TAO, SOH NGUN v. HSBC INTERNATIONAL TRUSTEE LTD

HCA 3246/2016

[2018] HKCFI 33

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 3246 OF 2016

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D E C I S I O N

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INTRODUCTION

1.  The issue for determination is whether the Defendant should be ordered to give further and better particulars of various pleas in the Amended Defence under the Plaintiff’s summons dated 21 November 2017.

BRIEF OVERVIEW OF THE PARTIES’ RESPECTIVE CASES

(i)   The Plaintiff’s case

2.  The Plaintiff is the wife of the late Mr Lo Ying Shek (“the Father”), who passed away on 1 September 2006.  They were the co‑founders of the Grate Eagle Group (“GE”), with The Great Eagle Company, Limited as its holding company, the shares of which have been publicly listed in Hong Kong since 1972.

3.  On 14 April 1984, the Father and the Plaintiff set up two private discretionary family trusts known as “The Lo Ying Shek Family Trust” (“the Trust”) and “The Lo To Li Kwan Trust” (“the Plaintiff’s Trust”) respectively for the purpose of minimizing the estate duty payable in respect of their assets passing on their death whilst effective control over those assets would be retained by the Father and the Plaintiff during their lifetime.  Hongkong Bank Trustee Limited (“the Original Trustee”) was appointed as trustee of the two trusts.

4.  On or about 14 June 1984, the Father and the Plaintiff decided to merge the Plaintiff’s Trust with the Trust, and to jointly use the Trust for the aforesaid purpose.  On or about 21 July 1984, the Plaintiff’s Trust was wound up and the name of the Trust was changed to “The Lo Family Trust”.

5.  The assets of the Trust (“the Trust Fund”), which were provided by the Father and the Plaintiff, include substantially the entirety of their respective assets and in particular, their controlling interest in GE.

6.  At all material times, there was a common understanding (“the Alleged Common Understanding”) between the Original Trustee, the Father and the Plaintiff that:-

(1)   The Trust was to be established solely for the purpose of minimizing the estate duty payable in respect of the Father and the Plaintiff’s assets passing on their death whilst allowing them to retain effective control over those assets during their lifetime.

(2)   The Original Trustee would administer the Trust and the assets to be injected into the Trust in accordance with the wishes, requests and instructions of the Father and the Plaintiff (and should either of them predecease the other, the Original Trustee would accede to the wishes, requests and instructions of the survivor), and that such wishes, requests and instructions would be given to the Original Trustee in writing from time to time.

7.  In around November 1999, the Defendant (HSBC International Trustee Limited) became the trustee of the Trust in place of the Original Trustee.

8.  The Alleged Common Understanding continued after the Defendant took over as trustee of the Trust.

9.  Prior to January 2016:-

(1)   all the instructions given by the Father and/or the Plaintiff to the Original Trustee or the Defendant were fully complied with and followed, pursuant to the Alleged Common Understanding; and

(2)   the Original Trustee and the Defendant never purported to exercise any of their discretionary powers under the relevant trust deed (“the Trust Deed”), and all matters concerning the administration of the Trust and the Trust Fund were carried out upon the instructions of the Father and/or the Plaintiff.

10.  However, since January 2016, the Defendant suddenly departed from the Alleged Common Understanding and refused to follow or adhere to the Plaintiff’s requests or instructions as regards the administration of the Trust and the Trust Fund as set out in a series of letters issued in 2016 (“the 2016 Letters”).

11.  In the exercise of its powers and discretions in the administration of the Trust and the Trust Fund, the Defendant is under a duty to, inter alia:-

(1)   take serious account of the Plaintiff’s requests and instructions as the primary or material consideration;

(2)   consider and take serious account of the Alleged Common Understanding, in particular the understanding that it would administer the Trust and the Trust Fund in accordance with the Plaintiff’s wishes, requests and instructions;

(3)   consider and take serious account of the Plaintiff’s legitimate expectation that the Defendant would (inter alia) continue to comply with and follow her requests and instructions concerning the administration of the Trust during her lifetime; and

(4)   comply with and follow the Plaintiff’s requests and instructions concerning the administration of the Trust during her lifetime unless there is a very good reason not to do so.

