ELYSIUM LTD AND ANOTHER v. SUM KA KUEN DOMINIC AND OTHERS

HCA 502/2022

[2023] HKCFI [612]

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 502 OF 2022

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BETWEEN

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D E C I S I O N

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A. INTRODUCTION

1.  This is the adjourned hearing of the plaintiffs’ (“Ps”) application by summons of 4 May 2022 (“Summons”) for continuation of the injunction order obtained on an ex parte basis on 3 May 2022 against the 3^rd defendant (“D3”) (“Injunction Order”), which consists of inter alia:

(1) A proprietary injunction against D3 restraining D3 from resigning from, transferring, disposing of, or terminating its position as Appointor of the trust established by Deed of Trust (the “Compass Trust Deed”) dated 4 July 2014 and amended on or around 5 December 2014 (known as the “Compass Trust”), and/or appointing a replacement, successor or additional Appointor of the Compass Trust (the “Termination Restraint”); and

(2) An interlocutory injunction against D3 restraining D3 from exercising or otherwise dealing with any of the rights, powers, benefits, entitlements and/or discretions of the Appointor of the Compass Trust, and from holding out as such (the “Interference Restraint”).

2.  The Injunction Order was then continued by order of Au-Yeung J on 6 May 2022, and further by order of this Court on 13 May 2022.

3.  In addition, on 13 May 2022, this Court acceded to paragraph 2 of the Summons and granted a disclosure order against D3 (“Disclosure Order”), to the effect of requiring D3 to inform Ps in writing of any “Prior Notice” as defined under the Compass Trust Deed and/or any other notice/communication requiring the consideration/consent of the Appointor of the Compass Trust. As the parties have made no separate submissions on the Disclosure Order, it would appear logical and sensible for the Disclosure Order to remain undisturbed if the Injunction Order is to be continued.

B. BACKGROUND

4.  The relevant facts have been put forth by Ps in the 1^st and 3^rd Affirmations of Ip Woon Shun, the 2^nd plaintiff (“P2”) in his capacity as the Administrator of the estate (“Estate”) of Michael John Aldred, deceased (“Deceased”). It is common ground that D3 is a professional trustee. Acting in such capacity, D3 has not seriously disputed or challenged the facts contended by Ps. Further, whilst the 1^st and 2^nd defendants have filed defences in this action, they have not sought to intervene or otherwise participate in Ps’ application for the Injunction Order, and the defences filed by them do not contain much factual averments. As such, I would proceed on the basis that the facts as contended by Ps should prima facie stand, at least for the purpose of the present interlocutory application. Needless to say, these are not factual findings made after trial, and thus should not be binding (particularly in relation to other parties).

5.  Without repeating the facts in details, I would largely adopt the summary helpfully prepared in Ps’ submissions, which should not be controversial for present purposes.

B1. The Deceased and the Estate

6.  The Deceased died on 3 June 2021 at the age of 68, intestate. The Deceased was survived by his lawful widow and relict, Madam Pamela Aldred (the “Widow”), and their 2 daughters, Amber and Aiden.

7.  The Deceased was also survived by his 3 younger brothers of the full blood, namely John Lindsay Aldred (“Lindsay”), Anthony Damien Aldred (“Anton”), and Russell John Aldred (“Russell”).

8.  The Widow was appointed as the sole Administratrix of the Estate in Australia on or around 29 September 2021. P2 was granted the letters of administration of the Estate in Hong Kong on 4 February 2022, as the lawful attorney of the Widow.

9.  The Deceased died domiciled in Australia, and it appears that under the laws of the Deceased’s domicile, the Widow is the only beneficiary of the Estate.

10.  The Deceased was a successful businessman during his lifetime, operating a concrete chemical additives business trading under the “Cementaid” brand.

B2. The Compass Trust

11.  The Compass Trust is a discretionary trust, which was settled and created by the Compass Trust Deed as amended on 5 December 2014 (“5/12/14 Minutes”). Clause 3.2 of the Compass Trust Deed provided that the Compass Trust was governed by Hong Kong law, subject to any variation/amendment by the Trustee. The Compass Trust was created at the behest of the Deceased under the advice and with the assistance of Mr Peter Timothy Trace FCA TEP (“Mr Trace”), the former financial and tax adviser to the Deceased.

12.  The main assets held directly under the Compass Trust were the shares in Cementaid International Holdings Limited (“CAIHL”), which in turn was the holding company for different companies operating the Cementaid business and holding various assets. The approximate net value of the Cementaid business on a going concern basis would be over USD100 million.

13.  The prima facie Settlor of the Compass Trust was Lindsay. The trustee of the Compass Trust (the “Trustee”) was Castle Fiduciary Limited (“Castle”), a Hong Kong company, since around 30 September 2019. The sole shareholder and director of Castle is a Jimmy Pun, while its company secretary was and is Tempio Limited, the 2^nd defendant (“D2”).

14.  The beneficiaries/objects of the Compass Trust were set out in Schedule 2 of the Compass Trust Deed, and they included Lindsay, each of the brothers and sisters of Lindsay (i.e. including the Deceased), the children of Lindsay and of his brothers and sisters (i.e. including Amber and Aiden), and their lawfully married spouses (i.e. including the Widow).

B3. Provisions on Appointor and Trustee

15.  Under the Compass Trust Deed, it is stipulated that the Appointor has, inter alia, the following powers/functions:

(1) Clause 13.4 provides that the Appointor shall have the right to receive full information in regard to the Compass Trust upon demand.

(2) Clauses 14.4 and 14.5 provides that the Appointor shall have power exercisable at any time during the Trust Period (defined as the period from the date of the Trust Deed until such time as the Compass Trust is brought to an end by the Trustee or otherwise terminated by operation of law) by notice in writing given not less than 60 days in advance to remove any person as a Trustee, and if upon removal of that person there shall be no continuing Trustee, the Appointor shall appoint another person to be Trustee, and that other person so appointed shall become Trustee upon the removal of the person whom or which it is desired to remove.

(3) Clause 15.1 of the Trust Deed, as amended and varied by the 5/12/14 Minutes, provides that the Appointor shall continue to hold office until the Appointor (a) resigns from office; or (b) if the Appointor at any time is an individual, dies or otherwise becomes incapable of acting for a continuous period of 3 months by reason of any physical or mental condition certified as such by a Medical practitioner of Western Medicine of at least 10 years professional qualification.

(4) Clause 15.3 provides that the Appointor shall have power at any time and from time to time (a) to appoint an additional person(s) to act as additional Appointor(s) or as its nominee/representative; (b) in the case of a sole Appointor, to appoint any other person to act as Successor Appointor thereunder; and (c) to revoke the appointment of any existing Successor Appointor, and such appointment shall not take effect unless and until the Appointor shall have notified the Trustee in writing of such appointment and shall have furnished the Trustee with such evidence thereof as the Trustee may reasonably require of the agreement of such person to act.

(5) Clause 15.4 provides that any Appointor may resign from office at any time provided that if it is the only Appointor and there is no designated “Successor Appointor” for the time being, it shall in the notice of resignation to the Trustee appoint an Appointor in its place who shall upon written acceptance of office prior to such resignation become the Appointor under this Deed without the consent of any person being necessary.

(6) Clause 15.5 provides that any Appointor acting as such in the course of any business or profession shall have the same rights to remuneration and other payments in respect of its appointment hereunder and for its/his services as does the Trustee as expressed in Clause 17 (mutatis mutandis).

(7) Clause 15.6 provides that the powers conferred upon the Appointor under the Trustee Deed are not intended to be fiduciary in nature, and in the exercise of such powers neither the Appointor nor any person associated or connected with the Appointor shall be liable for any loss to the Trust Fund arising in consequence of or by reason of any mistake or omission made or action taken in good faith or of any failure to act or of any other matter, except wilful and individual fraud or wrongdoing on the part of the person who is sought to be made liable.

(8) Clause 15.7 provides that the Appointor shall be indemnified out of the Trust Fund against all liabilities incurred by it in or as a consequence of the exercise or attempted exercise or any failure to exercise any of the powers of the powers of the Appointor hereunder.

