is subject to the rule against perpetuity as modified by section 8(3) of the Perpetuities and Accumulations Ordinance Cap 257. 

78.  The Judge preferred Mr Taube’s analysis to that of Mr Hinks, see paras 101 to 103 of the judgment.

79.  Again, in the context of construing the Will in deciding whether the intention of Nina was to set up a charitable trust or to make an absolute gift to the Foundation, we do not find this difference as regards the proper legal analysis of Clause 4 to be of direct relevance.  The prime importance of Clause 4 in such context is that Nina intended to impose some binding obligations on the Foundation as to the use of her estate.  As we said earlier, as far as Clause 4 is concerned, both Mr Hinks and Mr Taube advocated that binding obligations are imposed.

80.  The significance of the binding nature of Clause 4, in the overall construction of the Will and the effect of Clause 2(2), is as follows.  Bearing in mind the evidence of Mrs Tong on Nina’s intention when she instructed the Will to be prepared and having regard to what was stated in Clause 3 in respect of the use of profit of Chinachem for the development of the charitable business, it is plain that the charitable objectives under Clause 2(2) are the principal objectives whereas those under Clause 4 are secondary.  If Nina intended the secondary objectives to be legally binding on the Foundation, there was no good reason why she would not have intended the principal objectives to be binding.

81.  As there is another limb to Clause 2(2), it is not an answer to this analysis by saying that the Foundation would carry out the principal objectives in any event since the first limb of Clause 2(2), as construed by the Judge and this court, referred to the charitable objects of the Foundation.  Irrespective of whether the setting up of Chinese prize can come within the object clauses in the Memorandum of Association of the Foundation, if Clause 2(2) does not take effect as a charitable trust, the Foundation is not obliged to set up a Chinese prize.  We have already explained above why we do not accept Mr Hinks’ submission on the duty of the Foundation by drawing an analogy with letter of wishes in discretionary trust.

82.  Mr Hinks also made a collateral attack on the trust/power analysis based on Morice v Bishop of Durham (1805) 10 Ves 522 and George Drexler Ofrex Foundation Trustees v IRC [1966] Ch 675. We shall deal with this attack below in our discussion on the legal validity of the arrangements stipulated in the Will.   At this juncture, we simply note that Mr Hinks clarified in the course of his oral submissions that it is not the Foundation’s case that a limb of Clause 4 (including Clause 4(3)) is, as a power, void for uncertainty or infringement of the rule against perpetuity. Thus, we are not dealing with a situation where Clause 4 can only be given legal effect in accordance with the manifested intention of Nina by resorting to Mr Hinks’ theory of personal obligations.

83.  Further, there is no suggestion that if Clause 4 can only operate as personal obligations, it would somehow undermine the proposition that a charitable trust is set up under Clause 2(2).  Viewed thus, the debate on the proper legal analysis of Clause 4 is not germane to the determination of the primary issue in this appeal.  Even if we agree with Mr Hinks on his analysis as to Clause 4, the Foundation could still be subject to two sets of obligations, one set of obligations qua trustee in a charitable trust and another set of obligations qua personal obligations under Clause 4. We have not been referred to any authority suggesting that a trustee taking the benefit of a gift cannot at the same time be subject to the burden imposed in the same gift.

84.  Be that as it may, we shall delve briefly on this topic.  As highlighted by the learned editors of  Jacobs’ Law of Trusts in Australia 7^th Edn at para.234, the difference between a trust (including trust powers) and a personal obligation imposed as a burden to the acceptance of a gift is the proprietary nature of the obligation.  In the former, in addition to the personal remedies against the trustee the obligation is also enforceable in rem against the property.  In the latter, the obligation is only enforceable personally against the donee.

