LAU LEUNG CHAU AND OTHERS v. LAU YUK KUI AND OTHERS

FACV No. 15 of 1999

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 15 OF 1999 (CIVIL)

(ON APPEAL FROM CACV NOS 33 & 59 OF 1998 (Consolidated))

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Between:

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J U D G M E N T

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Chief Justice LI:

1. I agree with the judgment of Mr Justice Bokhary PJ.

Mr Justice Litton PJ:

2. I agree with Mr Justice Bokhary PJ's judgment.

Mr Justice Bokhary PJ:

3. Ancestral worship trusts, being endowments in perpetuity for the purpose of ancestral worship, exist under Chinese law and custom as an institution of that legal system dating from Qing times. In regard to certain matters and in certain circumstances, Hong Kong law makes room for Chinese law and custom to apply in Hong Kong. Our law even disapplies the rule against perpetuities where such disapplication is necessary for the purpose of enforcing Chinese law and custom in Hong Kong. One of the matters in respect of which Chinese law and custom has application in Hong Kong is New Territories land unless exempted from the provisions of Part II of the New Territories Ordinance, Cap. 97. (There is no suggestion that any of the New Territories land concerned in the present case is so exempted.) Whenever there is any live issue as to what the provisions of Chinese law and custom are, the usual practice in our courts is to resolve such issue with the benefit of expert evidence. That is the broad legal context in which I now turn to the ultimate issue in the present case.

The ultimate issue: the DFA's validity

4. That issue is whether a deed of family arrangement entered into as long ago as 20 March 1946 ("the DFA") is valid. The challenge to the DFA's validity takes the form of a contention that the DFA disposed of New Territories land in violation of an ancestral worship trust. The immediate riposte to that challenge is quite simply a denial of the alleged ancestral worship trust's existence. Having stated this issue, I turn to the circumstances in which it arises.

The circumstances in which it arises

5. Mr Lau Wai Chau ("the Ancestor") died in Hong Kong on 18 August 1933. He was in his late sixties, had five wives, and had fathered eight sons. His eldest son predeceased him. His other seven sons survived him.

6. Those now in litigation over the DFA's validity are the eight fongs (i.e. familial branches in the male line) each started by one of the Ancestor's eight sons.

7. The Ancestor left a will ("the Will") to which he had added a codicil ("the Codicil"). The Will is dated 11 July 1930 and is in English. The Codicil is dated 4 March 1932 and is in Chinese. As we shall see, the parties who allege the existence of an ancestral worship trust contend that such a trust was created by the Codicil.

8. In his lifetime the Ancestor amassed a large fortune. This fortune included land and businesses in the Mainland and in the New Territories of Hong Kong. Shortly before his death, the Ancestor divided his New Territories land into nine parts. Each of the eight fongs was given one part. The ninth part went to the Ancestor's three eldest surviving sons to hold the same on an express trust for the Ancestor himself. This division of property ("the 1933 Division") was registered in the District Land Office on 23 May 1933, three months before the Ancestor died.

9. Despite eight-ninths of his New Territories land having gone to the eight fongs before his death, the estate left by the Ancestor was considerable. For a time his estate was managed by his three eldest surviving sons. Then family discord arose. This led in 1946 to another nine-part division ("the 1946 Division"). It was the division of the Ancestor's entire estate comprising everything he owned after eight-ninths of his New Territories land had gone to the eight fongs before his death.

10. The 1946 Division comprised the following family arrangements. The Ancestor's estate was divided into nine parts. The 2nd fong, being that of the eldest surviving son, chose the part which it wanted. The next six fongs then drew lots in order of seniority for their parts. The 8th fong was left to take the lot not drawn by the others. The ninth part, which did not go into the draw, was reserved as property common to all eight fongs for the purpose of ancestral worship. These are the family arrangements embodied in the DFA.

DFA's validity challenged

11. Save when referring to them as the appellants and the respondents, I will refer to the parties in terms of the fongs to which they belong. On that basis the 1st - 5th appellants are the 3rd, 5th, 7th, 6th and 8th fongs respectively (all represented by the same counsel and solicitors). And the 1st - 3rd respondents are the 4th, 1st and 2nd fongs respectively (each represented by different counsel and solicitors, with the running for all the respondents made principally by leading counsel for the 1st respondent i.e. the 4th fong).

