LAU WING KWONG DANIEL AND OTHERS v. LAU KIN CHU

MP 3308 of 1997

HEADNOTE

Trust - Deed of Settlement - Land - Personal Law of Chinese persons - Chinese Customary Law - Devolution of lapsed reversionary interest under trust - Equity.

By a deed of settlement prepared and executed in 1925 in strict accordance with Common Law, a Chinese man settled a piece of property on Hong Kong island upon trust for the surviving male issues born by the kit fat and concubines of his deceased father in equal shares per stirpes absolutely. The interests of male issues who were still under age were expressed as reversionary interests per stirpes after their respective natural mother's life interest in maintenance. When one beneficiary died without ever marrying and leaving no issue before his reversionary interest could become vested, question arises as to how the lapsed interests should be dealt with and under what choice of law. Expert opinion suggested that the trust created was to implement Chinese customary law and, on the basis that the personal law of all parties concerned was Chinese law, the reversionary interest of this beneficiary should be re-distributed according to Chinese customary law.

Held: (1) it should be assumed that the personal law of Chinese persons conducting their affairs in Hong Kong or dealing with property in Hong Kong is modern Hong Kong law; (2) on its true construction, the deed of settlement created a trust which should be implemented according to modern Hong Kong law; (3) the lapsed interests of a remainderman reverts to the trust created by the deed of settlement to be re-distributed; (4) the re-distribution of the lapsed interests of the remainderman should give effect to the intentions of the settlor and the purposes of the trust as evinced by the terms of the instrument creating the trust; (5) since the purpose of the trust was to provide for the male issues of the father of the settlor in equal shares per stirpes, re-distribution should follow the same scheme.

MP 3308 of 1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3308 OF 1997

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J U D G M E N T

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Although this case is not a contested one and I have made an order in terms, it raises a number of interesting issues. I think it is worth the efforts to hand down a reasoned judgment.

2. The story of this case goes back to the beginning of this century. In or about 1922 a gentleman by the name of LAU Sai Iat (劉世逸) ("the Ancestor") died intestate in Fuzhou in the province of Fukien, China. With the passage of time and intervening wars, very little is known or can be ascertained about the Ancestor. For instance, none of the descendants knows the last address of the Ancestor. It is accepted by all parties concerned that the Ancestor lived to over the age of 70 and he had a Kit Fat (結髮) wife and four concubines. The Kit Fat and one of the concubines can no longer be identified by name. It is no longer possible to ascertain how much wealth he had or what properties he owned in Mainland China or Hong Kong but judging from the large family he kept he must have been a person with substantial means.

3. In 1914, a piece of property situate and known as 16 Bonham Road, Hong Kong (Section D of Inland Lot No. 605) ("the Property") was purchased by one LAU Leung-ting (劉亮庭) ("the Grantor") for valuable consideration. The Grantor was the son of the concubine whose name we do not know. By 1925, the Grantor had become the eldest surviving son of the Ancestor. On 18th May 1925, the Grantor executed a deed of settlement ("the Deed"). The Deed was prepared by Messrs. Johnson, Stokes and Master in Hong Kong. It was in all respects properly and formally drawn up and executed like an English deed of trust. The Grantor's signature was witnessed by Her Britanic Majesty's Consul for Foochow after the Grantor had been identified by a person surnamed Donald. Thus, there is reason to believe that the Grantor executed the Deed when he was in Foochow (Fuzhou) (福州). All the Donees named in the Deed also signed, sealed and delivered in the presence of a solicitor of Messrs. Johnson Stokes and Master. Thus there is reason to believe that all the named Donees were at the time in Hong Kong. It should further be noted that the Grantor signed his name in English without any appending attestation that the contents of the Deed had been interpreted to him. There is evidence of interpretation to the Donees who signed on the Deed although some of the male Donees signed their names in English.