85.  Further, as observed by Harvey J in Gill v Gill (1921) 21 SR (NSW) 400 at p.407, whether a condition creates a trust power or mere personal obligation depends on the construction of the relevant provision:

“In some cases the Court may see that what the testator intended was to attach a charge or trust upon the property, in other cases it may conclude that a personal liability alone is intended. The view taken would depend partly on the language used to describe the obligation, partly on the nature of the property given to the obligee, and partly on the nature of the obligation. …”

86.  To the same effect is the judgment of Simonds J in In re Lester [1942] Ch 324 at p.325:

“… it must be a question of construction in each case whether an obligation or a charge is created or whether both are created.”

87.  In the present case, bearing in mind similar wordings were used in Clause 2(2) and Clause 4 to describe the obligations of the Foundation, and given that, as set out in the evidence of Mrs Tong, Nina clearly intended the Foundation to apply her estate for the purposes set out in the Will, we think the Judge had reached the correct conclusion that the provisions in Clause 4 should be construed as powers.  Though the Judge examined the matter by reference to the scenario where the Foundation is dissolved (which Mr Hinks submitted to be unlikely), it is only a means to test the following proposition: whether it could have been Nina’s intention that the potential beneficiaries under Clause 4 shall have no recourse to her estate.  The Judge answered that question in the negative.  We agree.

88.  In his skeleton submissions, Mr Hinks cast doubt on the validity of Clause 4(3).  Even in the context of a less stringent requirement for certainty in respect of equitable personal obligations stemming from the terms of a gift, counsel said Clause 4(3) is more uncertain and aspirational in character and “there is a greater question mark as to whether it can take effect as a legally binding obligation”.  His oral submission is more nebulous.  On the one hand, he submitted that Clause 4(3) aims at the betterment of the society and is in the nature of a trust for a benevolent object as in the case of Morice v Bishop of Durham (1805) 10 Ves 522.  On the other hand, when he dealt with In re Coxen [1948] 1 Ch 747, Mr Hinks submitted that the clause is not invalid.

89.  Mr Taube submitted that there is no problem with certainty in respect of Clause 4(3).  He said the beneficiaries are defined: viz employees of the Chinachem Group and their children.  As far as how the power is to be exercised, some criteria are set out in Clause 4(3) to guide the Foundation though it is given a very wide discretion.  It is a power which can be enforced in court if the Foundation fails to consider relevant matter.

90.  Even if Mr Hinks were correct, the invalidity of Clause 4(3) would not impinge upon the validity of Clause 2 as a charitable trust.  As submitted by Mr Taube (citing In re Coxen [1948] 1 Ch 747) the amounts set free by the invalid gift for invalid purposes would simply pass to charity.  Mr Hinks accepted this to be the case.  See also George Drexler Ofrex Foundation Trustees v IRC [1966] Ch 675.

91.  Since neither counsel before us advanced serious challenge to the validity of Clause 4(3) and it is not really necessary for us to determine the point in this appeal, we would prefer to proceed on the assumption that it is valid.  In adopting this approach, we bear in mind that potential beneficiaries under that provision are not before us.   

Certainty of subject matter

92.  We now turn to the submissions of Mr Hinks on arguments (f) and (g) identified at para 43 above.  We can deal with them together because, as it shall be apparent below, there is in substance only one issue underlying both arguments: certainty of subject matter. 

93.  There are different scenarios under which problem as to certainty of subject matter can arise from a bequest which intermingle charitable objects with non-charitable objects.  The first type of case is where the objects stated by the testator are in general terms which can encompass both charitable and non-charitable objects. Morice v Bishop of Durham (1805) 10 Ves 522 is an example of this situation.  In that case, there was a bequest in favour of the Bishop of Durham in trust “for such objects of benevolence and liberality” as he in his own discretion shall approve.  It was held that “benevolence and liberality” encompassed objects which could be charitable and objects which fell outside the scope of charity as a matter of law.  Thus, the trust cannot operate as a charitable trust. Instead it was an attempt to create a trust for a purpose which the court held to be too indefinite to give effect to, as such the trust was invalid.

