RE A TRUST KNOWN AS THE MATTINGLEY AND SHENTON SETTLEMENT (THE “TRUST”)

HCMP 181/2020

[2020] HKCFI 673

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 181 OF 2020

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J U D G M E N T

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1.  By an ex parte originating summons dated 9 March 2020 (“OS”), Mr David John Lawrence (“Mr Lawrence”) and Mr Philip Brendan Gilligan (“Mr Gilligan”) (together “Trustees”), the incumbent trustees of the Mattingley and Shenton Settlement (“Trust”), apply for the following relief:

(1)  As the Trustees, being the sole Trustees of the Trust for the time being, have made a joint application to be discharged as Trustees, the requirement in sub-Section 3(1) of the Judicial Trustee Rules that an applicant trustee serve these Summons on the other trustee (if any) be dispensed with, as the Court is authorised to do under sub-Section 3(3) of the Rules;

(2)  The Trustees forthwith be discharged as trustees of the Trust and relieved from any personal liability for any breach of trust, save for fraud, dishonesty, and / or wilful misconduct on their part or on the part of any of them;

(3)  Under Section 7 of the Rules, the Official Solicitor be appointed the sole judicial trustee of the Trust (the "Judicial Trustee") in substitution of the Trustees and further that in accordance with Section 6 of the Rules, all the property for the time being comprised in the fund of the Trust, including the right to sue and recover any thing in action and any interest in respect thereof, do vest in the Judicial Trustee to be held by him upon the trusts of the Trust;

(4)  The Court make such further directions or orders as it sees fit for the management of the Trust property by the Judicial Trustee, in view of the particular circumstances of the Trust; and

(5)  The Trustees be indemnified out of the Trust fund under and by virtue of their subsisting trustee's lien for the costs of this application, with a statement of costs to be presented to the Court, upon the Court's direction.

2.  The first hearing of the OS was scheduled on 7 April 2020, but was adjourned due to the general adjournment of court proceedings announced by the Judiciary.  By letter dated 27 March 2020, the Trustees agree that the OS is suitable for determination on paper, thereby waiving their right to an oral hearing.  

3.  The application is supported by an affidavit made by the Trustees, as required by rule 4 of the Judicial Trustee Rules (Cap 29B) (“Rules”).  In the main, the Trustees wish to be discharged from their office in view of the “unusual circumstances of the Trust” in that for apparently over 80 years, the trustees of the Trust (i.e. the Trustees and their predecessors) have not identified any person with a potential or beneficial interest in the Trust[1]. The Trustees also want to be discharged from office and be replaced by the Official Solicitor appointed pursuant to section 63 of the Trustee Ordinance (Cap 29) (“Ordinance”) and rule 7 of the Rules.   

4.  Notwithstanding the proposed appointment of the Official Solicitor as the judicial trustee of the Trust, no attempt has been made by the Trustees to obtain the comments of the Official Solicitor on the application.  On 25 March 2020, this Court gave directions on service of the papers on the Official Solicitor and filing of submissions by the Trustees and the Official Solicitor. 

5.  In response, in their letter dated 27 March 2020, Messrs Deacons, on behalf of the Trustees, stated that there appears to have been a “misapprehension” on the nature of the application, given that the Trustees “are not plaintiffs”[2], they are “not bringing an action against the Official Solicitor” and the Trustees “do not seek relief from the Official Solicitor”.  The response is unhelpful, given that (1) this is a highly unusual case and, as far as the Trustees are aware, is “only one of its kind to have been brought before the courts of Hong Kong” [3] and, as such, the Court requires the assistance of an independent party such as the Official Solicitor; and (2) the Trustees seek relief which concerns the Official Solicitor. 

A.  Background fact

6.  Mr Lawrence was a former partner and a consultant of Deacons until 31 December 2019.  Mr Gilligan is a partner of Deacons. 

7.  The Trustees do not know when the Trust was established, but believe that it was before the Second World War.  The earliest trustees they can ascertain were Sir William Shenton and Mr R F Mattingley, both were then partners of Deacons[4]. The latter died on 29 December 1926. 