4. The relevant recital and operative part of the Deed of Settlement reads like this:-

"..... AND WHEREAS the Grantor is desirous of making provision for the Donees NOW THIS INDENTURE WITNESSETH that for the purpose of effectuating the said desire and in consideration of his natural love and affection for the Donees HE the Grantor DOTH hereby assign unto the Donees ALL THAT [the Property] ....."

5. The interests of the Donees under the Deed of Settlement are provided therein as follows.

6. It is not disputed that LAU Chan Shi and LAU Wong Shi were respectively the 3rd concubine and the 4th concubine of the Ancestor and the named persons entitled to reversionary interests under these two ladies were their respective natural children. Thus LAU Hok Him （劉學謙）had two brothers and the three of them were the children of LAU Chan Shi.

7. The broad scheme under the Deed is that the Property, as trust property, was divided equally per stirpes among the known sons of the Ancestor. Each stirpes was allocated two undivided twenty-fifth shares. In the case of the sons who were survived by their spouse in 1925, the two undivided twenty-fifth shares went to the spouse. In the case of unmarried sons, their undivided shares were lumped together and went to their respective natural mother as trustee for them with herself a life interest. The odd remaining one undivided twenty-fifth share went to LAU Kwok Wing who was the son of the eldest son of the Ancestor.

8. LAU Hok Him ("the Deceased") died in 1931 before his mother LAU Chan Shi. He was never married and had no issue. The object of the application before me is to seek clarification of the interests of the Deceased or his estate in the Property and the order prayed for is to distribute his interests amongst the rest of the Donees named in the Deed. The Property is now vacant but made the subject of a redevelopment order under Section 4(1) of the Demolished Buildings (Re-Development of Sites) Ordinance.

9. Those acting for the surviving Donee and successors in title under the Deed have sought the opinion of Mr. Anthony Dicks, Q. C. an acknowledged expert on Chinese law. His evidence, by way of two affidavits, one sworn on 18th October 1997 ("Dicks I") and the other also on 18th October 1997 ("Dicks II") are before court. I append below pertinent paragraphs from Dicks I.

"10. ..... it seems clear both from the nature and content of the Settlement and also from the circumstances in which it was made some three years after the death of Lau Sai Iat that the underlying intention of the Settlement was the division of the family property of Lau Sai Iat (or that part of it represented by the Property) among the members of his family in accordance with the principles of Chinese law and custom, and this Affidavit is made on the assumption that this inference is found by the Court to be correct.

11. To the extent that the Settlement was made with reference to Chinese law and custom I shall further assume that it is to be construed with reference to Chinese law and custom. I shall also assume that the question of the devolution of the particular interest of the Deceased under the Settlement is subject to Chinese law and custom both as the personal law governing the substantive law of succession to the estates of Chinese decedents resident or domiciled in Hong Kong at the date of his death and, to the extent that his interest may be classified as an interest in land, as the law applicable to succession to the immovable property situated in Hong Kong of Chinese decedents wherever resident or domiciled.

12. ..... I should make it clear that in my opinion in 1922 as regards succession to property on death there was no significant difference between the Chinese law and custom of Hong Kong and the relevant provisions of the laws of the former Republic of China. For the purposes of this Affidavit, accordingly, references to "Chinese law and custom" should be understood to refer both to the Chinese law and custom of Hong Kong and to the traditional law and custom which in 1922 in the former Republic of China was applicable to succession to property under the designation "Civil Law Temporarily in Force".

13. ..... although it is drawn up in the English language and makes use of certain concepts familiar to English law, in my opinion the Settlement is plainly intended to carry into effect the rules of the traditional Chinese law of succession as they applied to the estate of Lau Sai Iat, and it appears that it ought to be construed and understood against the background of Chinese law and custom. Accordingly, to the extent that the express terms of the Settlement fail to provide for particular events or contingencies such lacunae must be filled by reference to the applicable rules of Chinese law and custom.