(9) Clause 15.8 provides that “Prior Notice” issued by the Trustee to the Appointor requires not less than 75 days’ written notice detailing the steps which the Trustee intends to take, which shall be given by the Trustee to the Appointor at its last known address and sent by email, fax or post, or delivered by hand, provided always that the Appointor may in its absolute discretion in any particular instance waive such notice or accept short notice by giving its written waiver or consent.

16.  Under the Compass Trust Deed, it is stipulated that the Trustee has, inter alia, the following powers:

(1) Clauses 7.1 and 8.1 provides that the Trustee shall have power, after giving “Prior Notice” pursuant to Clause 15.8, to pay or apply all or any part of the income or capital of the trust fund of the Compass Trust for the benefit of all or any one or more of the beneficiaries in such manner and at such times as the Trustee may think fit.

(2) Clause 9.1 provides that the Trustee may irrevocably by deed at any time, and after giving Prior Notice, appoint any date to be the date upon which the Trust Period shall end, and Clause 10.1 provides that the Trustee may, at the expiration of the Trust Period and after giving Prior Notice, appoint the remaining capital and income in its absolute discretion to or for the benefit of all or any one or more beneficiaries.

(3) Clauses 12.2 and 12.4 provide that the Trustee may, upon giving Prior Notice, revocably or irrevocably by deed to declare that any person shall be an “Excluded Person” (defined as any person excluded as a beneficiary), and may appoint that any person or class or persons, other than an “Excluded Person” shall be added to the beneficiaries, and may also declare that any person shall cease to be a beneficiary (but shall not thereby become an “Excluded Person”).

(4) Clause 19 provides that the Trustee may, after giving Prior Notice, revoke, vary or supplement the Trust administratively but not dispositively in such manner in all respects as the Trustee may determine.

B4. The Appointor and the Elysium Trust

17.  The Appointor of the Compass Trust was Elysium Limited, the first plaintiff (“P1”), being a Hong Kong company. Sum Ka Kuen Dominic, the first defendant (“D1”), was the director of P1 from its incorporation on 4 July 2014 until 21 March 2022. D1 is the sole director and shareholder of D2, who was the nominee shareholder holding all the shares in P1 on trust for the benefit of the Deceased (“Elysium Trust”) pursuant to a trust deed dated 21 April 2014 signed by D1 on behalf of D2 (“Elysium Trust Deed”). Despite the death of the Deceased being on 3 June 2021, the shares in P1 were only transferred back to P2 on or around 21 March 2022 (i.e. more than 9 months later), with the files and documents of P1 having been transferred/delivered to P2 on or around 1 April 2022.

18.  On the face of it, the Appointor has substantial powers under the Compass Trust Deed, including in particular the right to receive Prior Notice and the right to remove the Trustee. Such rights confer control and protection of interests in the Compass Trust or, simply put, check and balance over the powers of the Trustee. Given that P1 was at all material times the Appointor and the shares in P1 were held by D2 on trust for the Deceased and, subsequent to the Deceased’s demise, the Estate (subject to any argument as to whether the Elysium Trust shall enure for the benefit of the Estate, which is however not an argument taken by any party before me), it would appear that the design (and apparent objective) of the Compass Trust in conjunction with the Elysium Trust is to confer the benefits of the position of the Appointor (“Appointorship”) on the Deceased (and the Estate) via P1’s appointment, and such position would prima facie be of value to the Deceased (and the Estate), not least by protecting the interests of the Deceased (and the Estate, or the Widow as sole beneficiary thereof) qua specific beneficiary (as opposed to all beneficiaries) of the Compass Trust via P1’s Appointorship.

B5. Events leading to the present application

19.  According to Ps, since the death of the Deceased, there were no less than 3 attempts to terminate, suspend or interfere with P1’s Appointorship of the Compass Trust, and/or to prevent or obstruct the Estate from recovering the Appointorship, with the most recent attempt being discovered on or around 1 April 2022.

20.  In the first attempt, just 1 week after the Deceased passed away, by letter dated 10 June 2021, Lindsay, acting as the Settlor of the Compass Trust, notified P1 that P1 would be removed as Appointor of the Compass Trust. No objection to this removal was raised by P1 (then under the control of D1/D2) nor was the Widow/Estate informed of this; on the contrary steps were subsequently taken by D1 to deregister P1 from the Companies’ Registry. This was until by letter signed by D1 on behalf of P1 to Lindsay dated 1 November 2021, where it was stated that Clause 15.1 of the Compass Trust Deed had been amended in the trustee’s meeting as recorded in the 5/12/14 Minutes, to the effect that the Settlor’s power to remove the Appointor was removed, such that P1 remained as the Appointor of the Compass Trust.

21.  In the second attempt, on or around 19 July 2021, a month after Lindsay’s notice of removal dated 10 June 2021, D1, without prior notice given to the Estate/Widow and without the Estate’s prior consent, made an application to the Companies Registry (the “CR”) seeking to deregister P1. Such an application appeared to have followed from the request of Lindsay by letter dated 13 June 2021, purportedly on the basis that P1 had previously sought instructions from the Deceased and that this is no longer possible. This was discovered by the Widow on or around 15 August 2021, and a letter of objection dated 17 August 2021 was immediately sent by the Widow to the CR objecting to such deregistration, and by letter dated 9 September 2021 the CR stated that it was putting a halt to the deregistration process while looking into the matter. By letter dated 27 September 2021 addressed to P1 (then in the control of D1/D2), CR asked for clarification as to P1’s status and whether it was a trust company. By letter dated 7 October 2021 signed by D1, D1 told the CR that P1 was not the Appointor of the Compass Trust (which turned out to be incorrect), but that as there seemed to be a “breakdown of communication with the client”, P1 wished to withdraw the application for deregistration.

22.  As to the 3^rd attempt, upon obtaining the corporate files and documents of P1, it was discovered that unbeknownst to the Estate or the Widow at the time, D1 acting as the sole director of P1, passed a board resolution of P1 on or around 30 December 2021 whereby (i) P1 was caused to resign from its position as Appointor of the Compass Trust with effect from 31 December 2021; and (ii) D3 was appointed as the Successor Appointor with immediate effect to replace P1 as Appointor of the Compass Trust upon P1’s resignation (the “Resignation Resolution”). A copy of D3’s confirmation of ability and willingness to act was attached thereto.

23.  The only reason given in the Resignation Resolution for the purported resignation was that D1 has “retired from active business” and that he resolves that he was “no longer being active”. Pausing here, this would appear inadequate to explain why D1 should procure P1 to resign, as opposed to communicating with the Estate/Widow with a view to appointing another person to act as director of P1 in place of D1, such that P1’s Appointorship would continue and remain undisturbed. Moreover, it may be noted that D1 had done do despite:

(1) D1 having knowledge/notice that the Estate/Widow was actively seeking the return of the shares in P1, and that the main reason for doing was because P1 was the Appointor of the Compass Trust;

(2) Less than a week before the Resignation Resolution was signed and passed, Hugill & Ip (“HIP”), solicitors for the Widow/Estate, sent a letter dated 24 December 2021 to D2 emphasizing the central role of P1 to the Compass Trust due to its status as Appointor, and asking for undertakings to the effect that D2 would not engage in, conduct or transact any business of P1 particularly in respect of the Compass Trust. It was also expressly requested that D2 do confirm that P1 was still the Appointor of the Compass Trust.

24.  In these circumstances, it is Ps’ case that the Resignation Resolution was completely unjustified and wholly against the best interests of P1, whose main purpose all along was to act as and to exercise the powers and discretions of the Appointor of the Compass Trust, and whose shareholding was held on trust for the Deceased and now the Estate. As contended by Ps, the Appointorship and its powers, rights, benefits and/or entitlements were clearly valuable assets, rights and/or property of Ps, and there was no reason to deprive Ps of the same without the prior consent of the Estate/P2. This is especially the case as D1/D2 knew by the latest since September 2021 that the Estate was seeking the return of all the shares in P1 as such shares were held on trust for the Deceased (which is not disputed by D1/D2).