8.  On 8 December 1961, Mr Shenton as the only surviving trustee, transferred the trusteeship to Mr Raymond Edward Moore (“Mr Moore”) and Mr Peter Alan Lee Vine (“Mr Vine”), who were then partners of Deacons. 

9.  On 13 November 1997, Mr Moore and Mr Vine, who had by then already retired as partners of Deacons, executed a Deed of Appointment and Retirement (“1997 Deed”) whereupon Mr James Julius Bertram, a former managing partner and consultant of Deacons (“Mr Bertram”), and Mr Lawrence became the trustees of the Trust.  Following the death of Mr Bertram on 19 June 2015, Mr Lawrence executed a deed of appointment dated 14 October 2015 (“2015 Deed”) to appoint Mr Gilligan as a new trustee of the Trust. 

10.  The papers relating to the Trust which are in the custody of Deacons consist only of the 1997 Deed, the 2015 Deed, the share certificates of the CKH Shares and CKP Shares (as defined in §13 below) and the financial documentation relating to the Trust.  Such documents do not reveal the terms of the Trust or the identity of the settlor or beneficiary.  The Trustees believe that the relevant records in the custody of Deacons were lost or destroyed in the course of the Japanese occupation of Hong Kong during the Second World War.  

11.  The Trustees confirm that neither they nor Deacons are aware of “any purported or actual beneficiary of the Trust ever having sought to assert his rights under the Trust or otherwise claim any item of Trust property”.  Nor have the Trustees been able to ascertain any claim with respect to the Trust having been made or asserted, whether prior to or since the Japanese occupation of Hong Kong. 

12.  According to the Schedule to the 1997 Deed, as at 13 November 1997, the Trust property comprised:

(1)  HK$53,672.16 held by Deacons;

(2)  9,412 shares of HK$0.25 each in Hutchison Whampoa Limited; and

(3)  HK$75,980.42 and all other monies (if any) held by Wheelock Marden Limited, the registrar of Hutchison Whampoa Limited.

13.  According to the Schedule to the 2015 Deed, as at 14 October 2015, the Trust property consisted of:

(1)  HK$275,063 held by Deacons;

(2)  HK$232,683 deposited in a bank account no 447-0-073660-6 at Standard Chartered Bank (“SCB Account”);

(3)  7,081 shares of HK$1.00 each in CK Hutchison Holdings Limited[5] (“CKH Shares”); and

(4)  7,081 shares of HK$1.00 each in Cheung Kong Property Holdings Limited (“CKP Shares”). 

14.  As at 27 February 2020, the Trust property comprised the following assets:

(1)  the CKH Shares, whose trading price was HK$68.7 each;

(2)  the CKP Shares, whose trading price was HK$49.8 each; and

(3)  HK$368,513.45 held in the SCB Account. 

The CKH Shares and CKP Shares together are referred to as “Shares”.

B.  Discussion

15.  As stated above, Mr Lawrence ceased to be a consultant of Deacons with effect from 31 December 2019.  The Trustees consider that it would be undesirable to appoint another partner or employee of Deacons to replace Mr Lawrence or to continue with the current mode of administration of the Trust, having regard to the following fact and matters:

(1)  the Trust is incapable of being performed, as the Trustees have no means to identify the terms of the Trust and, as such, any act they undertake with respect to the Trust property may constitute a fraud on a power while any inaction on their part may constitute a breach of trust;

(2)  despite the time elapsed, the Trustees (and their predecessors) have not been able to locate any documentation which may throw light on the identity of the settlor or the beneficiaries, such that they cannot distribute or return the Trust property to anyone; and

(3)  while the judicial trustee, if appointed, would find himself in the same position as the Trustees, the Court may give such directions as it considers appropriate in respect of the Trust property including applying its capital and income for charitable purposes.

16.  Mr Stefano Mariani in his written submissions dated 1 April 2020, makes the following points.

17.  First, he submits that the Trust is likely to be governed by Hong Kong law, given that it was constituted at the time when it was unusual to specify the law of another jurisdiction as the governing law of a trust.  In any event, as all the trustees of the Trust were ordinarily resident in Hong Kong and the property of the Trust consisted of assets located in Hong Kong, the Court must have jurisdiction over the Trust.   I do not think this is a real issue.  Section 3(1) of the Ordinance provides that the Ordinance “applies to trusts (whenever created)”.  Indeed, as stated in the 1997 Deed and 2015 Deed, the predecessor trustees exercised the power under section 37 of the Ordinance to appoint new or additional trustee.