19. In Chinese law and custom the crucial incident in the transfer of property interests within any family with more than one son was division of the family property, rather than, as in the common law, succession upon death. Division of property, which was normally though not invariably effected by deed, could take place during the lifetime of the family head, upon his death, or at some time following his death. The principles to be followed in making a division were clearly laid down by law, some (but not all) of them being specifically set out in the Da Qing Lu Li.

21. Just as the undivided family property could not be said to vest absolutely in a single individual, so the division of family property strictly did not take place as between individuals, as is sometimes supposed, but as between branches of the family known as fang. In its simplest form, a fang consisted of a son of the head of the family, his wife and their children. The word "fang" means literally a room, and was derived from the ancient usage of allotting a married son a separate apartment within the family house. Once the division of family property took place, each fang became a family (jia) in its own right, consisting of the husband, wife, and such children as might be born within the family, all of whom once again shared in the common property of the new family.

22. Until a man married, he could not constitute a fang, and he was thus not sui juris in the sense that he was not eligible to participate in a final division of property.

26. There were certain statutory exceptions to this rule in cases where the celibacy could not be construed as intentional, such as where an unmarried man died on the battlefield, where he died while betrothed but still unmarried, or where he died before reaching the age of majority and was the only male of his generation.

27. Where none of these exceptions applied, however, the deceased bachelor, far from taking away a share in the family property, simply ceased to be one of the family dependants. There was one less mouth to feed. As regards the property, no "succession" took place, for such a man could never have had the capacity to acquire any property which was truly his own, and his potential interest in the family property on division would never have "vested". In those cases of "partial division" where a father divided property in his lifetime, an unmarried son would either continue to live on the portion reserved for the parents, to be divided again among the fangs in due course, or, if he was given a specific portion for his individual maintenance, it was similarly a provisional allocation for life, to be treated as family property and divided on his death among the fangs, which therefore continued to have a contingent interest in it during his lifetime.

30. It appears that following the death of Lau Sai Iat it was decided (possibly on his oral instructions) to effect a division of such part of his estate as was represented by the Property, and it was for this purpose that Lau Leung Ting, his eldest surviving son, in whose name the legal title to the Property was then registered, acted as the Settlor, transferring his own portion to his wife. The scheme of the Settlement was that two twenty-fifth shares were allotted in principle to each of the twelve fangs or potential fangs, and the last twenty-fifth share was given to the late Lau Kwok Wing, apparently on the ground that he was the "eldest great grandson", a recognised customary status in some parts of traditional China.

31. ..... Thus by Chinese law and custom none of these five unmarried (and in some cases infant) sons of Lau Sai Iat had the capacity to take vested shares in case of a general or partial division of his family property. For this reason, the Settlement, inasmuch as it may be said to have operated on a deed of division, can only have had a provisional or partial character in relation to the dispositions in favour of these five younger sons. On the death of any one son who had not married his name would drop out of the genealogy and his notional share, being as a matter of law part of the still undivided family property, would fall to be divided among the remaining beneficiaries.

32. For these reasons, my opinion is that any share in the Property under the Settlement which at the date of his death was attributable to the Deceased was of a provisional or contingent character and must be taken to have lapsed with his death, thereby automatically enlarging the shares of the other beneficiaries proportionately. It should perhaps be added that under Chinese law and custom, there would be no question of the lapsed share of the Deceased reverting to the Settlor."

10. Dicks II continues with the following opinion:-

"LAU KWOK WING

9. In relation to the share settled on Kwok Wing in the Settlement, it is clear that notwithstanding that it was in name an absolute interest, it could not have vested absolutely in Kwok Wing at the relevant date, since he had not established a fang of his own. His share was accordingly undivided property within the fang to which he belonged, that is to say as between himself and Daniel Wing Kwong. Accordingly, in my opinion, on the death of Kwok Wing his share automatically vested in his brother Daniel Wing Kwong under Chinese customary law. Even if the latter was at that date still unmarried, as the sole successor to the line of the senior fang Daniel Wing Kwong would have fallen within the statutory exceptions to the rule whereby unmarried sons could not establish lines of succession and there would thus be no reason why the interest should not vest in him absolutely.