12. After the family arrangements embodied in the DFA had been acted upon by people for decades, the 3rd and 5th - 8th fongs questioned the DFA's validity. And the eight fongs disagreed thereon. The 1st, 2nd and 4th fongs contended that the DFA is valid. The 3rd and 5th - 8th fongs contended instead that the DFA is invalid. Two sets of proceedings were commenced: one in 1995 and the other in 1996. But there is no need to say anything as to how they were constituted beyond this. All eight fongs were before the court. The 4th fong sought a declaration that the DFA is valid. This was supported by the 1st and 2nd fongs. But it was opposed by the 3rd and 5th - 8th fongs who asked the court to hold instead that the DFA is invalid. (I should mention that the 1st and 2nd fongs wish it to be known that they do not regard themselves as being in hostile litigation with any other fong.)

The decisions of the courts below

13. By his judgment dated 7 January 1998 Cheung J declared the DFA valid. On 29 January 1999 the Court of Appeal (Nazareth VP and Mayo JA, Liu JA dissenting) affirmed that declaration. The 3rd and 5th - 8th fongs are now before this Court as appellants while the 1st, 2nd and 4th fongs are now before this Court as respondents. That is subject to the notice filed on 17 March 2000 by the 4th appellant (the 6th fong) seeking leave to withdraw his appeal. But it is too late for that. His appeal falls to be disposed of in the same way as the appeals of the other appellants.

DFA's validity challenged on one ground: that the DFA was made in breach of an ancestral worship trust

14. As I have indicated, the appellants' challenge to the DFA's validity is made on one ground. This ground was rejected by the courts below. It is now before this Court for adjudication. And it runs thus. The New Territories Land which comprised the ninth part of the 1933 Division and which land was divided between the eight fongs pursuant to the 1946 Division under the DFA is - so the appellants contend - subject to an ancestral worship trust created by the Codicil. Accordingly, say the appellants, the DFA is invalid as having been made in violation of such ancestral worship trust. That is the ground upon which the appellants challenge the DFA's validity. In the courts below, they made a number of submissions in support of this ground. All of those submissions were rejected by the courts below.

Now only one submission in support of that ground: the "intention/subject matter/beneficiaries" submission

15. Only one of those submissions is renewed before us. In so renewing it, the appellants begin by accepting that under Chinese law and custom no ancestral worship trust can be created by will for the simple reason that Chinese law and custom does not recognize testamentary dispositions. But they rely on the Ancestor's testamentary capacity under Hong Kong law. They submit that an express direction in a will to create an ancestral worship trust over New Territories land is sufficient for the purposes of Hong Kong law. And they end up by putting forward the submission formulated thus in their printed case:

"As a matter of principle, it is submitted that an endowment for ancestral worship purpose, like an English trust, should not fail merely for want of registration or other formality. Provided that (i) the intention to create an ancestral worship trust is sufficiently explicit, (ii) the subject matter of the ancestral worship trust is sufficiently identified and (iii) the beneficiaries are sufficiently certain (in this case all the male descendants of the Ancestor), it is submitted that the Court must uphold the ancestral worship trust in order to give effect to the clear intention of the settlor of the properties."

I will refer to this as the "intention/subject matter/ beneficiaries" submission. It is the means by which the appellants seek to get round their difficulty that no ancestral worship trust had been created under Chinese law and custom in the present case.

16. In dealing with this submission, I begin by turning to the part of the Codicil upon which the appellants place particular reliance for their contention that the Codicil created an ancestral worship trust. There the Ancestor refers to "fish ponds and surrounding fields in front of the village together with the paddy fields in the surrounding" which "are still properties under my name". He then says: "they are to be kept and managed in perpetuity for payment of expenses designated by me before I die, and for the purpose of offering sacrifices to ancestors or gods in the future".

17. As to intention, the judge referred to the 3rd and 5th - 8th fongs' argument "that the wording of the Codicil showed that the intention was to create an ancestral worship trust", and said that he accepted "that the intention was there". But the judge then went on to give his reasons for holding that that intention had not been realised. Some of those reasons pertain to submissions which are not renewed before us. So I need not deal with those reasons.

The judge's rejection of the "intention/subject matter/beneficiaries' submission

18. But the judge's reasons for rejecting the "intention/subject matter/beneficiaries" submission ought to be noted. He said:

"Even assuming that the Ancestor had full testamentary capacity under Hong Kong law, I am not satisfied that an ancestral worship trust could be established on his death by Hong Kong law. The ancestral worship trust is an unique institution created by Chinese law and custom. It involves the actual setting up of a tso or tong. This had not been done during the lifetime of the Ancestor or by his descendants after his death. The failure to establish the ancestral worship trust under Chinese law is not confined simply to the lack of testamentary capacity of the Ancestor. The actual creation requires positive steps to be taken. It would be imprudent and infeasible to marry two unique concepts, namely the English trust concept and the Chinese ancestral worship trust concept simply on the basis that it was the intention of the Ancestor to create such a endowment. The ramification of marrying these two unique concepts is unknown and it is too uncertain for one to attempt such an exercise."