25.  By this action, Ps seek declaratory reliefs against D1/D2 for the breach of fiduciary/common law duties and/or breach of trust as director of P1 (D1) and trustee to P2 (D2) respectively. Ps also seek the return of the Appointorship from D3, on the basis that the latter has not paid any valuable consideration for accepting the position.

B6. Subsequent disclosure pursuant to court order

26.  After the Injunction Order was granted, it has come to Ps’ attention, with the aid of the Disclosure Order, that on 3 May 2022, a “Prior Notice” was issued pursuant to Clause 15.8 of the Compass Trust Deed by Castle, the trustee of the Compass Trust, to D3 for the transfer of the Compass Trust’s right and entitlement to the recovery/repayment of a US$34 million loan (the “US$34M Loan”) granted to Lindsay (one of the brothers of the Deceased and the prima facie settlor of the Compass Trust), to the trustee of another trust allegedly having the same beneficiaries as the Compass Trust, for the purported reason of “better protecting the [US$34M Loan] for the benefit of all the Beneficiaries”, together with a request that the Prior Notice period of 75 days be waived.

27.  Further, it has also been discovered that D3 had previously been requested to waive the Prior Notice period in respect of the Prior Notice issued by Castle on 6 April 2022 to D3 for the transfer of the CAIHL shares (“CAIHL Shares”) held by the Compass Trust, which constituted its main and most valuable assets, away from the Compass Trust, again for the purported reason of “better protecting the [CAIHL Shares] for the benefit of all the Beneficiaries” of the Compass Trust. On 7 April 2022, D3 signed a waiver waiving the “Prior Notice” period of the same. The CAIHL Shares were subsequently transferred out of the Compass Trust.

28.  On the face of it, this does at least raise a question as to the propriety of the attempts by the Trustee to transfer away substantial assets of the Compass Trust, and tends to support Ps’ case that there is a need for the Injunction Order (and the Disclosure Order) to hold the ring, at least in the interim pending the trial of this action. In particular, even assuming that the assets of the Compass Trust were merely transferred to the trustee of another trust having the same beneficiaries as the Compass Trust, the provisions on the management and control of the latter trust may well differ, not least in respect of the position of the Appointor and the identity of the person taking up such position. In short, the practical effect of terminating P1’s Appointorship and/or transferring substantial assets of the Compass Trust to another trust could well be that, notwithstanding the design and apparent objective of the Compass Trust and the Elysium Trust, Ps/the Estate are being deprived of the control and protections over the management of the assets of the Compass Trust, which are otherwise afforded to them via the Appointorship vested in P1.

C. POSITION OF THE PARTIES

29.  In light of the aforementioned circumstances, it is Ps’ case that they have no real alternative but to apply for the Injunction Order and the continuation of the same to protect their rights, title and interests in the Appointorship.

30.  In response, D3 opposes the continuation of the Injunction Order on 5 main grounds:

(1) The Injunction Order should not be obtained ex parte without notice as there was no need for secrecy.

(2) Ps cannot justify a proprietary injunction against D3, i.e. there is no serious issue to be tried.

(3) D3 would be a bona fide purchaser for value without notice.

(4) The terms of the Injunction Order are inappropriate as they compel D3 to remain as Appointor.

(5) There was material non-disclosure by Ps.

31.  Separately, on 7 June 2022, Ps by way of letter to D3 (the “Undertaking Letter”) expressly proposed for D3 to resign as Appointor, and appoint P1 as Appointor pending substantive determination of the present action (and to re-appoint D3 as the Appointor if Ps’ claims ultimately fail), with a corresponding undertaking that P1 will not perform, make use of, deal with or discharge any powers, functions and/or duties of the Appointor in the interim. D3 did not respond, effectively refusing the proposal. In the evidence filed for D3, it was said that it was “inappropriate to agree to the appointment of the 1^st Plaintiff as the Appointor, when it was clear that there was a dispute between the relevant parties as to whether the 1^st Plaintiff should be the Appointor”.

D. Discussion

D1. General principles and summary of Ps’ contentions

32.  The general principles governing the grant of interlocutory injunction, particularly a proprietary one, are trite. They are set out in Ps’ submissions, and are not disputed by D3.

33.  The underlying principle for the grant of an interlocutory injunction is that the court should “take whichever course appears to carry the lower risk of injustice if it should turn out that it is wrong”. See: HK White Book (2023) at §29/1/14.

34.  The approach to the grant of a proprietary injunction is well established. As held in Liao Chen Toh v Loyal International Enterprises Co Ltd & Ors, HCA 2302/2014 (30 March 2016, unreported) at [26] per Lok J, a proprietary injunction should be granted where:

(1) There is property which is bona fide the subject matter of the cause or matter;

(2) Something ought to be done for the security of the property, which may involve showing that damages may not be an adequate remedy;

(3) There is no need to show risk of dissipation (unlike an application for a Mareva injunction). Further, even if there is delay in making the application which might lead to a refusal of a freezing injunction, a proprietary injunction may nevertheless be granted;

(4) An enquiry into the relative merits of rival claims is not necessary;

(5) In respect of the merits of the claim, the party seeking the preservation order need only show that there is a serious issue to be tried on the merits.

35.  As further held in Pacific Rainbow International Inc v Shenzhen Wolverine Tech Ltd, HCA 3023/2016 (2 May 2017, unreported):-

(1) The principles in American Cyanamid Co apply to an application for interlocutory proprietary injunction, although irremediable damage need not necessarily be shown and the court will readily find that the balance of convenience favours the preservation of the fund pending trial (at [37]).

(2) The court need only be satisfied that the claim is not frivolous or vexatious, in other words, that there is a serious question to be tried. If the opposing party seeks to show there is no serious issue to be tried, the threshold is high, as it would be necessary to demonstrate that the claim should be struck out (at [39(1)]).

(3) It should be noted that the existence of a good arguable defence does not necessarily negate a good arguable case (at [42]).

36.  It is Ps’ case that there is at least a serious issue to be tried that D1 and D2 acted in breach of their fiduciary duties owed towards P1 and the Estate (represented by P2) respectively, namely that:

(1) D1 acted in breach of fiduciary duties to P1: It is trite that as director of P1, D1 owed fiduciary duties to P1, including the duty to (i) act in good faith for the best interests of P1 and (ii) to avoid conflict of interests. By depriving P1 of its Appointorship, D1, as director of P1, was misapplying and/or depriving P1 of property and/or something of value. The misappropriation of corporate assets and/or wrongful disposal of company property by a director is a flagrant breach of fiduciary duties, including the two duties set out above. A director cannot honestly believe that such a transaction is in the best interests of the company. There can be no proper purpose for such a transaction and it involves a blatant conflict of interest: Akai Holdings Ltd (In Compulsory Liquidation) v Everwin Dynasty Ltd And Others [2016] 3 HKC 307 at [53] to [61]; JJ Harrison (Properties) Ltd v Harrison [2001] EWCA Civ 1467 at [25]. The conflict of interest is particularly stark in the present case since D1 was also the sole director of D2, who was holding the shares in P1 on trust for the Deceased, and D1/D2 knew that the Resignation Resolution was signed/passed without the instructions of the Deceased/Estate.

(2) D2 acted in breach of fiduciary duties to P2: besides acting in breach of the duties above, for D2 in particular it is trite that where the trustees control a company, they will ordinarily be bound also to ensure that the directors exercise their management powers over the company in a manner that is consistent with the terms of the trust: Lewin on Trusts (20^th ed) at §34-061. In the present case, the Elysium Trust Deed clearly states that the trustee (namely D2) “will at all times and from time to time hereafter deal with, transfer and dispose of the said shares and the dividends and proceeds thereof and any rights or privileges now or hereafter appertaining thereto in accordance in all respects with the instructions from time to time given to the trustee by [the Deceased or his successors and assigns]…” (Clause 1). In breach of such duties owed to P2/the Estate, D2 allowed P1 to resign from the Appointorship, and for D3 to take on the Appointorship, without the prior notice, consent or instructions from the Widow and/or Estate.