10. It should perhaps be emphasised that Daniel Wing Kwong, after the deal of Kwok Wing, immediately replaced him as the eldest great-grandson of Lau Sai Iat in the senior line, and as such in my view was plainly the proper person to receive the extra portion; applying the principles of Chinese law and custom. Even by the ordinary principles of contract, it seems that it would be perfectly possible to imply a term in the Settlement to the effect that if Kwok Wing died unmarried the gift would pass to the next eldest great-grandson.

11. Following the death of the Deceased in 1931 and the lapse of his two twenty-fifths share, the single share vested in Kwok Wing would have been automatically enlarged into one twenty-third of the Property. At the same time the two twenty-fifths portion vested in his deceased grandfather's fang in the name of Madam Cheung Shi would have been enlarged to two twenty-thirds, the whole of which would have devolved on his father absolutely following the extinction of Madam Cheung's life interest in maintenance, and presumably formed part of Buh Fan's estate following the latter's death intestate on 3rd April 1973. Since by that date the estates of Chinese residents of Hong Kong had ceased to be subject to Chinese law and custom, Daniel Wing Kwong's interest in the two twenty-thirds share in the Property presumably was subject to the provisions of the Intestates' Estates Ordinance, but this would not apply to the single one twenty-third portion originally settled on his brother, Kwok Wing.

LAU MAN SANG

12. My attention has also been drawn to a transaction which occurred on 18 May 1925, the same date as the Settlement, whereby one of the original beneficiaries under the Settlement, Lau Man Sang, who was the son of Lau Sai Iat by his second concubine, purportedly made a specific assignment of the two twenty-fifths share settled on him in the Settlement to a lady described as "Lau Wong Shi, widow". The precise nature of this transaction is not altogether clear, but judging from the memorial supplied to me the original instrument was described as a "deed of gift" and was presumably executed under seal. Although I am instructed that there is or may be evidence that although described as a "gift" the assignment was in reality intended to reply a loan by the assignee, this was apparently not recorded in the deed and there must be some doubt whether it was possible for such an instrument to have taken effect in law. It seems safer therefore to assume that it took effect only in equity, and that at most the effect of the deed of gift would have been to constitute Man Sang the trustee of the two twenty-fifths share on behalf of the assignee, Wong Shi.

13. Whether Man Sang's share at the date of the death of the Deceased in 1931 stood vested in Man Sang himself, either for his own benefit or as trustee, or whether it had passed to the assignee under the deed of gift, it remained an undivided, and thus unquantified, share and at first sight was thus automatically augmented by the lapse of the Deceased's share to amount to two twenty-thirds, rather than two twenty-fifths, of the Property which formed the subject matter of the Settlement.

14. However, whether it was the intention of Man Sang as the donor to assign merely his share as it was at the date of the "deed of gift", or whether it was his intention also to assign to Lau Wong Shi the benefit of any future accretions such as occurred with the lapse of the Deceased's shares is a matter of construction of the "deed of gift" which is for the Court rather than an expert witness on Chines law."

11. Now, it may be convenient in this case to act on the erudite opinion of Mr. Dicks for it accords with the precise order sought by the surviving Donee and successors in title. However, it occurred to me that there must still be a great number of conveyances of property in Hong Kong before 1971 by Chinese persons that form the root of title or a link in the chain of title today. Because Chinese customary law may be applied in Hong Kong before 1971, the personal law of Chinese persons who disposed of properties in Hong Kong according to Mr. Dicks may call into question the true purpose and effect of the disposition. Imagine the havoc this may cause to present day conveyancing practice.

12. In the discussion below, I shall use "Common Law" to mean English law made up of common law and equity, "common law" to mean the body of laws in contradistinction to rules of equity and "modern Hong Kong law" to mean Common Law as applied in Hong Kong but excluding Chinese customary law incorporated into the Hong Kong legal system.