12.  In departing from the Alleged Common Understanding and in failing or refusing to give effect to the Plaintiff’s requests and instructions, the Defendant breached its duties as trustee of the Trust.

13.  Further, the Defendant allowed itself to be placed in a position of conflict of interests, in that it has at all material times been the trustee of a discretionary trust of which one of the children of the Father and the Plaintiff, namely, Lo Ka Shui, was the founder, and the Defendant exercised its powers in such a manner as to favour Lo Ka Shui’s interests over the interests of the Plaintiff and other beneficiaries of the Trust.

14.  By this action, the Plaintiff claims against the Defendant for, inter alia, an order that the Defendant do forthwith consider or re‑consider the Plaintiff’s requests and instructions as contained in the 2016 Letters, or alternatively the Defendant be removed as trustee of the Trust.

(ii)   The Defendant’s case

15.  The Trust is a conventional discretionary trust.  The Defendant, as trustee of the Trust, has under the Trust Deed the widest powers of appointment and application of capital and income for the benefit of all or any one or more of the beneficiaries, together with wide powers of investment and management.  The Defendant is entitled to exercise its powers in such manner as it thinks fit in its “absolute and uncontrolled discretion”.

16.  The Original Trustee assumed and occupied office as trustee of the Trust in 1984 and executed the Trust on the basis that the powers and provisions as declared and contained in the Trust Deed were the trusts on which it held the Trust Fund.  The Defendant has continued to act on the same basis after it replaced the Original Trustee as trustee of the Trust in November 1999.

17.  The Defendant is under a duty (inter alia) to consider the wishes of the Plaintiff whose wishes the Defendant in its discretion considers relevant to the exercise in question, and is entitled to give such weight to any such wishes as it thinks appropriate (see paragraph 14(4) of the Amended Defence).  At the hearing on 21 December 2017, Mr Eugene Fung, SC (on behalf of the Defendant) also accepted, as I understand him, the proposition at paragraph 29-163 of Lewin on Trust, 19^th Ed, that the Defendant is “bound” to take serious account of the settlor’s wishes, even to the extent of them being the primary or material consideration.

18.  The Defendant is entitled to give effect to, or act in accordance with, the settlor’s wishes, but is not obliged to do so if, in the proper exercise of its discretion, it determines otherwise.

19.  The Defendant disputes the Alleged Common Understanding. Although the Original Trustee and Defendant did in practice from time to time act in accordance with the Father’s wishes in relation to ministerial acts of investment and administration of the Trust, they were not undertaken pursuant to the Alleged Common Understanding.

20.  The Defendant’s reasons or justification for not acceding to the Plaintiff’s requests or instructions as contained in the 2016 Letters are fully pleaded in the Amended Defence, which it is not necessary for me to set out in this decision.

THE PLAINTIFF’S FIRST SET OF REQUESTS

21.  The Plaintiff’s first set of requests for further and better particulars relates to three paragraphs of the Amended Defence, namely, paragraphs 26(1), 59 and 64 thereof.  In order to understand those paragraphs, it is necessary first to refer to the relevant averments in the Re-Amended Statement of Claim which were responded to by those paragraphs of the Amended Defence.

22.  In the Re-Amended Statement of Claim:-

(1)   At paragraph 19, the Plaintiff pleads that pursuant to the Alleged Common Understanding, various letters and written instructions were issued by or on behalf of the Father and the Plaintiff to the Original Trustee from 1984 to 1999 setting out their specific requests and instructions concerning the administration of the Trust and the Trust Fund.  Particulars are given in respect of 7 matters (defined as the “Specific Instructions to the Original Trustee”) in sub-paragraphs (1) to (7), followed by a general averment in sub-paragraph (8) that “The Plaintiff does not have in her possession copies of all the letters and written instructions issued to the Original Trustee and reserves her right to provide further particulars after discovery”.

(2)   At paragraph 20, the Plaintiff pleads that each of the Specific Instructions to the Original Trustee were fully complied with by the Original Trustee pursuant to the Alleged Common Understanding.  Further, the Original Trustee never purported to exercise any of its discretionary powers under the Trust Deed, and all matters concerning the administration of the Trust and the Trust Fund were carried out upon the instructions and/or consent of the Father and/or the Plaintiff.