94.  Lord Eldon identified the legal problem with such attempt to create at p.539-540:

“As it is a maxim, that the execution of a trust shall be under the control of the Court, it must be of such a nature, that it can be under that control; so that the administration of it can be reviewed by the Court; or, if the trustee dies, the Court itself can execute the trust: a trust therefore, which, in case of mal-administration could be reformed; and a due administration directed; and then, unless the subject and the objects can be ascertained, upon principles, familiar in other cases, it must be decided, that the Court can neither reform mal-administration, nor direct a due administration.”

95.  On the facts of the case, Lord Eldon said, at p.542:

“But the true question is, whether, if upon the one hand he might have devoted the whole to purposes, in this sense charitable, he might not equally according to the intention have devoted the whole to purposes benevolent and liberal, and yet not within the meaning of charitable purposes, as this Court construes those words; and, if according to the intention it was competent to him to do so, I do not apprehend, that under any authority upon such words the Court could have charged him with mal-administration, if he had applied the whole to purposes, which according to the meaning of the testator are benevolent and liberal: though not acts of that species of benevolence and liberality, which this Court in the construction of a Will calls charitable acts.”

96.  We are not in that category of cases because it is not suggested that the objectives stated in Clause 2(2) involves both charitable and non-charitable elements.  However, Lord Eldon’s judgment is a reminder that the underlying rationale for the requirement as to certainty of subject matter is to enable the court to properly supervise the administration of the trust.

97.  Another scenario is the situation described at para 3-009 of Tudor on Charities 9^th Edn.:

“… where a fund is given to be divided between charitable and illegal or impossible objects in such a way that neither part of the gift is residuary upon the other, the court will uphold the charitable part by apportioning the fund between the two groups of objects. This apportionment may be effected by means of an inquiry, or, in a simple case, by an affidavit, as to the amounts which would be required for the respective objects. If, however, it is impossible to ascertain what proportion shall be applied for each object, or the apportionment was intended to be a matter of discretion, the court will order an equal distribution among the named objects or classes of objects, applying the maxim ‘equality is equity’.”

98.  That scenario can be contrasted with the situation where the property subject to a charitable trust is the residue of an uncertain non-charitable trust.  In Re Porter [1925] 1 Ch 746, the testator created in his codicil a trust for the maintenance and upkeep of a Masonic temple with the balance (if any) to be applied in favour of charities.  The court held that because the primary gift was not sufficiently defined, the whole legacy (including the provision of the balance for charities) was void for uncertainty.    Eve J explained the position at p.751:

“In my opinion the test to be applied for the solution of this question is whether the gift … is a gift of the whole income, or a gift of what (if anything) will remain after the void gift has been satisfied. Is the extent or amount of the primary gift sufficiently defined to enable the Court to ascertain what was intended to be expended on it? If it is, then although the primary gift fails the corpus is not affected, and the whole income is applicable for charitable purposes, but if on the other hand the first object has not been so defined that the Court can fix the amount required for it then the whole must fail, because the whole income might be applied for the first object.”

99.  This was explained further by Jenkins J in four propositions In re Coxen [1948] 1 Ch 747 at p.752:

“(a) where the amount applicable to the non-charitable purpose can be quantified the trusts fail quoad that amount but take effect in favour of the charitable purpose as regards the remainder;

(b) where the amount applicable to the non-charitable purpose cannot be quantified the trusts both charitable and non-charitable wholly fail because it cannot in such a case be held that any ascertainable part of the fund or the income thereof is devoted to charity;

(c) there is an exception to the general rule in what are commonly known as the “tomb cases” …;

(d) there is an exception of a more general character where as a matter of construction the gift to charity is a gift of the entire fund or income subject to the payments thereout required to give effect to the non-charitable purpose, in which case the amount set free by the failure of the non-charitable gift is caught by and passes under the charitable gift.”