13. In Tse Moon-sak v. Tse Hung and others [1969] HKLR 159, the Full Court comprising Hogan C.J., Rigby S.P.J. and Mills-Owen J. considered the question of whether a deceased Chinese gentleman lacked power to make testamentary disposition in accordance with modern Hong Kong law, when it may be argued that his personal law should be Chinese customary law under which he could have no power to distribute his estate. It was held, inter alia, that testamentary capacity in accordance with modern Hong Kong law has been assumed and acted upon by many Chinese members of the community for a long time, just as individual rather than family ownership has been widely accepted by all sections of the community.

14. Come to think of it, the personal law of Chinese persons in Hong Kong may be quite distinct and different from the Chinese customary law that applied in Hong Kong before 1971. There are those already in Hong Kong before 1841 and their descendants who were born in Hong Kong. There are people in Hong Kong who came from Mainland China during various stages of the country's tumultuous history - before the revolution that toppled the Qing dynasty, after the revolution, after the enactment of the 1929 Civil Code by the Republican government, after the establishment of the People's Republic. There are those who went back and forth between Mainland China and Hong Kong. Any of the people who came to Hong Kong from Mainland China may choose to adopt modern Hong Kong law because that was the very purpose for which they came or because after they came they found the choice of modern Hong Kong law suited their purposes. A further complication is that descendants of Chinese persons in Hong Kong may also opt to adopt modern Hong Kong law as their personal law.

15. As Hogan C.J. put it in Tse Moon-sak v. Tse Hung and others at p. 181:-

"..... if it had been thought that the relevant English Law was not applicable to the circumstances of those, probably mainly fishermen, who were resident in Hong Kong in 1843 because, for example, of unfamiliarity with the system, would this necessarily mean that sophisticated individuals of the same race now in [Hong Kong], who have long been accustomed to the comparatively cosmopolitan atmosphere which has grown up here and the application of English principles of law and equity in so many matters, should be similarly precluded from the application of English Law?"

16. If, as Mr. Dicks advises, personal law is relevant on devolution of property and passing of title in land, it can be a very daunting task to prove title of property in Hong Kong disposed of by Chinese persons before 1971. One should note that people do not usually manifest their choice of personal law by a solemn act of declaration. In the great majority of cases, people do not even give any thought to their desired choice of personal law unless specifically asked about it. When required to determine the choice of law, I think the courts must now assume, in the absence of proof for the contrary, that all persons who conduct their affairs in Hong Kong or deal with properties in Hong Kong prefer to follow modern Hong Kong law. I am acutely aware that in the past cases involving Chinese persons have been dealt with on the basis that their personal law is Chinese law. I share the sentiments of Mills-Owen J. in Tse Moon Sak v. Tse Hung and others that those cases must be considered as settled and nothing I propose to do in this case should be taken as casting doubt on those settled cases.

17. Quite apart from the assumption that one should normally make, the most visible evidence of a person's choice of personal law would be the manner or means he or she performs a legal act such as setting up a trust, passing property or making a will. In this case, the Grantor divided the property by the Deed, the most formal way to create a trust under modern Hong Kong law. There cannot be clearer evidence of reliance on modern Hong Kong law. As I see it, the provisions in the Deed indicate the scope and extent of benefaction desired by the Grantor rather than an intention to follow the family law of Qing dynasty.

18. In the premises, the trust set up by the Deed should be given effect to in accordance with modern Hong Kong law. In this case, there are three specific problems and I shall address them under separate headings.

The interests of the Deceased

19. Under the trust created by the Deed, the Deceased had a reversionary interest after the life interest in maintenance of his natural mother. But he predeceased his mother without leaving issue. Plainly on the terms of the trust, the reversionary interest did not become an interest vested on the Deceased. In other words, the gift to the Deceased from the trust estate lapsed.