(3)   At paragraph 21, the Plaintiff refers to the Original Trustee’s conduct in relation to a number of specific matters, particularized in sub-paragraphs (1) to (6), “as evidencing the [Alleged] Common Understanding and the Original Trustee’s agreement to abide by it in the administration of the Trust and the Trust Fund”.

(4)   At paragraph 28, the Plaintiff pleads that pursuant to the Alleged Common Understanding, various letters were issued by or on behalf of the Father and the Plaintiff to the Defendant since November 1999 setting out their requests and instructions concerning the administration of the Trust and the Trust Fund.  Particulars are given in respect of 4 matters (defined as the “Specific Instructions to the Defendant”) in sub-paragraphs (1) to (4), followed by a general averment (in sub-paragraph (5)) that “The Plaintiff does not have in her possession copies of all the letters and written instructions issued to the Defendant and reserves her right to provide further particulars after discovery”.

(5)   Lastly, at paragraph 29, the Plaintiff pleads that each of the Specific Instructions to the Defendant were fully complied with by the Defendant pursuant to the Alleged Common Understanding.  Further, prior to 2016, the Defendant never purported to exercise any of its discretionary powers under the Trust Deed, and all matters concerning the administration of the Trust and the Trust Fund were carried out upon the instructions and/or consent of the Father and/or the Plaintiff.

23.  In the Amended Defence:-

(1)   At paragraph 23, the Defendant admits that during the Father’s lifetime – that is over the 15 years between 1984 and 1999 – the Original Trustee did in practice from time to time act in accordance with the Father’s wishes in relation to ministerial acts of investment and administration of the Trust, including the matters referred to sub-paragraphs 19(1) to (7) and sub-paragraphs 21(1) to (5) of the Amended Statement of Claim, but denies that they were undertaken pursuant to the Alleged Common Understanding.

(2)   At paragraph 24, the Defendant further admits that during the remainder of the Father’s lifetime – that is over the following 7 years between 1999 and 2006 – the Defendant did on the three occasions referred to in sub-paragraphs 28(1) to (3) of the Amended Statement of Claim act in accordance with the Father’s wishes in relation to ministerial acts of investment and administration of the Trust, but denies that they were undertaken pursuant to the Alleged Common Understanding. In so far as the matter referred to in sub‑paragraph 28(4) is concerned, the Defendant avers that “the position is equally explicable [as in relation to the other three matters], though in fact … that matter was dealt with as a technical issue between the Defendant, JSM and a representative of GE …”.

24.  The Plaintiff’s first set of requests for further and better particulars relates to the following pleas in the Amended Defence, namely:-

(1)   Paragraph 26(1) –

“The Defendant denies as regards the Original Trustee (paragraph 20 of the Amended Statement of Claim) and the Defendant (paragraph 29 of the Amended Statement of Claim) that in any of the cases relied on by the Plaintiff and pleaded to at !paragraphs 23 to 25 above, the Original Trustee or the Defendant (as the case may be) - in acting in accordance with the wishes of Mr Lo (and, insofar as was also the case, the Plaintiff) - was not exercising discretions conferred on it as trustee of the Trust.”

(2)   Paragraph 59 –

“As to paragraph 19 to 21 of the Amended Statement of Claim, the Defendant repeats paragraphs 23 and 26 above ....”

(3)   Paragraph 63 –

“In the premises, and generally (including as regards the matters chronologically pleaded at paragraph 30 of the Amended Statement of Claim), paragraph 29 of the Amended Statement of Claim is denied.”

25.  The further and better particulars sought by the Plaintiff are as follows:-

(1)   State whether it is the Defendant’s case that the Defendant or the Original Trustee has ever exercised its discretion when it purported to exercise any of the powers under the Trust Deed, and if so, set out in a chronological order each and every occasion when it is alleged that the Defendant or the Original Trustee did exercise its discretion, giving in respect of each such occasion full particulars of the following:

(i)   the date when the discretion was allegedly exercised;

(ii)   the identity of the person(s) who al1egedly exercised the discretion on behalf of the Defendant or the Original Trustee;

(iii)   the subject matter of the decision;

(iv)   the matters that the person(s) who made the decision have taken into account in the exercise of the discretion;

(v)   whether the decision was in accordance with the instructions or requests made by Mr Lo Ying Shek and/or the Plaintiff (or anyone acting on their behalf) in respect of the subject matter; and

(vi)   whether the decision maker took into account any matter other than the fact that it was Mr Lo Ying Shek’s and/or the Plaintiff’s instruction or request that the Defendant or the Original Trustee should exercise the power; and if so, set out all the matters which were taken into account.