100.  In this connection, Mr Hinks confirmed in his oral submission that he is not arguing that the Foundation must discharge its obligations under Clause 4 before applying the residue of the estate for the charitable objectives set out in Clause 2(2).  There is thus no question of uncertainty of subject matter stemming from the need to ascertain what would be the balance left over for charitable purposes after satisfying all the objects in Clause 4.

101.  Further, in our judgment, Nina clearly intended the charitable objectives under Clause 2 to be the primary purposes to which the future income from the Chinachem Group should be used.  Thus, on the proper construction of the Will, it falls within the general exception alluded to by Jenkins J.  In other words, if the non-charitable gifts under Clause 4 fail, the whole corpus would go to the charitable gift under Clause 2.  See a similar analysis at Tudor on Charities 9^th Edn. para 3-011 in respect of what the learned editor referred to as the third situation:

“In the third situation where the gift is construed as devoting the whole fund to charitable objects subject to a payment for a void object, the failure of the latter will result in the whole fund becoming available for the charity.”

102.  The only difference in the present case is that the non-charitable gifts under Clause 4 do not fail (see our discussion on Clause 4(3) above).  Does this difference affect the validity of the primary charitable gift under Clause 2? Mr Hinks submitted it does because the trustee (and the court in supervising the trust) would face the difficulty of ascertaining how much of the income is to be apportioned to the Clause 2 purposes and how much is to be apportioned to the Clause 4 purposes.

103.  We do not accept this submission.  On this part of the case, by premising his case on the validity of Clause 4, Mr Hinks had to proceed on the basis that there is sufficient certainty in the three objectives in Clause 4 to enable the court to supervise their implementation.  In other words, there are sufficient parameters for the court to decide whether the Foundation acts in accordance with the clause in the exercise of its discretionary judgment.  If any one of those objectives is uncertain in that regard, the legal consequence, as we have said above, is that that part of the gift would fail and the corpus intended by Nina to be used for that purpose would then be utilised for the charitable objectives under Clause 2 in accordance with the principle discussed in In re Coxen [1948] 1 Ch 747 and George Drexler Ofrex Foundation Trustees v IRC [1966] Ch 675. 

104.  As we said at the outset of this judgment, in this appeal we would focus on the determination as to the nature of the bequest under the Will, directions and approval of a scheme for the actual implementation and the administration of the trust will be dealt with later. Thus, counsel did not argue in depth as to how the income from Chinachem in each year should be applied towards the objectives in Clause 4 and the objectives in Clause 2.  We see no difficulty in ascertaining the proper amounts required for the objectives under Clause 4 in each year, if necessary by way of an inquiry.  The power of inquiry is equally available to the court in a case where the primary objective of a trust is charitable, see Halsbury’s Law of England 5^th Edn Vol 8 para 94.

105.  Further, as submitted by Mr Taube, the gifts under Clause 4 should be regarded as powers.  In other words, there is a single trust fund of the whole estate for the charitable purposes under Clause 2. During the perpetuity period the trustee may exercise the discretionary power under Clause 4 to make distributions to the Clause 4 beneficiaries.  The legal consequence of such analysis is explained in Thomas on Powers 1^st Edn at para 3-07:

“The object of a power, unlike the beneficiary of a trust, is not entitled to a particular share of or interest in the property which is the subject-matter of the power, unless and until that power is actually exercised in his favour. The object of a power merely has a hope that the donee of the power, in his discretion, will exercise it in his favour. Equitable ownership of the relevant property, pending the exercise of the power, rests with others.”

106.  In the present context, Nina did not direct the Foundation to establish two separate funds: one for Clause 2 and another one for Clause 4.  At all time, the trust is the charitable trust under Clause 2 and the Clause 4 beneficiaries do not have any beneficial interest in the estate.  The Foundation has the discretionary power to make some distribution to them during the perpetuity period.  But no question of uncertainty of subject matter in respect of the charitable trust can arise from the existence of such Clause 4 power.  