What it takes to create an ancestral worship trust

19. The judge's conclusion that Chinese law and custom required positive steps for the creation of an ancestral worship trust was a conclusion reached with the benefit of expert evidence which he accepted. Such evidence came from all three of the 4th fong's experts on Chinese law and custom, namely Prof. Anthony Dicks SC, Prof. Hugh Baker and Mr Michael Palmer, all of whom gave evidence against the existence of the alleged ancestral worship trust.

20. Since that conclusion of the judge's as to the state of Chinese law and custom was affirmed by the Court of Appeal and since the appellants no longer dispute that conclusion, it is unnecessary to deal with the expert evidence at length. But the evidence of Prof. Dicks, who needs no introduction in our courts, is particularly illuminating in regard to the "intention/subject matter/beneficiaries" submission. The judge dealt with Prof. Dicks's evidence by saying that Prof. Dicks

"... said that the wording of the Codicil clearly indicated that the intention of the Ancestor was to create from his remaining properties an endowment in perpetuity for the maintenance of ancestral worship. Under customary law, this appeared to be a valid, as well as extremely common, type of provision in a Chinese will of the traditional sort. He said that executors or administrators or trustees who succeeded them, in reliance on it, could properly have had the properties in question registered in the appropriate district office either in the name of the deceased tong or in the name of its linear descendants (i.e. in one of its own names with the suffix "Tso"), appointing managers in the usual way. In traditional China, the proper method of carrying the deceased's intention into effect would have been to draw up an agreement between all eight Fongs to establish the endowment and to make an official report to the Office of the County Magistrate in accordance with a decree to that effect of the 18th Year of Qianlong, but in the New Territories these formalities were replaced in effect by registration. But as no such steps had taken place, no ancestral worship trust was created in this case."

21. Prof. Dicks also said - and the judge also accepted - that the function of a will in traditional China was largely to transmit moral instructions and precepts for the conduct of family affairs.

The Court of Appeal, too, rejects the "intention/subject matter/ beneficiaries" submission

22. The Court of Appeal rejected the "intention/subject matter/ beneficiaries" submission for reasons which are in conformity with the judge's reasons.

Lack of juridical foundation

23. I, too, reject the "intention/subject matter/beneficiaries" submission.

24. It has never been doubted that ancestral worship trusts exist under Chinese law and custom as an institution of that legal system. Nor has there ever been any doubt that this institution takes the form of an endowment in perpetuity of property for the purpose of ancestral worship.

25. As to how such endowments are to be made under Chinese law and custom, the conclusion to be reached (with the benefit of the expert evidence accepted by the judge whose acceptance thereof was affirmed by the Court of Appeal and is not challenged before us) is as follows. Such endowments are to be made either by steps taken by someone in his lifetime to carry out his own wishes or by steps taken by heirs in their lifetime to carry out the wishes of a deceased ancestor. In either case the person or persons taking such steps is the settlor or are the settlors. Thus by the very nature of ancestral worship trusts, the only kind of disposition that can create an ancestral worship trust is an inter vivos disposition.

26. By the very nature of ancestral worship trusts, therefore, Chinese law and custom simply did not operate so as to create an ancestral worship trust in the present circumstances. But the appellants

submit that Hong Kong law has nevertheless done so. I am unable to accept that submission.

27. In my judgment, our jurisprudence leaves no room for Hong Kong law to operate so as to create an instance of a Chinese law and custom institution in circumstances where Chinese law and custom itself does not so operate. That would amount to the Hong Kong courts assembling a hybrid between Hong Kong law and Chinese law and custom, and then applying that hybrid in the name of but contrary to Chinese law and custom. I can see no juridical foundation for such an exercise.

No ancestral worship trust created: DFA valid

28. For the foregoing reasons, I hold that there was no ancestral worship trust for the DFA to violate. Accordingly the DFA is valid, and the challenge to its validity, which challenge takes the form of a contention that it disposed of land in violation of an ancestral worship trust, fails at the first hurdle. This means that it is not strictly necessary to examine any other hurdle which may lie in that challenge's path.

Dissolution

29. Nevertheless I will go on to deal with the respondents' alternative argument that if an ancestral worship trust had been created, then it would have been dissolved by the DFA. In other words, the DFA would not have unlawfully violated the ancestral worship trust but would instead have lawfully dissolved it.