18.  Second, Mr Mariani postulates a number of hypothetical scenarios in respect of the Trust, which ranges from the Trust having failed ab initio or for want of objects such that the Trust property is held on resulting trust for the settlor, or the Trust being a cestui que trust but the settlor and all the beneficiaries (including their heirs and successors) have all died, such that the Trust property is bona vacantia.  He submits that in none of the scenarios is the Trust reasonably capable of being performed, given that the identity of the settlor and beneficiaries cannot be identified. 

19.  I do not find it necessary to resort to speculations or conjectures.  As matter now stands, there is a complete absence of document or evidence which may shed light on the terms of the Trust or the identity of the settlor or beneficiaries.  It is in the circumstances  reasonable for the Trustees to come to the view that the Trust cannot be performed. 

20.  Mr Mariani submits that “in the absence of any viable alternative solution for the proper performance of the Trust, the requirement in section 63(1) of the Ordinance that sufficient cause be shown for a judicial trustee to be appointed is plainly met”.  This he says “follow from the fundamental maxim of equity will not allow a trust to fail for want of a trustee”.  I am unable to follow the logic of this argument.  As Mr Mariani himself acknowledges, the judicial trustee “will likewise in practice find himself in a position of being unable to perform the Trust”.  I do not see how the appointment of the Official Solicitor as the judicial trustee would overcome the problems identified by the Trustees which, they say (correctly), render it impossible for the Trust to be performed.  Putting it in another way, I do not see any useful purpose for appointing the Official Solicitor as the judicial trustee of the Trust when as matter now stands, the Trust is not one which can be properly administered. 

21.  Third, Mr Mariani submits that if the Court is not minded to appoint the Official Solicitor as the judicial trustee of the Trust, the Court should declare the Trust property bona vacantia and direct the capital and income to be paid into a “Government account”.  He further submits that whereas a sale and purchase of the Shares would give rise to an ad valorem stamp duty charged under sections 4 and 19 and Head 2(1) of the Stamp Duty Ordinance (Cap 117) (“SDO”) at 0.2% on the higher of the transfer consideration or the value of the Shares, “a donation of the Shares to a charity and, likely, to the Government” would not attract any stamp duty. 

22.  I am unable to see how the Court can grant the declaration suggested or direct the Shares to be donated to a charity as neither relief is sought in the OS.  Nor have the Trustees in their affidavit explained why such relief is appropriate or justified.   

23.  I turn to the issue of how to deal with the Trust property, specifically whether the property should be transferred to and vested in the Official Solicitor as judicial trustee pursuant to section 63 of the Ordinance (as the Trustees suggest), the Official Solicitor in his 2 letters dated 3 April 2020[6] drew to the attention of Deacons that:

(1)  the application should have been made under section 62 of the Ordinance, instead of section 63;

(2)  the principles set out in the authorities relevant to an application which concerns “unclaimed cash and deposits as well as unclaimed securities of its clients who could not be contacted”; and

(3)  the Court’s power to order sale of trust property when it is expedient to do so under section 56 of the Ordinance. 

24.  In his letter of 6 April 2020 to the Court, the Official Solicitor makes the following points on the application:

(1)  pursuant to section 62 of the Ordinance, the Court “has for quite a period of time allowed the payment into Court of unclaimed money and unclaimed securities belonging to a trust.  This has indeed been regarded as a ‘flexible and pragmatic’ solution”;

(2)  the Court also has power to order the sale of trust property under section 56 of the Ordinance “which no doubt clears or addresses the worry previously identified by Messrs Deacons with regard to the registered ownership of the shares/securities”; and

(3)  the involvement of the Official Solicitor in the matter is not required, given that Deacons have expressed their agreement to have the matter be disposed of in accordance with section 62[7], which the Official Solicitor considers to be proper and appropriate in the circumstances of the case. 