107.  Relying on George Drexler Ofrex Foundation Trustees v IRC [1966] Ch 675, Mr Hinks contended that Mr Taube’s trust/power analysis infringed a basic principle that a charitable trust has to be exclusively charitable.  At p.700B, Cross J said:

“The reason, I suppose, is because in most cases where some of the provisions in a trust deed are non-charitable … the non-charitable element brings the whole trust to the ground …”

108.  This was said by way of a side comment.  A statement of the rule can be found at para 1-012 of Tudor on Charities 9^th Edn.:

“A trust, in order to be charitable, must have objects which are exclusively charitable. If a trust has a main object which is not charitable it is not capable of being a charity, albeit benefit to the public flows from it.”

109.  Thus, in A-G v Wahr-Hansen [2000] 3 All ER 642, the Privy Council held that a trust which provided for the distribution of income for various purposes (some of which were charitable and some not) was not a charitable trust and as such void.  Lord Browne-Wilkinson said at p.646d,

“In order to demonstrate that trusts are, in law, charitable, it must be shown that those trusts are exclusively charitable. If it is shown that, consistently with the provisions of the trust deed, property can be applied for purposes other than charitable purposes the trust will fail.”

110.  It should be noted that in that case, the trust property can be applied wholly for purposes which are non-charitable (though it could equally be applied wholly for charitable purposes).  Given the clear indication in Clause 3 that part of the profit from Chinachem must be used for charitable purposes, we are not in that type of situation.

111.  Further, the rule is subject to some qualifications.  Four qualifications are set out at para 1-012 of Tudor on Charities 9^th Edn., one of which is relevant for present purposes:

“First, if the wording of the trust permits the property to be applied for both charitable and non-charitable purposes the court may apply the doctrine of severance, saving the charitable part of the fund.”

The footnote to this sentence refers to para 3-009 which takes us back to the question of certainty of subject matter.

“The question as to whether a trust is void for uncertainty of the subject matter has arisen most frequently in cases where gifts have been made partly for illegal or impossible objects and partly for charitable objects. It is clear that whether there is an enforceable trust for the charitable objects will depend upon whether the amount of the subject-matter to be devoted to them can be ascertained. This is a question of construction. ….”

112.  Another authority cited at the footnote was Salusbury v Denton (1857) 3 K & J 529, a decision which Mr Taube also took us to.  In that case, the validity of a bequest to apply a part to the foundation of a charity school or such other charitable endowment and another part to be disposed amongst the testator’s relatives was challenged.  At p.536, the Vice-Chancellor identified that the question was whether the bequest was void for uncertainty.  On the facts of the case, the court applied the approach in Doyley v Attorney General (1735) 4 Vin 485 and divided the bequest into two equal shares, one for the charitable objects and one for the non-charitable objects.

113.  A similar question arose in In re Gardom [1914] 1 Ch 662.  The bequest there was to a trust to sell and convert into money such portions of the estate as should be necessary upon trust for the maintenance of a temporary house of residence for ladies of limited means (a charitable object) and the residue of the estate to be applied in such manner as the executors knew to be most in agreement with the desires of the testator (a non-charitable object).  Eve J said at p.668:

“The argument on uncertainty overlooks, I think, the terms of the bequest under which the primary trust is to appropriate so much of the residue as may be necessary for the maintenance of the charity. It is not a case where a discretion is given to the trustees to apply the fund to charitable or non-charitable objects; the necessities of the charity must first be provided for, and although the trustees have a discretion as to whether any further part of the estate is to be devoted to the charity they have no power to divert or apply any part of the estate to non-charitable objects until the amount necessary for the maintenance of the charity has been appropriated. In my opinion, therefore, there is a good charitable bequest of so much of the estate as may be necessary, and of such further portion as in the discretion of the trustees may be desirable, for the maintenance of the house or home.”

