ANTHONY ERIC RYAN HOTUNG AND ANOTHER v. HO YUEN KI

CACV 315/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 315 OF 2002

(ON APPEAL FROM HCMP NO. 2031 OF 2002)

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J U D G M E N T

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Hon Stock JA:

1. On 7 November 2002 this Court, slightly differently constituted, delivered judgment whereby it dismissed an appeal from the refusal by the first instance judge to order the defendant trustee to execute certain powers of attorney in favour of the plaintiff beneficiaries.

2. The issue for the court's determination was whether the trustee of a bare trust may lawfully be compelled to execute in favour of the beneficiaries a power of attorney in respect of the trust property. This Court held in favour of the trustee that she could not be so compelled.

3. By Notice of Motion dated 4 December 2002, the plaintiffs now seek leave to appeal to the Court of Final Appeal from that judgment. The application is made under both limbs of section 22(1)(b) of the Hong Kong Court of Final Appeal Ordinance, Cap. 484, namely, that there is a question of great general and public importance which ought to be submitted to the Court of Final Appeal for decision, or otherwise that the question ought to be submitted.

4. The questions posed for the suggested consideration of the Court of Final Appeal are these:

(1) Is a bare trustee of property, at any rate a bare trustee of shares in a private company, under a duty to obey lawful instructions given by the beneficiary not only in respect of transfer of the legal title but in respect of all incidents of ownership of that property?

(2) Is a bare trustee of property, at any rate a bare trustee of shares in a private company, under a duty to do all such things as are necessary (including, as prayed by the Plaintiffs in this case, the execution of powers of attorney in their favour) to ensure that all lawful instructions by the beneficiary will be carried out and accomplished?

(3) Is the principle in Re Brockbank [1948] Ch 206 applicable to the case of a bare trust?

(4) Is the principle against delegation applicable to a case of a bare trust where the beneficiary has asked for the execution of a power of attorney as prayed by the Plaintiffs in this case?

5. The trust property comprises shares in two private companies. By originating summons dated 21 November 2002, the plaintiffs sought a declaration that they were beneficially entitled to the shares held on trust; and an order that the defendant as trustee should requisition a meeting of the companies and exercise her voting powers in accordance with the directions of the plaintiffs. In response to that application, the defendant trustee deposed in an affirmation that the settlor had, at the time of the declarations of trust, reserved to himself the power in certain circumstances to revoke the trusts and had also conferred on her full discretion to deal with the income from the shares by distributing that income between the settlor his wife and his children, who include the beneficiaries. The power of revocation, so it is asserted, would expire upon the settlor's death and that only thereafter was she at liberty to distribute the shares.

6. There was then made an application to cross-examine the defendant upon the contents of that affirmation. But one day before the hearing of that application, the settlor instituted proceeding by writ in High Court Action 571 of 2003 by which he seeks a number of declarations, including declarations that the trusts were subject to a power of revocation and that the trustee was empowered to distribute the shares after the settlor's death; and that during his lifetime she was to hold and deal with any income in her absolute discretion by distributing the same or to accumulate it. He seeks also an order restraining the trustee from acting on the instructions of the beneficiaries to requisition meetings of the companies and from voting on their instructions.

7. In the light of this second development, namely, the issue of the writ, the parties agreed, not surprisingly, that the hearing of the originating summons and proceedings allied with that summons be adjourned. The solicitors for the plaintiffs in the present proceedings, that is, for the proposed appellants to the Court of Final Appeal, then suggested to the defendant's solicitors that this application for leave also be adjourned pending determination of the settlor's action; but that has not been agreed.

8. The hearing of the appeal proceeded on an assumption that the trusts in question were bare trusts. By that I do not mean that it was a mere theoretical assumption upon which the court was prepared to proceed. I mean that all this Court had, as did the court below, were the declarations of trust which, on their face, were bare trusts; and no-one suggested that there were any conditions attached to them. No-one suggested in the court below or in this Court that this was some form of preliminary or interlocutory point. So when Mr Yin suggested, as he did in his written submissions, that it was not common ground that the trusts were bare trusts, the fact is that the manner and text of the presentations gave no inkling that the Court was or might be proceeding on a preliminary or academic footing.