25.  Section 56 of the Ordinance provides:  

“Power of court to authorize dealing with trust property

(1)  Where in the management or administration of any property vested in trustees, any sale, lease, mortgage, surrender, release, or other disposition, or any purchase, investment, acquisition, expenditure, or other transaction, is in the opinion of the court expedient, but the same cannot be effected by reason of the absence of any power for that purpose vested in the trustees by the trust instrument, if any, or by law, the court may by order confer upon the trustees, either generally or in any particular instance, the necessary power for the purpose, on such terms, and subject to such provisions and conditions, if any, as the court may think fit and may direct in what manner any money authorized to be expended, and the costs of any transaction, are to be paid or borne as between capital and income.

(2)  The court may, from time to time, rescind or vary any order under this section, or may make any new or further order.

(3)  An application to the court under this section may be made by the trustees, or by any of them, or by any person beneficially interested under the trust.”

26.  The section enables the Court to authorise a particular transaction, but the scope is not so wide as to allow the Court to completely re-write the trust or a substitution of a completely different object from that which the trust was created to achieve.  Whether the Court should extend a trustee’s powers depends on the facts and merits of the case (Butterworths Hong Kong, Probate, Administration and Trustee Handbook, 4^th ed, §56.02).  The section is meant to allow the Court to confer powers that trustees lack and they prepare to exercise if given (Tang Kai-chung v Tang Chik-shang [1970] HKLR 276 at 304).

27.  Section 62 of the Ordinance provides:

“Payment into court by trustees

(1) Trustees, or the majority of trustees, having in their hands or under their control money or securities belonging to a trust, may pay the same into court, and the same shall, subject to the rules of court, be dealt with according to the orders of the court.

(2) The receipt or certificate of the proper officer shall be a sufficient discharge to trustees for the money or securities so paid into court.

(3) Where money or securities is or are vested in any persons as trustees, and the majority are desirous of paying the same into court, but the concurrence of the other or others cannot be obtained, the court may order the payment into court to be made by the majority without the concurrence of the other or others.

(4) Where any such money or securities is or are deposited with any banker, broker, or other depositary, the court may order payment or delivery of the money or securities to the majority of the trustees for the purpose of payment into court.

  (5)   Every transfer, payment and delivery made in pursuance of any such order shall be valid and take effect as if the same had been made on the authority or by the act of all the persons entitled to the money and securities so transferred, paid or delivered.”

28.  Section 62 of the Ordinance was derived from section 63 of the Trustee Act 1925 and the wordings are largely similar[8]. 

29.  The principles relevant to an application under section 62 may be summarised as follows:

(1)  The section can be used where there is an existing trust fund in the hands of some person as trustee (Butterworths Hong Kong, Probate, Administration and Trustee Handbook, 4^th ed, §62.03).

(2)  Section 62 is an alternative to dispose of unclaimed trust assets which has been held to be a “flexible and pragmatic solution”: Re Drake & Morgan Ltd [2009] HKEC 1396; Re Gainwell Securities Co Ltd [2018] HKCFI 1497.  The applications are relatively common and have been dealt with by the court in a number of cases (Re X Limited [2018] HKCFI 15 and the cases cited in footnote [1]).

(3)  Payment into Court has been considered justifiable where (a) there was a real doubt as to the person entitled, (b) the trustee cannot get a discharge, or (c) unclaimed securities and moneys of its clients who could not be contacted (Probate, Administration and Trustee Handbook, §62.08). 

(4)  By payment into Court of a trust fund, the trustee retires from the trust (Re William’s Settlement (1858) 4 K&J 87, 32 LTOS 9). 

30.  In my view, it is appropriate to make an order under section 62 of the Ordinance by directing the Trustees to transfer, pay or deliver all the property of the Trust into Court for the following reasons:

(1)  As stated in §15 above, the Trustees (and their predecessors) have not been able to perform or administer the Trust for a very long period of time.  There is no reason to require them to remain in office. 

(2)  The Trustees do not have any information on the identity of the settlor or the beneficiaries and, as such, they cannot properly transfer the Trust property to anyone.  Nor can they obtain a discharge from their office.

(3)  Allowing the property of the Trust to be paid into Court would preserve the integrity of the property, without requiring any trustee to incur any further time and costs in maintaining such property. 