(2)   State whether it is the Defendant’s case that it or the Original Trustee has ever exercised its discretion in declining or refusing to accede to a request or instruction from Mr Lo Ying Shek and/or the Plaintiff (or anyone acting on their behalf), and if so, give full particulars of each of such occasions, stating in respect of each such occasion:

(i)   the date when the Defendant or the Original Trustee allegedly exercised its discretion to refuse to accede to a request or instruction from Mr Lo Ying Shek and/or the Plaintiff (or anyone acting on their behalf);

(ii)   the subject matter of the request or instruction;

(iii)   the identity of the person(s) who allegedly exercised the discretion on behalf of the Defendant or the Original Trustee; and

(iv)   the matters which the person(s) who exercised the discretion took into account in refusing to accede to the request or instructions from Mr Lo Ying Shek and/or the Plaintiff.

(3)   State whether it is the Defendant’s case that it or the Original Trustee has ever exercised its discretion in the exercise of the powers under the trust which did not result from a request or instruction from Mr Lo Ying Shek and/or the Plaintiff (or anyone acting on their behalf), and if so, please state in respect of each occasion:

(i)   the date when the Defendant or the Original Trustee allegedly exercised such discretion;

(ii)   the subject matter of the exercise of power;

(iii)   the identity of the person(s) who allegedly exercised the discretion on behalf of the Defendant or the Original Trustee; and

(iv)   the matters which the person who exercised the discretion took into account.

26.  In my view, the Plaintiff is not entitled to the particulars sought referred to in paragraph 25(1) above, for the following reasons.

27.  First, by paragraphs 26(1), 59 and 64 of the Amended Defence, the Defendant denies that, in acting in accordance with the wishes of the Father in relation to a number of specific matters (namely, those pleaded by the Plaintiff at paragraphs 19, 21 and 28 of the Re-Amended Statement of Claim and responded to by the Defendant at paragraphs 23 to 25 of the Amended Defence), the Original Trustee or the Defendant were not exercising discretions conferred on them as trustee of the Trust.  It can be seen immediately that the Defendant is denying a negative allegation.  The question is whether such denial is a mere traverse (in respect of which no particulars will be ordered), or a negative pregnant with an affirmative (in respect of which particulars will be ordered).  The distinction between the two was clearly explained by Godfrey J (as he then was) in Tin Shui Wai Development Ltd v AG [1991] 1 HKC 509 at 511-512, as follows:-

“It is for present purposes essential to notice that what we have here is a negative allegation made by the plaintiff and traversed by the defendant. Such a traverse necessarily involves a double negative; but, although, in ordinary parlance, a double negative must involve an affirmative proposition, for pleading purposes the denial of a negative allegation does not necessarily involve the making of an affirmative proposition. Whether it does so or not depends on whether it is, on the one hand, a mere traverse; or, on the other hand, a traverse which, though negative in form, is in fact pregnant with an affirmative. The denial of a negative allegation may operate as a bare traverse and no more, whereby the defendant simply puts the plaintiff to the proof of the negative alleged. In such a case, if it is not possible to read into the mere denial of the negative allegation any affirmative allegation beyond that which is necessarily implied from such a traverse, particulars will not be ordered; but then once the plaintiff establishes a prima facie case, the defendant will be precluded from setting up an affirmative case in answer, for that would be to allow him to set up a case which he has not pleaded. Alternatively, if it is clear to the court, either from the nature of the case or from what is stated by counsel or otherwise, that the defendant intends to set up an affirmative case, which, if established, would defeat the plaintiff's prima facie case, particulars of such an affirmative case will be ordered; for otherwise there will be doubt as to what are the issues to be determined between the parties. Where the denial of a negative allegation leaves it in doubt as to what the true nature of the denial is, the pleading will be regarded as embarrassing and evasive and it will be ordered to be struck out, or amended, or particulars may be ordered of any affirmative case relied on.”