114.  Though our case is not on all four with this case, in our view Nina had expressed a clear intention that the charitable trust under Clause 2 is the primary trust.  Further, as explained above, there is sufficient certainty in Clause 4 to enable the court to determine in each year (if necessary, through an inquiry) whether the Foundation has properly applied part of the income for the Clause 4 objects.  Given the size of the estate and the income in each year, there is sufficient fund around for the Foundation to utilize most of the annual income for the charitable objectives in Clause 2 and, at the same time, to exercise the power under Clause 4 properly.  In essence, we come back to the question of certainty of subject matter which is essential to enable the court to supervise the administration of the trust.  For reasons which we do not need to repeat, there is no problem in that regard.

115.  In George Drexler Ofrex Foundation Trustees v IRC [1966] Ch 675, the court was not asked to consider the validity of the trust.  Rather, the issue before the court was whether the Ofrex Foundation could be qualified for tax exemption as a charity under s447 of the Income Tax Act 1952.  Referring to a proviso in the trust deed providing for application of part of the trust fund for the former employees of the company, the Income Tax Commissioner held the view that the foundation was not a trust established for charitable purposes only and not entitled to tax relief.  The court held that the proviso was invalid in law (for infringement of the rule against perpetuity) and its invalidity did not invalidate the good charitable trusts. The foundation was therefore entitled to tax relief.  There was thus no need for the court to consider whether the charitable trust could be severed and we do not find anything said in that judgment to be inconsistent with our above analysis.  Actually, given the definition for charity under s447, severance cannot assist the foundation in that case.         

116.  We are not persuaded by Mr Hinks that the trust analysis should be rejected by reason of uncertainty of subject matter or the judgment in George Drexler Ofrex Foundation Trustees v IRC [1966] Ch 675.

The ultra vires point 

117.  Mr Hinks submitted it had not been explained how the Foundation can act as a trustee of trusts which extend beyond its objects. The problem of ultra vires arises in two respects:

(a) The Chinese prize; and

(b) The Clause 4 objects.

118.  At paras 73 to 75 of the judgment, the Judge considered the provision for the establishment of the Chinese prize and held that the objects in Clause 3 of the memorandum of the Foundation are not wide enough to enable the Foundation to set up a prize resembling the Nobel Prize in all material aspects. Mr Hinks contended that such a holding was wrong and invited this court to reverse that holding.  He submitted that the setting up of the Chinese prize, even if it were to have all the components of the Nobel Prize, can come within the scope of the object clauses of the Foundation. 

119.  However, if we were not with him, Mr Hinks submitted that it create a problem for the Foundation as it would in effect be required to act ultra vires its  own memorandum in setting up the Chinese prize in accordance with Clause 2. 

120.  Though Mr Taube advanced a submission similar to such holding of the Judge in his written skeleton submissions before us, he accepted in his oral submission that “a Chinese pof worldwide significance similar to that of the Nobel Prize” does not necessarily require the Chinese prize to be identical with the Nobel Prize.

121.  In our judgment, the Judge applied an unduly rigid approach in coming to his holding in this respect.  The Judge was invited by counsel to follow the test in Guild v IRC [1992] 2 AC 310 in holding that the Chinese prize should resemble the Nobel Prize in all material aspects.  However, as Lord Keith observed at p.323 B:

“The matter for decision turns upon the ascertainment of the intention of the testator in using the words he did.”

122.  While we have no quarrel with the general proposition that the adjective “similar” connotes points of resemblance between one thing and another, the extent to which the two things in question are comparable must depend on the context.  Likewise, the ascertainment of the intention of a testator must depend on the relevant underlying factual matrix.  Thus, there is a limit to the assistance one can derive from previous authority on construction of the same expression in another context.

123.  The actual wordings used in the Will are: “中國的類似諾貝爾獎的具有世界性意義的獎金和基金”translated as “a fund and a Chinese prize of worldwide significance similar to that of the Nobel Prize”.  Thus, whilst the Chinese prize shall be of similar nature to that of the Nobel Prize, the Will also stipulated two characteristics of the prize: (a) it has to be a Chinese prize; and (b) it has to be of worldwide significance.  We do not think one can ignore the emphasis on the Chinese character of the prize.  In that respect, there would be some distinctions between the prize to be set up under the Will and the Nobel Prize.