(4)  The cash deposited in the SCB Account and the Shares can be paid or deposited into Court, which is specifically envisaged in section 62 of the Ordinance.  A recent example where the court ordered a trustee to deposit physical share certificates issued under the name of “the Registrar of the High Court” can be found in Re ABN AMRO Bank N.V. [2018] HKCFI 1559 §17.

31.  Mr Mariani draws to the Court’s attention that before the Shares can be deposited into Court, the Trustees have to execute instrument of transfer to transfer the Shares to the Registrar of High Court (“Registrar”). He submits that as no beneficial interest passes in the Shares to be transferred to the Registrar, the transfer comes within section 27(5) of the SDO, such that no stamp duty is payable on the instrument of transfer to be executed by the Trustees for such purpose. I agree.                 

32.  I do not think it is expedient to order a sale of the Shares in circumstances where:

(1)  there is no suggestion that the Trust needs to raise any cash to pay any expense or discharge any liability;

(2)  there is no evidence to suggest that a sale of the Shares would be in the interests of the Trust;

(3)  the Trustees have not expressed a willingness to exercise a power of sale if they are given such power; 

(4)  there is no difficulty for the Trustees to transfer and deposit the Shares into Court; and

(5)  once the Shares are transferred to and deposited into the Court, the Trustees no longer need to hold onto the Shares.

33.  In light of the order made under section 62 (see §30 above), I would not make any order sought in §§(1), (3) and (4) of the OS.

34.  As for the relief sought by the Trustees in §(2) of the OS, I have no difficulty in making an order to discharge the Trustees as trustees of the Trust, but I do not think the Trustees are entitled to be released from any personal liability of any breach of trust, save for fraud, dishonesty or wilful misconduct on their part, given that:

(1)  the evidence does not address why the Trustees are entitled to a release on such term;

(2)  the submissions do not identify any basis for seeking a release on such term.  Nor has any authority been cited in support of such relief; and

(3)  in all the cases decided under section 62 of the Ordinance cited by the Official Solicitor, the Court did not grant any release from liability in favour of the trustees.

35.  At the invitation of the Court, the Trustees provide a draft order along the lines of the orders made in Re ABN AMRO Bank N.V. [2018] HKCFI 1559 and Re Glenlyon Limited [2018] HKCFI 1038.  The order I made is set out in the Appendix hereto.

36.  As for costs, I order that the Trustees are entitled to the costs of the OS, to be taxed on a trustee basis, which I assess at HK$190,000 by way of gross sum assessment.   

APPENDIX

1.  Upon completion of the acts set out in §§2-5 below, the Trustees be discharged as trustees of the Trust;

2.  The Trustees be permitted to use the “Trust Fund” (particulars of which are set out in the Schedule hereto) for the purposes of (a) paying the taxed costs of HK$190,000 (as described in §7 below) (b) defraying the newspaper advertising fee and such other expenses to be incurred in paying the balance of the “Trust Funds” into court;

3.  The Trustees do within 21 days hereof (or such other time as may be permitted by the Court) execute such instrument of transfer and other documents as may be necessary to transfer the shares for the time being comprised in the “Trust Fund” to “the Registrar of the High Court” and, insofar as may be necessary, to cause the share certificates issued in the name of the Registrar of the High Court to be deposited into court.

4.  The Trustees do within 42 days hereof (or such other time as may be permitted by the Court) pay into Court the balance of the “Trust Fund” (i.e. the remaining amount after paying the costs and expenses described in §2 above);

5.  Notification of this Order (including the details of the “Trust Fund”) be given by way of advertisements in one Chinese-language and one English-language daily newspaper in Hong Kong within 21 days hereof;

6.  Upon completion of §4 above, the Trustees be discharged from any further obligation or liability with respect to the “Trust Fund”; and

7.  The costs of this application be to the Trustees, to be taxed on a trustee basis. Such costs are assessed by way of gross assessment at HK$190,000.

SCHEDULE

(Particulars of “Trust Fund” as at the date of this Order)

1.  7,081 shares of HK$1.00 each in CK Hutchison Holdings Limited

2.  7,081 shares of HK$1.00 each in Cheung Kong Property Holdings Limited

3.  HK$368,513.45 held by the Trustees in a bank account at Standard Chartered Bank, no. 447-0-073-660-6, and interest accrued thereon from 27 February 2020, if any