28.  In the present case, I consider that a fair reading of the Amended Defence, in particular the various pleas mentioned in paragraph 24 above in the context of the issues raised on the pleadings, is that the denial is a mere traverse and not a pregnant negative raising an affirmative case.  In this regard, it is important to note that there is no allegation on the pleadings that the Original Trustee or the Defendant failed to properly discharge their duties as trustee in acting in accordance with the wishes of the Father in relation to the specific matters pleaded by the Plaintiff at paragraphs 19, 21 and 28 of the Re-Amended Statement of Claim and responded to by the Defendant at paragraphs 23 to 25 of the Amended Defence.  It is not, as I see it, an essential part of the Defendant’s defence to the Plaintiff’s claims to prove affirmatively that the Original Trustee and the Defendant did properly exercise the discretions conferred on them as trustee of the Trust in relation to those matters.  The Defendant would not, of course, accept that they failed to do so and, if asked or pressed, would say that they did, but that is not the same as setting up an affirmative case regarding the exercise of their discretions in relation to the aforesaid specific matters.

29.  It is also important to note that the Plaintiff’s allegation that the Original Trustee and the Defendant never properly exercised their discretionary powers under the Trust prior to 2016 but simply acted in accordance with the wishes of the Father and/or the Plaintiff is put forward for the purpose of evidencing the Alleged Common Understanding. Subject to the question of the admissibility of such evidence which I understand will be challenged by the Defendant and will have to be determined by the trial judge, even if the Plaintiff should successfully prove such allegation at the trial, it does not necessarily mean that there was indeed the Alleged Common Understanding, because it may mean just that the Original Trustee and the Defendant failed to properly exercise their discretion independently.

30.  The question of whether a denial of a negative allegation amounts to a mere traverse or a pregnant negative raising an affirmation case is to be determined primarily on the basis of the existing pleadings.  Nevertheless, as stated by Goddard LJ in Pinson v Lloyds and National Provincial Foreign Bank, Limited [1941] 2 KB 72 at 80:-

“If it is clear to the Court, either from the nature of the case or from the admission of counsel or otherwise, that it is intended to set up an affirmative case, so that the traverse is what has been described as a negative pregnant, it seems to me that particulars of the affirmative case ought to be delivered.”

31.  It seems to me that the converse must also hold good.  In the present case, Mr Fung has stated that the relevant paragraphs of the Amended Defence giving rise to the requests for particulars:-

“do not involve any traverse which imports affirmative allegations as to which particulars should be ordered. Those paragraphs of the [Amended Defence] merely traverse [the Plaintiff’s] allegation that [the Defendant] never exercised any of its discretionary powers under the Trust Deed prior to 2016, without making any affirmative allegation beyond that which is in any event to be implied from the denial of [the Plaintiff’s] negative allegation” (see paragraph 31 of Mr Fung’s Skeleton Submissions dated 19 December 2017).

I consider that I am entitled to act upon this confirmation given by leading counsel on behalf of the Defendant.

32.  Second, it is clear that the denials in paragraphs 26(1), 59 and 64 of the Amended Defence relate only to the specific matters pleaded by the Plaintiff at paragraphs 19, 21 and 28 of the Re‑Amended Statement of Claim and responded to by the Defendant at paragraphs 23 to 25 of the Amended Defence.  The Plaintiff’s request for particulars referred to in paragraph 25(1) above goes considerably beyond the Defendant’s pleas, in that the Plaintiff is asking the Defendant to “setoutina chronological ordereach andeveryoccasionwhenitisallegedthattheDefendantortheOriginalTrustee didexerciseitsdiscretion” and then give detailed particulars in respect of each and every such occasion.  There is, I consider, no proper basis for the Plaintiff to seek such wide ranging particulars having regard to the limited pleas in paragraphs 26(1), 59 and 64 of the Amended Defence.  In this connection, I note that the Plaintiff has not put forward any alternative, narrower, application.  That being the position, the particulars sought cannot be regarded as being “necessary either for disposing fairly of the cause or matter or for saving costs” under Order 18, rule 12 (3B) of the Rules of the High Court, Cap 4A.