37.  As to the reason given by D1 for passing the Resignation Resolution, namely that D1 has “retired from active business” and that he was “no longer being active”, Ps submit that it is an incredible excuse:

(1) Firstly, the fact that D1 himself wished to retire from active business may be an explanation for him to resign from his own position as director of P1; it is however not a reason at all for him to procure P1 to resign from its position as Appointor of the Compass Trust, and certainly not to do so without the prior consent of the Estate. This is especially since the most significant function and role of P1 was to act as the Appointor (Protector) of the Compass Trust.

(2) Secondly, at the time D1 already had knowledge and/or notice that P2 was actively trying to recover and obtain the transfer of P1’s shares. Had D1 really wished to retire, he should have retired as a director of P1 (instead of depriving P1 of the Appointorship), and asked the Estate/Widow to provide an active director for P1 instead.

(3) Thirdly, it runs contrary to the indisputable fact that (i) P1 remained Protector of the Anchor Trust, a New Zealand Trust at the time; and (ii) D1 remained a director of Ferry Limited, the Protector of the Beacon Trust, a Bahamas Trust.

38.  In my view, there is force in Ps’ submissions. Whilst I note that D1 and D2 have not taken part and made submissions in response and the Court is left with unilateral submissions made by Ps on the question of breach (as D3 is a professional trustee, with no suggestion that D3 is privy to the acts of D1 and D2), I am of the view that, based on the evidence available, Ps at least have a reasonable case on the same, subject to the argument on proprietary interest which will be addressed further below.

39.  It is Ps’ primary case that proprietary consequences of such breaches against D1/D2 and against D3 arguably arise since the Appointorship and/or its powers, rights and entitlements constitute property and/or assets. This is hotly contested by D3, arguing that there is no legal basis for saying that the Appointorship and its associated powers are “property”. As mentioned, this will be addressed further below.

40.  Additionally, Ps contend that it is at least arguable that the Resignation Resolution, being in breach of fiduciary duties and/or breach of trust, should be null and void and/or be set aside. It has been held that “[i]f directors pass a resolution otherwise than in good faith in the interests of the company the exercise may be declared ineffectual and void. That is especially the case when the resolution is to make an agreement with a third party and the third party is aware of all the relevant facts and has actual knowledge of the breach of fiduciary duty”: Colin Gwyer & Associates Ltd v London Wharf (Limehouse) Ltd [2002] EWHC 2748 (Ch) at [94]. As Ps contend, in such circumstances, the resignation of P1 as Appointor, and the purported appointment of D3 as the Successor Appointor, would be ineffective, void, and/or ought to be set aside, such that P1 would remain as the Appointor. This has not been addressed by D3 in any detail, save that Mr Brown for D3 contended in oral submissions that Ps’ alternative argument is also premised on the position of the Appointorship and its associated powers being “property”.

D2. Serious issue to be tried (grounds 2 and 3) and Balance of Convenience

41.  As the arguments which take up most time concern grounds 2 and 3 above, which pertain to whether there is a serious issue to be tried, I will deal with them first. Out of convenience, I will also deal with the balance of convenience at this juncture (even though I have had regard to the rest of the issues and arguments in forming my view as a whole).

Whether Appointorship and/or its powers are property

42.  To start with, Ps contend that the Appointorship and/or its powers, rights and entitlements constitute property and/or assets because:

(1) It is well-established that a chose in action can be held on trust and be subject to equitable proprietary rights (see Lewin on Trusts (20^th ed) at §§1-010, 2-034; per Lord Browne-Wilkinson in Foskett v McKeown [2001] 1 AC 102 at [110]). “Choses in action” include all personal rights of property which can only be claimed or enforced by action, and not by taking physical possession: Snell’s Equity at §3-001, and would arguably include the Appointor’s rights, powers and privileges under the Compass Trust Deed, as the powers and functions of the Appointor (who essentially plays the role of a protector, given its main power is to remove/replace the Trustee) are well known to common law and there is no reason why the court would decline to recognise a protector in a Hong Kong trust: Lewin on Trusts (20^th ed) at §28-044. In particular, rights of indemnity (see Clause 15.7 of the Compass Trust Deed) have been held to be a species of intangible property: Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728 at [89].

(2) Applying the 4-fold criteria for what constitutes property as set out by Lord Wilberforce in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 at 1247G-1248A, it is at least arguable the Appointorship and its rights, powers and benefits are (i) definable, (ii) identifiable by third parties, (iii) capable in its nature of assumption by third parties (especially since additional and/or successor Appointor can be appointed under Clause 15.3 of the Compass Trust Deed), and (iv) have some degree of permanence or stability. For criteria (iv), the fact that a right/property may be subject to control or discretion on the part of a third party does not mean it does not have sufficient permanence or stability: Longrun Tea Group Co Ltd v The Stock Exchange of Hong Kong Ltd [2021] HKCFI 1883 at [106].

(3) The Appointorship is clearly of value to Ps. In particular, the Appointorship: (i) gives P1 “negative control” over the Compass Trust by receiving “Prior Notice” of significant exercises of powers by the Trustee (see Clause 7.1, 8.1, 9.1, 12.2 and 12.4 of the Compass Trust Deed) and having the power to remove the Trustee if necessary (see Clause 14.4 of the Compass Trust Deed); (ii) gives P1 rights to information to the Compass Trust on demand (see Clause 13.4(a) of the Compass Trust Deed); and (iii) gives P1 rights to remuneration (see Clauses 15.5 and 17 of the Compass Trust Deed). By reason of the above, the Appointorship was equally valuable to P2, as it allowed P2 (through P1) to exercise the aforementioned powers and/or rights; and was essential to the value of the shares of P1, which were beneficially owned by P2.

43.  Further, Ps argue that there are at least 3 routes (whether alternative or cumulative) arguably available to Ps for recovering the Appointorship as a matter of law:

(1) Route 1: recipient of P1’s property diverted in breach of trust: The breaches of fiduciary duties and/or trust wrongfully deprived P1 (and indirectly, P2) of valuable property and/or asset, namely the Appointorship and its associated rights, powers, privileges, benefits and entitlements under the Compass Trust Deed. This gives rise to a proprietary claim for the return of the Appointorship against D3, on the basis that D3 received company property in breach of trust, and it is unconscionable for D3 to retain the benefit of his receipt: see Re Brothers Produce Ltd [2022] EWHC 291 (Ch) at [62], [63]; Belmont Finance Corporation v Williams Furniture Ltd (No.2) [1980] 1 All ER 393(CA) at 405.

(2) Route 2: deprivation of corporate opportunity: alternatively, by procuring P1 to resign and D3 to be appointed as the new Appointor, arguably D1/D2 deprived P1 of the corporate opportunity to continue to act as Appointor. In such circumstances, the property acquired from the corporate opportunity would be held on trust for the beneficiary: see Chan v Zacharia (1984) 53 ALR 417; Universal Project Management Services Ltd v Fort Gilkicker Ltd [2013] Ch 551.

(3) Route 3: proprietary claim against D3 subject to bona fide purchaser for value defence: On the premise that the Appointorship was transferred away wrongfully in breach of fiduciary duties, P1’s beneficial interest in it will persist, unless D3 can avail itself of the purchaser for value without notice defence: Lewin on Trusts (20^th ed) at §§44-010, 44-013; Palmer’s Company Law at §8.3615. In the present case, D3 did not pay any consideration/value to P1 to acquire the position, powers and/or benefits of the Appointorship.

(4) Further, D3 would reasonably have been expected to make relevant enquiries as to the full structure of the participants of the Compass Trust, the reason and circumstances for the resignation of P1 as Appointor procured by D1/D2, and/or to enquire as to whether full approval of the beneficial owner of P1 (namely the Estate) has been obtained, and thus arguably may have been put on notice of the breaches of fiduciary duties. Alternatively, for a proprietary claim against a recipient of property who still holds and retains the property such as D3, as long as the recipient still holds the property at the time of the claim, knowledge/notice would generally not be an issue (since such knowledge/notice would be acquired by the time of claim): see Clegg v Pache (Deceased) [2017] EWCA Civ 256 at [87]; Underhill and Hayton, Law of Trust and Trustees (19^th ed 2017), at §98.1(2).