124.  Another important underlying context is that the prize is to be administered by the Foundation.  This is explicitly stated in Clause 2.  Thus, it would be relevant to consider what the Foundation could do in terms of its object clauses in ascertaining Nina’s intention as to the scope of this Chinese prize.

125.  Bearing the relevant context in mind, we do not think the Chinese prize to be set up under Clause 2 has to have prizes in each and every field for which prizes are awarded under the Nobel Prize.  The similarities with the Nobel Prize can be achieved by prizes of similar but not identical character.  Thus, if there is a particular prize in the Nobel Prize which cannot legitimately be set up by the Foundation in accordance with its object clauses, we do not consider Clause 2 to mandate it to be set up.

126.  Mr Hinks submitted that it is not necessary for the court to decide on the precise scope of the Chinese prize at this stage.  Provided that it is clarified, as we have done above, that it need not involve the Foundation acting in an ultra vires manner in setting up the prize, the contents of the same can be left for discussion at a later stage in the context of an application for a scheme to be submitted for approval.  We agree.

127.  As regards the Clause 4 objects, Mr Taube submitted that the undertaking by the Foundation of duty as donee of the powers are acts in furtherance of the objects of the Foundation because the assumption of such duty is incidental to the primary charitable trust which is within the scope of objects of the Foundation.  Thus, it is authorised under Clause 3(3)(3.2) and (3.15) of the Memorandum of Association of the Foundation.  Clause 3(3)(3.2) and (3.15) provide:

“In furtherance of the objects, but not otherwise the Foundation may exercise any of the following powers: …

3.2 To undertake and execute any trusts which may seem desirable or conducive to the Foundation’s objects.

…

3.15 To do all such other lawful things as are incidental or conducive to the attainment of the above objects.”

128.  Mr Hinks emphasised the phrase “but not otherwise” in his written submissions.  However, in our view, the presence of this qualification does not undermine the analysis of Mr Taube since, as counsel submitted, the performance of Clause 4 duty as donee plays a secondary and relatively minor role as compared with the primary purpose of the charitable trust under Clause 2.  It is noteworthy that Mr Hinks did not contend that the Foundation has no capacity to undertake such duty as personal obligations.  Whether Clause 4 is regarded as the necessary burden (which, according to Mr Hinks, the Foundation must bear in consideration for the benefit it derives from the bequest) or as incidence to the charitable trust (which, according to Mr Taube, the Foundation can undertake by way of an obligation of a trustee of a trust conducive to the Foundation’s objects), the performance of the Clause 4 duty can properly be regarded as activities in furtherance of the objects of the Foundation.

129.  In our judgment, no problem of ultra vires arises.

Our conclusion on the primary question and subsequent conduct of the matter

130.  For the above reasons, we are of the view 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.  It follows that we shall dismiss the appeal by the Foundation.

131.  Mr Taube invited this court to determine whether the Foundation is at liberty to apply the assets for objects which are not objects stated in its Memorandum of Association.  As we have determined the primary question in favour of the SJ, and there is no immediate intention on the part of the Foundation to change its object clauses, in the absence of any determination of this question at the court below, we are not minded to entertain such request.

132.  As we have stated, it is envisaged that there will be a stage 2 of these proceedings.  Now that the primary question has been settled, parties should proceed to stage 2 and application should be made for the restoration of the rest of the originating summons before the Court of First Instance.

133.  We give the following directions for the disposal of the question of costs of the appeal:

(a) The Foundation shall lodge submissions on costs within 21 days after the handing down of this judgment;

(b) The SJ and the Administrators shall lodge submissions on costs within 21 days thereafter; and

(c) The Foundation shall lodge submissions in reply within 14 days after the lodging of the submissions by SJ.

134.  Lastly, we wish to thank counsel for their very able assistance in this appeal.