20. In Milroy v. Lord (1862) 4 De G F & J 264, it was held that where a gift failed under a defective trust the interest in the gift does not revert back to the settlor by way of resulting trust. In Public Trust v. McKee [1931] 2 Ch. 145, the testator left his residuary estate to his wife for life and after her death to divide the same between his surviving sibblings. All the sibblings predeceased the wife. The Court of Appeal held that the reversionary interests of the sibblings should be treated as forming part of the testator's estate, i.e. reverted back to the estate in trust. Following these authorities, the lapsed interests of the Deceased in this case should revert back to the trust estate created by the Deed, not to the estate of the Grantor. But the Deed is silent on what to do with lapsed interests.

21. In Standing v. Bowing (1885) 31 Ch. D 282 at p. 289, Lindley, L.J. said:-

"Trusts are neither created nor implied by law to defeat the intentions of donors or settlors; they are created or implied or are held to result in favour of donors or settlors in order to carry out and give effect to their true intentions, expressed or implied ....."

Here the express intention of the Grantor is quite clear - to provide for the Donees named in the Deed in specific proportions. It follows that the only proper and equitable arrangement is to re-distribute the lapsed reversionary interest of the Deceased pro rata among the Donees named in the Deed per stirpes and by the same scheme of life interests for mothers with remainder to their sons in equal shares absolutely where appropriate.

22. Even if I am wrong to apply rules of equity with the result suggested, by happy co-incidence the distribution of the lapsed interests of the Deceased according to Chinese customary law would be the same following the expert advice of Mr. Dicks.

23. Accordingly, I make the order and declaration in relation to the disposal of the lapsed interests of the Deceased in terms as sought.

The interests of LAU Kwok Wing

24. The Plaintiffs have not sought any order or declaration from me on the devolution of the said interest of LAU Kwok Wing. The opinion in Dicks II, however, raises questions as to how the interests of LAU Kwok Wing should be dealt with under Chinese customary law.

25. LAU Kwok Wing was the most senior (per stirpes) grandson of the Ancestor. The Deed allocated one undivided twenty-fifth share of the Property to LAU Kwok Wing. He died in 1927 without having married or leaving issue. He was at that time survived by his natural mother and his brother of full blood. His mother died in 1962 leaving the brother LAU Wing Kwong.

26. For the reasons already given, I do not think the said interests of LAU Kwok Wing should be dealt with according to Chinese customary law. The Deed assigned the said interests to him absolutely. If required, I am prepared to declare that the late LAU Kwok Wing took his share free from all equities and the interests had been vested in him before he died. Since LAU Wing Kwong is the only and sole surviving brother of full blood of LAU Kwok Wing, he must be the sole successor to whatever remaining in the estate of the late LAU Kwok Wing even if his mother had a life interest at some stage.

The Gift by LAU Man Sang

27. On the same day the Deed was executed, LAU Man Sang assigned his share of interests in the Property by a Deed of Gift to a lady described as "LAU Wong Shi, widow". Question arises as to whether this assignment would include the portion of lapse reversionary interests of LAU Hok Him, deceased re-distributed as I have ordered.

28. I have not had any representation from "LAU Wong Shi, widow" or her estate. But, subject to submissions on behalf of the Plaintiffs, I would have thought that if the Deed of Gift prescribes the interests passing as two undivided twenty-fifth shares in the Property, that much only would be transferred to "LAU Wong Shi, widow". On the other side, if the Deed of Gift refers in effect to the interests passing as all that LAU Man Sang would be entitled under the Deed, then all the interests of LAU Man Sang under the Deed including the re-distributed portion from the lapsed reversionary interest of the Deceased should go to the said lady.

29. I should add that on the albeit meagre evidence before me, "LAU Wong Shi, widow" may well be the fourth concubine of the Ancestor. If that is the case, an assignment by all the beneficiaries or successors-in-title under the Deed should be sufficient to convey all the estate and interests in the Property to a new purchaser taking the whole of the Property for valuable consideration.