44.  In response, D3 contends that Ps’ claim against D3 depend on inter alia the Court making the novel finding that the position of Appointor (i.e. the Appointorship) and its associated powers (“Powers”) are each properly considered P1’s property. Mr Brown for D3 emphasised that Ps must establish both, since the terms of the Injunction Order provide for a separate order in respect of the Appointorship and the Powers.

45.  D3 stresses that Ps cannot point to a single case in which a party has attempted to claim that a position like an appointor or a trustee or the rights/powers of such a position, belonged to them as a form of property. Among others, D3 argues that:

(1) Whilst a chose in action is property, neither the Appointorship nor the Power are within the many examples of choses in action listed in Snell’s Equity at §3-001.

(2) To be property, a chose in action must be capable of being turned into money, and must be able to be enforced by a remedy. Neither requirement is satisfied here. In particular, whilst existence of a remedy is an essential condition for the existence of the chose in action, that does not mean that the remedies are property in themselves, capable of assignment separately from the chose: ICS v West Bromwich [1998] 1 WLR 896 at 915C-F, 916D-F; Yang Foo-Oi v Wai Wai Chen & Anor (No.3) [2020] 3 HKC 363 at [117].

(3) As to Ps’ argument on the indemnity rights under Clause 15.7 of the Compass Trust Deed, D3 contends that Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728 (at [89(g)], citing Carter Holt Harvey Wooodproducts Australia Pty v Commonwealth (2019) 368 ALR 390) merely stands for the proposition that the trustee’s right to apply trust assets in satisfaction of trust liabilities is proprietary in that it may be exercised in priority to the beneficial interests of the beneficiaries, which is clearly applicable only to trustees and not the Appointor who does not hold any legal or equitable rights on trust for the beneficiaries.

(4) Further, the Appointorship and the Powers do not meet the four-fold criteria for property in National Provincial Bank Ltd v Ainsworth [1965] AC 1175 since they have no permanence or stability. First, when a party resigns as Appointor, the Appointorship and the Powers would immediately disappear; that property cannot be kept separately from the appointment. Second, the Powers are derived from the operation of the Trust Deed, and an outgoing Appointor does not “hand over” or “transfer” the same set of rights to a new Appointor. When the new Appointor acquires the Appointorship, the Powers arise from the operation of the Trust Deed, and not by transfer of any property.

46.  I have considered the arguments advanced by both sides, the gist of which I have set out above. For present purposes, since the issue is merely whether there is a serious issue to be tried, I do not consider it necessary or appropriate to go into all the arguments in details. It is sufficient for me to make a few salient observations below.

47.  First of all, both in written and oral submissions, Mr Brown for D3 emphasises that Ps cannot point to a single case in which a party has attempted to claim that a position like an appointor or a trustee or the rights/powers of such a position, belonged to them as a form of property. I do not think such argument has addressed the real issue. The lack of authority on point does not necessarily mean that a proposition is erroneous. There could be various reasons why a specific point has not been determined by case law. This is particularly the case if one is searching for authorities on the application of law to a set of facts. In the absence of authority, one should turn to the general principles to determine whether, on the facts of a particular case, the subject matter in question constitutes property in law.

48.  Second, one should exercise caution in seeking to equate the position of an appointor to a trustee without any further analysis, because there could well be material differences between the two. It appears to me that a better point which may be taken by D3 (albeit not formulated precisely as such) is to say that the Appointorship, just like the position of a trustee, is in the nature of an office which enables the office-holder to manage (or control the management of) certain assets of a trust. It is therefore akin to the office of a trustee vis-à-vis a trust, or the office of a director vis-à-vis a company. As such, whilst a trustee or a director does have various powers and rights, including the right to indemnity or remuneration, one would not normally characterise the position of a trustee or a director as a property, because it is an office with functions to be performed, and the office-holder owes fiduciary duties in performing the functions of such office (for the benefit of the beneficiaries, or the company, as the case may be). Moreover, such office-holder may be appointed or removed, in accordance with the terms of the contractual documents (such as the trust deed, or the articles of association).

49.  On a general level, one may say that the above should apply equally to the position of an appointor, where the appointor (or protector) is simply performing the functions or powers of an office. For instance, one can say that in an offshore trust which often provides for the positions of both a trustee and an appointor, both positions constitute offices in nature such that the office-holders would owe duties to the beneficiaries and must exercise their powers in the best interests of the trust or the beneficiaries. Viewed in such way, an appointor and a trustee are both office-holders, and the position of an appointor ensures that there can be check and balances over the powers to be exercised by the trustee. This could well be the case if the appointor owes fiduciary duties, and can be removed from his position by the settlor or the beneficiaries of a trust such that, like the position of a trustee, the appointorship is not by any degree permanent or stable. As the argument goes, the fact that a trust puts in place two offices does not, without more, elevate the position of one office into a property when the other clearly is not.

50.  In this regard, I find it instructive to refer to the discussions on “Classification of third-party powers” in Lewin on Trusts (20^th ed) at §§28-038 to 28-049 as to whether a particular power under a trust is to be regarded as beneficial, limited or fiduciary.[1] As observed at §28-038, in the absence of express provision in the trust instrument[2], it is necessary to have regard to the nature of the power, the nature of the donee and the other terms of the trust to categorise the power.

51.  As regards the nature of power, it is said that powers of veto (which are of particular relevance here, as Ps characterise the Powers of the Appointor as conferring negative control, i.e. akin in nature to powers of veto) conferred on third parties over the exercise of administrative or dispositive powers may be of any kind (at §28-040). Therefore, one need to look at the nature of the donee and the other terms of the trust.

52.  Insofar as the nature of the donee is concerned, at one end of the spectrum, there are authorities to the effect that, for instance: (1) where the adult beneficiaries’ consent was required to both major and minor decisions of the trustees, they were given the veto for their own protection and were not in a fiduciary position (i.e. the powers are beneficial); (2) the power of an income beneficiary to withhold consent to the exercise of a power of advancement of capital is given for the beneficiary’s own protection and so is a beneficial power; and (3) “guardians” having a power of veto over many decisions of trustees were not fiduciaries, in part because they were beneficiaries (at §28-041 and footnote 120). Apparently, the decisive factor is that the power may be exercised for the benefit of a beneficiary. As observed at §28-041, “If a power of veto is conferred on a beneficiary, it is more likely to be intended to be a beneficial power than where it is conferred on a trustee.”

53.  At the other end of the spectrum, it is said that the power in question may be conferred on a protector (also known as an appointor) or other similar third party, and they will ordinarily be fiduciary powers (at §28-042). More particularly, as stated at §§28-044 to 28-045:

“A protector, as we have said, is typically the holder of a group of powers or requirements of consent. The word is not a term of art and sometimes the only power vested in a person called a protector is that of appointing, or of appointing and removing, trustees. It may occasionally be used simply as a convenient name for a given person but more commonly it refers to an office created by the trust instrument, with provisions for a succession of persons to fill it. Protectors are common in offshore trusts but not, by that name, in English trusts. Nonetheless, a protector has a function or functions well known to English law and there is no reason why the English court would decline to recognise a protector in an English trust.

If the protector holds an office under the trust, it will ordinarily be impossible to construe the power or powers as beneficial: the protector will be there for the protection of the beneficiaries and his powers will be fiduciary. The nature of the power, e.g. to appoint trustees, will confirm its fiduciary nature. It will therefore attract both rules applicable to fiduciary powers and rules applicable to non-beneficial powers, whether or not fiduciary, such as that against a fraud on the power.” [Emphasis added]

54.  Therefore, ordinarily, the powers conferred on a protector (or appointor) are fiduciary, not beneficial. There is thus a strong argument that, in general, the position of the protector (or appointor), being an office with fiduciary character, cannot constitute property in law. This could have important consequences as noted at §28-046, including for instance that (1) the Court has jurisdiction to remove a protector for good cause, (2) the Court could appoint a protector where there was none and the trusts were not workable without a protector; (3) the power to appoint a new fiduciary protector has itself been held to be fiduciary (although there is authority to the contrary as noted at footnote 137); and (4) a fiduciary protector with a power to appoint new trustees can apply to the Court for directions as to its exercise or surrender its exercise to the Court, in the same way as a trustee can do.