33.  The above reasons also apply to the Plaintiff’s requests for the particulars referred to in paragraph 25(2) and (3) above. In addition, it is clear that the Defendant has not alleged in the Amended Defence that it or the Original Trustee ever “exercised its discretion in declining or refusing to accede to a request or instruction from Mr Lo Ying Shek and/or the Plaintiff” or “exercised its discretion in the exercise of the powers under the trust which did not result from a request or instruction from Mr Lo Ying Shek and/or the Plaintiff” prior to 2016. The Plaintiff is not, in my view, entitled to ask for particulars of something which has not, in fact, been alleged on the pleadings.

34.  There is one other matter that I cannot let pass without mentioning in this Decision.  As pointed out by Mr Fung at the hearing on 21 December 2017, it is not the Plaintiff’s case that the Trust was a sham.  It would not, of course, be in the interests of either the Plaintiff or the Defendant to contend that the Trust was a sham. However, the question may legitimately be asked whether the true arrangement of the relevant parties involved a conspiracy to defraud the Estate Duty Commissioner. It is plainly not possible for this issue to be resolved in the present application.  I shall leave it to the trial judge to consider whether the issue of the legality of the arrangement, as well its implications, ought to be investigated at the trial.

THE PLAINTIFF’S SECOND SET OF REQUESTS

35.  The Plaintiff’s second set of requests relates to paragraph 54(3)(b) of the Amended Defence.  In order to understand that paragraph, it is necessary first to refer to paragraph 14 of the Re‑Amended Statement of Claim, which pleads as follows:-

“… At all material times since the establishment of the Trust, the Original Trustee (for the period until its replacement by the Defendant in around November 1999) and the Defendant (since November 1999) were paid a fixed annual fee for their services, which was relatively insubstantial compared with the value of the Trust Fund.”

36.  As confirmed by Mr Benjamin Yu, SC (for the Plaintiff) at the hearing on 21 December 2017, the above plea is made to support the “implicit” allegation referred to in paragraph 54(3) of the Amended Defence, namely, that the “fees are not substantial relative to the exceptional value of the trust property, and/or that the Trust is accorded special terms as to fees, because the Trust is not a genuine trust established and operated in accordance with its trust documentation and governing law”.  In respect of this allegation, the Defendant’s response (inter alia), in paragraph 54(3)(b) of the Amended Defence, is that –

“the Original Trustee and the Defendant have been willing to continue in office on fixed rather than percentage fees in circumstances where GE, Mr. Lo, various of the Children, and the Plaintiff, were important customers of various business functions of the HSBC Group.”

37.  The further and better particulars sought by the Plaintiff are as follows:-

(1)   State the names of those Children who are or have been “important customers of various business functions of the HSBC Group”;

(2)   State on what basis or criteria does the Defendant consider those Children identified in (1) above as “important customers”; and

(3)   State the precise “business functions” of the HSBC Group which (i) GE; (ii) Mr. Lo; (iii) each of the Children named in sub-paragraph (1) above; and (iv) the Plaintiff are or have been important customers, including particulars as to the services provided by HSBC to each of them and the time period during which such services were allegedly provided.

38.  I consider that the Plaintiff is entitled to the particulars sought.  I am unable to accept Mr Fung’s submissions that those particulars relate to “matters of evidence”, or are “wholly unnecessary for the fair disposal of this action or for saving costs”.  It seems to me that the requests ask for particulars of fact which go directly to the Defendant’s allegation that “GE,Mr.Lo,variousoftheChildren,andthePlaintiff” were “important” customers of the HSBC Group, and would explain why the Original Trustee and the Defendant would be prepared to accept a fixed percentage fee for acting as trustee of the Trust which, according to the Plaintiff, is “relatively insubstantial compared with the value of the Trust Fund”.

DISPOSITION

39.  For the foregoing reasons, I order the Defendant to give the particular sought by the Plaintiff referred to in paragraph 37 above within 14 days of the date of the order herein.  On the issue of costs, most of the time at the hearing on 21 December 2017 was spent on the first set of requests, which the Defendant has successfully resisted.  Overall, I consider that a fair order to make would be that the Defendant shall have 80% of the costs of the application, to be taxed if not agreed, and I so order.  In view of the fact that the application relates only to a matter of particulars which seems to me to be relatively straight forward, I am not inclined to grant certificate for two counsel.  This having been said, I should acknowledge that I have substantially benefitted from the careful and cogent submissions of counsel from both sides, to whom I am greatly indebted.