9. Mr Yin today argues that the application for leave is doomed to fail for there is, he contends, no conceivable merit in the appeal. The fact of the matter, however, is that the issue whether the written declarations of trust constitute the full trust and whether the trust is a bare trust or not, in short, what sort or species of trust this is, are issues which are likely to be canvassed and resolved in the writ action; and that the resolution of action 571 of 2003 may well impact on the present proceedings. Mr Yin concedes as much. He even asserts that there are different species of bare trust; if that be so, then the writ action may well determine which type of bare trust it is, if indeed it is a bare trust at all.

10. In these circumstances it seems to me that the only sensible course is to adjourn this application until determination of the High Court Action 571 of 2003 or further order.

Hon Cheung JA:

11. The issue that was decided by this Court was whether the beneficiaries of a bare trust could compel the trustee to execute a power of attorney in their favour so that they could exercise the powers of the trustee. That the trusts in question are bare trusts was the basis on which the plaintiffs had proceeded with their case and this Court proceeded on the assumption that the trusts in question are bare trusts.

12. What had happened after our judgment was that the father of the plaintiffs who was the settlor of the trusts commenced an action in the Court of First Instance claiming in effect that the trusts are not bare trusts. He claims that the trusts are and have been subject to the following terms :

(1) The trusts were subject to a power of revocation exercisable by him during his lifetime and that the trustee would only be entitled to distribute the shares to the beneficiaries after his death.

(2) During his lifetime, the trustee was to hold and deal with any income that may be derived from the shares (i.e. the subject matter of the settlement) in her absolute discretion, by distributing the same to the settlor, his wife or his other children (or any of them), or to accumulate the same.

(3) The trustee was not to be concerned with and was to be relieved of all duties regarding the management of the two companies whose shares are the subject matter of the trusts.

The settlor is also seeking, among other things, rectification of the terms of the trusts.

13. By reason of this action, the plaintiffs argued that the present application should be adjourned because it is not right for the leave application or the subsequent appeal to proceed when the fundamental premise on which the case was decided has now become uncertain. If the settlor's action is successful, then the premise on which the plaintiffs had proceeded in the present case would no longer be valid.

14. I have given careful thought as to whether an adjournment is appropriate in a leave application. The pending action by the settlor may take many years before it can be fully resolved. From the timetable set down for the application for leave to appeal to the Court of Final Appeal in the Hong Kong Court of Final Appeal Ordinance, it is clear that the intention of the legislation is that the leave application should be dealt with as soon as possible after the judgment by the Court of Appeal. Further, the trustee is entitled to have the litigation being resolved by the highest court in Hong Kong as soon as possible.

15. On the other hand, while the trustee had raised arguments in this Court earlier that the trusts are not bare trusts, they were raised by way of legal arguments only. She had certainly not disclosed in the present proceeding that the trusts are subject to the conditions now relied by the settlor. She only revealed the existence of these conditions in another proceeding commenced by the plaintiffs almost immediately after our judgment in which the plaintiffs are seeking to compel the trustee to requisition a meeting of the two companies and to vote according to their directions. That proceeding is now stayed pending the determination of the outcome of the action by the settlor.

16. The outcome of the pending action obviously has an impact on this case. If it turns out that the trusts are subject to conditions and are not merely bare trusts, then the Court of Final Appeal will merely be asked to deal with an academic question. In my view, the case should not be proceeded in such a piecemeal manner. This subsequent development is so exceptional that I consider an adjournment is appropriate. The leave application should not be considered in vacuum. It should be considered when the factual matters have been fully determined in the pending action.

17. I agree with the order proposed by Stock JA.

Hon Ma JA:

18. I agree with both the judgments of Stock JA and Cheung JA.

Hon Stock JA:

19. Accordingly, the application for leave to appeal to the Court of Final Application is adjourned until determination of High Court action no. 571 of 2003, or further order.

[Submissions as to Costs]

20. Costs are reserved.