55.  Nevertheless, the above is a general statement, and it does not necessarily apply in each and every case. It is important to consider the nature of the donee, as well as the terms of the trust. Insofar as the nature of the donee is concerned, as explained above, where the power is conferred on a beneficiary as opposed to a trustee, it is more likely to be beneficial. Of course, the situation in the present case is different, as the Powers are vested with the Appointor, not a beneficiary. Nevertheless, it seems to me arguable, at least by extension of logic, that where the power is vested in a third party (such as a protector or appointor) in the control of a beneficiary, this could well point to the power being beneficial, because the power can still be exercised for the benefit of a beneficiary. As regards the terms of the trust, as noted in Lewin on Trust (20^th ed) at §28-043, the other terms of the trust may indicate the nature of the power conferred. Indeed, where there is an express provision in the trust deed, it may not even be necessary to conduct further analysis as per the above.

56.  On the facts of the present case, there are at least three significant features: (1) as expressly provided in the terms of the Compass Trust, the Powers of the Appointor are not fiduciary in nature[3]; (2) P1 was at all material times the Appointor, and P1’s shares were held by D2 on trust for the Deceased (now the Estate) who was a beneficiary of the Compass Trust (i.e. the Powers may be exercised for the benefit of a beneficiary); and (3) under the terms of the Compass Trust, the Appointor cannot be removed by the settlor or the beneficiaries; instead the Appointor can name the Successor Appointor (or another appointor upon its resignation) such that, in effect, the position of the Appointor can be preserved with some degree of permanence or stability for the benefit of the Deceased (now the Estate).

57.  Therefore, it seems to me reasonably arguable that, on the facts of the present case, the powers conferred on the Appointor are beneficial powers rather than fiduciary powers (as expressly provided under Clause 15.6), particularly where the design (and apparent objective) of the Compass Trust and the Elysium Trust is such that the Appointorship was vested with P1 whose shares were held by D2 on trust for the benefit of the Deceased (now the Estate), with the Deceased (and now the Widow as the only beneficiary of the Estate) being a specific beneficiary of the Compass Trust. In other words, P1 is answerable to such beneficiary, rather than all beneficiaries of the Compass Trust. As such, it may be argued that the powers of the Appointor are given for such beneficiary’s own protection and hence are beneficial powers (akin to the power of an income beneficiary to withhold consent to the exercise of a power of advancement of capital which is given for the beneficiary’s own protection), such that the Appointorship (with such beneficial powers) may constitute a valuable property to such beneficiary.

58.  An analogy may be drawn to the voting rights of shares in a company. It is trite that such voting rights are property right, given for a shareholder’s own protection: see Ruscoe v Cryptopia Ltd (in liq) [2020] NZHC 728 at [89(e)] that shares in a company (even if they are non-transferable) are intangible property, and voting rights in relation to the appointment and removal of directors can be exercised. Hypothetically, if the voting rights are to be exercised by an independent office-holder without any linkage to the interests of a shareholder, it may be said that the voting rights are fiduciary powers to be exercised for the benefit of the company. The corollary is that if the voting rights are vested with a shareholder (or, arguably by extension of logic, a third party controlled by the shareholder) and are not fiduciary in nature, then there is at least an argument that such voting rights are valuable (for the protection of the interests of a specific shareholder) and thus constitute property in law.

59.  Third, seen in such light, it seems to me reasonably arguable that the Appointorship is valuable and hence capable of being turned into money. On the facts of the present case, there are various beneficiaries of the Compass Trust. The Appointorship, which gives protection to the interests of the Deceased (or P2/the Estate) in the Compass Trust, is prima facie valuable to the Deceased (or P2/the Estate). If the Deceased (or P2/the Estate) is to convey such Appointorship to another beneficiary of the Compass Trust (say Lindsay), it is not unimaginable that such other beneficiary may be willing to pay a price such that P1 would nominate an entity owned or controlled by such other beneficiary to be appointed as Successor Appointor. Indeed, it may be argued that it is precisely because the Appointorship does have value to the Estate/P2 that some other beneficiaries (apparently Lindsay) may well see fit to take actions to deprive the Estate/P2 of the Appointorship, such that they can no longer exercise negative control over the Compass Trust (which is a form of protection of the Estate/P2 over and above the interests of other beneficiaries of the Compass Trust).

60.  Fourth, D3 argues that the Appointorship is not a property because it cannot be enforced by a remedy. To some extent, such argument appears circular because it begs the question whether the Appointorship indeed constitutes property (in which case proprietary relief should be available as a remedy for recovering such position from a third party). Suffice it to say that such argument cannot meaningfully dispose of the question one way or another at this stage.

61.  Fifth, it appears to me that Ps and D3 have not properly analysed the relation between the Appointorship and the Powers. Ps have not elaborated in much details whether their case is premised on either or both concepts as property. In these circumstances, it is perhaps not surprising that D3 complains that Ps must establish both, having regard to the terms of the Injunction Order. In my view, the real complaint by Ps is the deprivation of P1’s position as Appointor, i.e. the Appointorship. The Powers associated with it are but one indicia which the Court may look into to determine whether the Appointorship does constitute property in the first place. If there is a serious issued to be tried that the Appointorship does constitute property, then Ps could have a case arguing that P1 should not be deprived of the property of the Appointorship in favour of D3, such that Ps may seek proprietary injunctive relief on the Appointorship (so that it is not divested further to another person), whilst also seeking to restrain the exercise of the Powers associated with such position in the interim. Viewed from such angle, it is misconceived for D3 to insist upon Ps establishing that both the Appointorship and the Powers are property. Equally, it is misconceived for Ps to rely on certain Powers alone, such as the right to be indemnified, when the real issue is whether the position of the Appointor constitutes valuable property, not that the Appointor may pursue contractual claims arising from the Powers which constitute choses in action and thus property.

62.  I can illustrate this by an example. Pursuant to Clause 15.5 of the Compass Trust Deed, any Appointor acting as such in the course of any business or profession shall have the same rights to remuneration and other payments in respect of its appointment and for its or his services as does the Trustee under Clause 17. Assuming that P1 as Appointor had provided certain services entitling P1 to remuneration for the same, then in the event that such remuneration is due but not paid, it seems reasonably arguable that P1 has a contractual claim (being a chose in action) for the outstanding remuneration against the trust, which is a property. However, that in itself does not, without more, mean that the position of the Appointor is a property. Conceptually, the Appointor may continue with such contractual claim for outstanding remuneration even after the Appointor has resigned from its/his position as Appointor. Therefore, the real focus should be on the position of the Appointor itself (i.e. the Appointorship), as opposed to the Powers. What Ps seek to achieve in this action is to restore the position of P1 as Appointor, i.e. to recover the Appointorship, as opposed to pursuing contractual claims arising from the Powers. Ps merely seek injunctive relief in relation to the Powers as this is incidental to Ps’ case that D3 should not be appointed as Appointor in place of P1 in breach of duties owed by D1/D2, and hence D3 should not be in a position to exercise the Powers in the first place. It is however not Ps’ case to seek relief on the Powers per se, e.g. where P1 was deprived of certain Powers (such as the powers to be remunerated or indemnified) for which P1 may bring an action to seek any compensation or recourse.

63.  Sixth, whilst I have approached the matter from the nature of third-party powers (in particular the nature of the donee and the terms of the Compass Trust), the question may also be approached in other ways, e.g. by reference to the four-fold criteria for property in National Provincial Bank Ltd v Ainsworth [1965] AC 1175. D3’s argument is that the last element is not satisfied, as the Appointorship has no permanence or stability.