30. This alternative argument is based on a rule of Chinese law and custom which is not itself in dispute. Under Chinese law and custom, property endowed in perpetuity for the purpose of ancestral worship may be divided amongst the settlor's male descendants if they, as the heads of all his fongs, unanimously agree to such a division. Thus may an ancestral worship trust be dissolved under Chinese law and custom.

31. What the appellants say in answer is that the DFA could not have dissolved the ancestral worship trust because, whatever Chinese law and custom may provide, a statutory provision stood in the way of such dissolution. And here the appellants seek to rely on s.15 of the New Territories Ordinance (before that s.27 of the New Territories Regulation Ordinance of 1919 and originally s.13 of the New Territories Land Ordinance of 1905).

Section 15 reads as follows:

"Whenever any land is held from the Government under lease or other grant, agreement or licence in the name of a clan, family or t'ong, such clan, family or t'ong shall appoint a manager to represent it. Every such appointment shall be reported at the appropriate New Territories District Office of the City and New Territories Administration, and the Secretary for Home Affairs on receiving such proof as he may require of such appointment shall, if he approves thereof, register the name of the said manager who shall, after giving such notices as may be prescribed, have full power to dispose of or in any way deal with the said land as if he were sole owner thereof, subject to the consent of the Secretary for Home Affairs, and shall be personally liable for the payment of all rents and charges and for the observance of all covenants and conditions in respect of the said land. Every instrument relating to land held by a clan, family or t'ong, which is executed or signed by the registered manager thereof in the presence of the Secretary for Home Affairs and is attested by him, shall be as effectual for all purposes as if it had been executed or signed by all the members of the said clan, family or t'ong. The Secretary for Home Affairs may on good cause shown cancel the appointment of any manager and select and register a new manager in his place. If the members of any clan, family or t'ong holding land do not within 3 months after the acquisition of the land make and prove the appointment of a manger, or within 3 months after any change of manager prove the appointment of a new manager, it shall be lawful for the Government to re-enter upon the land held by such clan, family or t'ong, which shall thereupon become forfeited. Such re-entry shall be effected by the registration of a memorial thereof in the appropriate New Territories Land Registry."

As can be seen, the section deals with land "held ... in the name of a clan, family or t'ong". But at the material time i.e. the time of the DFA the land concerned was held in the names of individuals or their estates.

32. With a view to overcoming that difficulty in their way, the appellants argue that "in the name of" should be read as meaning "belonging to". They seek to derive support for this by pointing to Lord Browne-Wilkinson's use of the word "belong" in this passage in the Privy Council's advice in Wu Koon Tai v. Wu Yau Loi [1997] AC 179 at p.187 F-G:

"Section 15 deals with the case where lands belong, under Chinese law, to a clan or family; it provides for a manager of such lands to be registered, he having full power of disposition of all the family lands. Section 16 also deals with family lands." (Emphasis supplied.)

And they seek to find similar support in the reference in s.16 of the same Ordinance to "any clan, family or t'ong owning land". (Emphasis supplied.)

33. I do not think that the appellants can derive the support which they seek. It is clear that Lord Browne-Wilkinson was merely using broad language to give a general description of the group of provisions with which he was dealing. And s.16 is concerned with exempting registered t'ongs, clans and families from the provisions of the Companies Ordinance, Cap. 32. Furthermore it is to be noted that the words in s.15 are not merely "in the name of" but are "held from the Government under lease or other grant, agreement or licence in the name of". (Emphasis supplied.) Nothing in Wu Koon Tai v. Wu Yau Loi or in s.16 affects the plain meaning of those words in s.15.

34. There is no need to decide what the effect of s.15 is when it applies. The short answer to the appellants' attempt to rely on s.15 is that s.15 does not apply to the land concerned since none of such land is or was held in the name of a clan, family or t'ong. This means that s.15 does not stand in the way of the respondents' alternative argument that if an ancestral worship trust had been created, then it would have been dissolved by the DFA under Chinese law and custom.

35. As it happens, the respondents succeed even before their alternative argument is reached. But if they had needed it, then their alternative argument would have brought them victory.

Result

36. In the result, I would dismiss this appeal with costs in favour of the respondents against the appellants.

Mr Justice Mortimer NPJ:

37. For the reasons given by Mr Justice Bokhary PJ I also would dismiss this appeal with costs in favour of the respondents against the appellants.

Lord Cooke of Thorndon NPJ:

38. I agree with the judgment of Mr Justice Bokhary PJ.

Chief Justice Li:

39. The Court unanimously dismisses this appeal with costs in favour of the respondents against the appellants.