64.  In Longrun Tea Group Co Ltd v The Stock Exchange of Hong Kong Ltd [2021] HKCFI 1883 at [106], Coleman J agreed that the fact that the company’s listing status is subject to regulatory control (and hence not permanent or stable) does not affect the listing status as ‘property’. Mr Wong SC also submits that there are well-known examples of property rights, such as the interests of a life tenant, which are not permanent or stable. As such, I do not consider it fatal that the Appointorship may not be permanent or stable (which is, after all, a matter of degree), for instance in the event that the Appointor is a natural person (see Clause 15.1(c)). What is significant is that, where P1 being a corporate entity was designated as the Appointor to begin with, and given the terms of the Compass Trust which empowers P1 to nominate a Successor Appointor or an Appointor in its place upon resignation (see Clauses 15.3 and 15.4), there is at least some degree of permanence or stability in that (i) the officers or representatives performing the powers of the Appointor on behalf of P1 can be readily replaced without terminating or jeopardising P1’s Appointorship and (ii) P1 may appoint a Successor Appointor or another Appointor upon resignation, as may be directed by P1’s beneficial owner, i.e. the Deceased (and now P2/the Estate).

65.  Seventh, as to D3’s submission that the Powers are derived from the operation of the Trust Deed, and an outgoing Appointor does not “hand over” or “transfer” the same set of rights to a new Appointor, the Court should look at the substance rather than the form. In effect, given that the Appointor may appoint a Successor Appointor or an Appointor in its place upon resignation, it does appear arguable that the Appointorship together with its appurtenant rights may be “transferred” to another person in that sense. Indeed, even in the case of shares of a company or membership of a club, it may be said that the new shareholder or new member acquires his rights under the articles of association of the company or the club, but that does not detract from the fact that such shareholding or membership constitute property in law.

66.  For all these reasons, I take the view that there is at least a serious issue to be tried as to whether the Appointorship constitutes property such that Ps may seek proprietary injunctive relief against D3 in respect of the Appointorship, and incidentally the Powers which may be exercised by virtue of such position.

Bona fide purchaser for value

67.  As mentioned above, it is Ps’ case that D3 did not pay any consideration/value to P1 to acquire the position, powers and/or benefits of the Appointorship. Ps also contend that D3’s performance of its duties as Appointorship is not good consideration because “an obligation to apply the property received by the volunteer in a particular way does not convert him into a purchaser”: Lewin on Trusts (20^th ed) at §44-120; Re Diplock [1948] Ch 465.

68.  In response, D3 argues that:

(1) It is unheard of to speak of a person accepting a professional appointment needing to be a bona fide purchaser for value for the appointment and the powers that come with that appointment;

(2) D3 was made Appointor by D1 as a result of its promise to perform its duties as Appointor in exchange for the appointment and remuneration under the Compass Trust Deed;

(3) D3 suffers a detriment when it provides its services in return for the appointment and remuneration and, unlike Re Diplock, such work cannot be said to be wholly to the advantage of D3.

69.  Given the analysis which I have made above, the present issue can be disposed of relatively quickly. Whilst a protector or appointor ordinarily owes fiduciary duties to the beneficiaries of a trust and is an office-holder (in which case I accept one may not speak of an office-holder paying consideration to acquire the office), this is not the case for the Appointor of the Compass Trust. As explained above, it is reasonably arguable that the Appointorship vested in P1 whose shares were held on trust for the Deceased was a valuable property of the Deceased (and now the Estate/P2). As such, it is at least arguable that another beneficiary of the Compass Trust may be prepared to pay consideration for acquiring the Appointorship, to be achieved by P1 nominating an Appointor as directed by such other beneficiary. In that sense, if consideration is duly paid for the acquisition of the Appointorship (assuming it is a property), then this could be a defence to a proprietary claim over the same. The fact is that no consideration was in fact paid for the appointment of D3 in place of P1 as the Appointor.

70.  For completeness, I also consider it arguable that D3 has constructive trust of D1/D2’s wrongdoings or, alternatively, D3 would have acquired notice through the present claim, in which case Ps may still seek proprietary relief against D3 if it has not paid consideration for acquiring the Appointorship.

71.  For present purposes, it seems to me at least arguable that D3’s defence may fail. In any event, as held in Pacific Rainbow (supra) (at [42]), the existence of a good arguable defence does not necessarily negate a good arguable case.

Whether Resignation Resolution null and void

72.  As mentioned above, D3 has not addressed Ps’ alternative case that the Resignation Resolution, being in breach of fiduciary duties and/or breach of trust, should be null and void and/or be set aside. Mr Brown for D3 essentially argues in oral submissions that such alternative case is still premised on the Appointorship being a property.

73.  In my view, this is not necessarily the case. For instance, the fiduciary duties owed by D1 (as director) to P1 to (i) act in good faith for the best interests of P1 and (ii) to avoid conflict of interests do not necessarily depend on the Appointorship being a property. Even if the Appointorship is not a property, it is at least arguable that D1 acted in breach of such fiduciary duties by procuring the resignation of P1 as Appointor, thereby depriving P1 of the benefits of the appointment and remuneration as provided for under the Compass Trust Deed.

74.  As such, even putting aside Ps’ primary argument that the Appointorship constitutes property, there is in any event a viable or arguable alternative cause of action which may justify the grant of the Injunction Order against D3.

75.  To sum up, I conclude that there is a serious issue to be tried, contrary to the submissions of D3.

Balance of Convenience

76.  Ps have addressed the balance of convenience in their submissions. Whilst D3 has made some arguments in response, it is fair to say that this is not the focus of D3’s grounds of opposition.

77.  In particular, a major plank of D3’s argument is that the balance of convenience is entirely hinged on this being a proprietary injunction, which D3 says is untenable. Given my views set out above, such point no longer has much force.

78.  Separately, D3 stresses that there is no evidence that D3 has taken sides against Ps. I do not consider it necessary to deal with each and every point made by D3 here, even though I have duly considered the same. Among others, I take note of the two Prior Notices and requests for waiver issued by Castle to D3. Although D3 argues that those were acts of Castle as opposed to D3, the fact remains that D3 did agree to give a waiver in respect of one of the Prior Notices with the effect of transferring away the major assets of the Compass Trust Deed to another trust. Whilst D3 may have its reasons for acceding to the request for waiver, it can at least be said that the outcome could well be different had P1 remained as the Appointor. In particular, P1 would have acted in all probabilities with the interests of the Estate/P2 in mind, which is a consideration otherwise absent in the decision-making process of D3. Insofar as the Estate/P2 are concerned, a neutral or independent Appointor could already be prejudicial to their interests, as such Appointor would not act for the purpose of protection of the interests of the Estate/P2.

79.  Having considered the parties’ submissions as a whole (including matters addressed further below), and bearing in mind the evidence set out herein, the fact that Ps seek a proprietary injunction to protect trust assets, and the fact that D1 and D2 have essentially advanced bare denials in their defences, I take the view that the balance of convenience is in favour of the continuation of the Injunction Order (and the Disclosure Order).

80.  In particular, having regard to the prejudice to Ps if the Injunction Order is not continued (e.g. Ps have to commence the road of chasing the goose with the risk of not catching it), and the lesser prejudice to D3 if the Injunction Order is continued (because, among others, there is no indication by D3 that it wishes to resign at this stage), I take the view that the continuation of the Injunction Order appears to carry the lower risk of injustice if it should turn out that it is wrong.

D3. Ex parte application (ground 1)

81.  D3 points out that the sole ground of Ps applying for the Injunction Order ex parte without notice is (according to Ps’ ex parte skeleton submissions) “a very real risk and concern that once D3 is given notice … steps may be taken to resign and/or terminate its Appointorship”, such that Ps have to commence the road of chasing the goose with the risk of not catching it.

82.  Against such context, D3 argues that there was simply no secrecy concern because (1) the previous 3 attempts to deprive P1 of the Appointorship were acts of Lindsay or D1, not D3; (2) D3 was contractually entitled to resign; (3) it is Ps’ stance in relation to balance of convenience that D3 should not reasonably be resigning since it was only recently appointed; and (4) D3 as a professional trustee would attend court hearing upon receiving notice and would not unilaterally resign before hearing arguments.

83.  In response, Mr Wong SC fairly accepts that it is not Ps’ case that D3 is a bad actor, or that there is any direct evidence pointing to the collusion between Lindsay/D1/D2 and D3. He further explains that Ps’ stance in relation to balance of convenience is to say that there would be little prejudice to D3 if D3 is restrained from resigning as Appointor, but that insofar as the ex parte application is concerned there was indeed a real risk that D3 may resign to avoid the legal complications of the present proceedings. As he put it (and I agree), the fact that there is no good justification or need for D3 to resign (and thus no prejudice to D3), does not mean there is no risk that D3 would resign for its own reasons (and thus causing prejudice to Ps).

84.  Importantly, Mr Wong SC points to the contradictory stance of D3. D3’s submissions cited (at §57) P2’s evidence that “On the other hand, assuming the 3^rd Defendant accepted the appointment innocently and in complete good faith, bearing in mind that it is a professional corporate services company with a TCSP license, it may decide to distant itself from the 1^st and/or 2^nd Defendants and resign with immediate effect since the position may not be worth the trouble and cost of defending legal proceedings”, and stated (at §58) that these observations are correct. As such, given that D3 acknowledged that it may decide to resign with immediate effect and indeed complained of being prevented from doing so as a result of the Injunction Order, it seems to me unrealistic for D3 to contend that there was no secrecy concern to warrant the application being made ex parte without notice to D3.

85.  It may be that such concession was made by D3 in relation to the balance of convenience, but in my view D3 cannot shy away from its acknowledgment that, had notice been given to D3, D3 may indeed decide to resign with immediate effect. It is not necessary for Ps to demonstrate that D3 would have done so, and it seems to me sufficient for Ps to pursue the present application ex parte given the real risk of D3 deciding to resign.

86.  I should also mention that it is not sufficient for D3 to say that it was contractually entitled to resign. This presupposes that D3 was validly appointed as Appointor, or that P could have no recourse to recover the Appointorship from D3. Given my view that there is at least a serious issue to be tried on Ps’ case against D3, I do not think D3 can contend that it was at liberty to exercise its contractual right without being subject to the proprietary injunctive relief sought by Ps.

D4. Terms of Injunction Order (ground 4)

87.  D3 takes issue with paragraph 1(1) of the Injunction Order, which prevents D3 from inter alia taking any steps to “resign from or otherwise deal with or terminate its position as Appointor”.

88.  In short, D3 argues that it should not be compelled to remain as the Appointor, it has contractual entitlement to resign, and the Injunction Order compels D3 to perform a personal service contract.

89.  Before addressing D3’s argument, it is worth pointing out that D3 has adopted a seemingly peculiar stance. On the one hand, D3 has vigorously defended these proceedings as well as Ps’ application for the Injunction Order. If D3 as a professional trustee does not wish to associate itself with D1/D2 or consider that its position as Appointor is not worth the trouble and cost of defending legal proceedings, D3 could have indicated to the Court that it wishes to resign and explore any option whereby P1 or any other appropriate entity may be appointed as Appointor in place of D3, if necessary with conditions restraining the exercise of the Powers (e.g. as provided under Ps’ Undertaking Letter). In this regard, D3’s stance that P1 should not be appointed as the Appointor because “there was a dispute between relevant parties” seems rather artificial, if D3 indeed no longer wishes to be Appointor and Ps already offer undertakings not to exercise the Powers without the leave of the court and to re-appoint D3 if Ps’ claims ultimately fail.[4] Alternatively, D3 could simply indicate to the Court that it would adopt a neutral stance, leaving the matter to be fought as between Ps and D1/D2 (or indeed any other third party which may seek to intervene, as opposed to D3 itself).

90.  On the other hand, if D3 is of the view that, notwithstanding the present proceedings, it does not wish to resign and would continue to be the Appointor, then there is apparently not much point for D3 to vigorously oppose an Injunction Order retraining D3 from resigning or terminating the Appointorship. If D3’s stance is that it should not be compelled to do so by way of a court order, then it is at least open to D3 to offer an undertaking not to do so in the meantime, if necessary with a caveat that D3 may withdraw such undertaking if there is any material change of circumstances in future.

91.  Yet, instead of taking either route, D3 has vigorously contested the present application without indicating that it wishes to resign on the one hand, and yet complaining of being prevented from resigning on the other hand. In these circumstances, it does render D3’s critique on the impropriety of the terms of the Injunction Order artificial and unreal to some extent.

92.  Importantly, on the premise that the Appointorship may constitute property and Ps may seek proprietary relief against D3, there seems to me no inherent hurdle or bar to the Court ordering an injunctive relief to restrain D3 from resigning or terminating its position as Appointor, so as to preserve the Appointorship with a view to Ps recovering the same should Ps succeed in the present action. This is particularly the case where:

(1) All that D3 is saying is that it has a contractual right to resign as and when it sees fit, but this presupposes that D3 was validly appointed and that Ps could not succeed in recovering the Appointorship against D3, which is a matter yet to be adjudicated in this action.

(2) Moreover, it is not D3’s case that it in fact wishes to resign (other than saying it has a contractual right to do so), such that there may be undue hardship if D3 was prevented from resigning or otherwise compelled to remain as the Appointor. In any event, if there is any material change in circumstances in future, it may be open to D3 to apply to the Court for variation of the Injunction Order.

(3) As submitted by Ps, pursuant to the terms of the Injunction Order, D3 is restrained from exercising or otherwise dealing with any of the rights, powers, benefits, entitlements and/or discretions of the Appointor, and from holding out as such, and hence there would not be performance or provision of personal service by D3 in any case. In this regard, D3’s counter-argument that it is nonetheless required to hold the position of Appointor does not mean that D3 has to render personal service. Moreover, as to D3 being a defendant in these proceedings, as explained it is open to D3 to take a neutral stance if it is considered not worthwhile to defend these proceedings for the position.

D5. Material non-disclosure (ground 5)

93.  In D3’s submissions, D3 argues for the first time that there was material non-disclosure on Ps’ part, in that Ps merely informed the court at the ex parte hearing that D3 is a Hong Kong company and a professional corporate services provider and holds “Trust or Company Service Provider License” in Hong Kong, without making proper inquiries and informing the Court that (1) D3 was incorporated in 1976; and (2) D3 forms part of the Acclime group of companies that provides (and not merely appears to provide) professional services via 21 offices in 14 jurisdictions. D3 further contends that if it is made clear that D3 was not some recently incorporated SPV for the Appointor role, the ex parte judge would have understood that it is unlikely that D3 would act in a manner to tarnish its valuable professional good will.

94.  In response, Ps submit first of all that it is wrong to raise such issue for the first time in counsel’s submissions so that Ps have no chance to deal with it by way of evidence. As submitted by Ps, in view of the seriousness of an allegation of material non-disclosure, “adequate and clear notice of it must be given and full details provided of the non-disclosure or misrepresentation alleged”: Public Institution for Social Security v Amouzegar [2020] EWHC 1220 (Comm) at [142]; see also Qatar Airways Group QCSC v Middle East News FZ LLC [2020] EWHC 2975 (QB) at [383]; Gee on Commercial Injunctions (7^th ed) at §9-032. Ps further argue that this is an abuse of process and, on this alone, D3 should be barred from raising material non-disclosure at this stage: Beijing Renji Real Estate Development Group Ltd v Zhu Min [2022] 4 HKC 116 at [85] per G Lam JA. Having considered the matter, I agree that it should not be open to D3 to raise material non-disclosure at such late stage, without any prior notice at all.

95.  Secondly, there is force in Ps’ submission that the matters alleged not to have been disclosed are bare assertions without being substantiated by primary evidence adduced by D3 for the present application. I also accept Ps’ argument that there is no suggestion that Ps have any dealings with D3 or its corporate group, nor any concrete evidence of the “Acclime group” or its operations, or how “basic effort” will reveal such information.

96.  Thirdly, the alleged non-disclosure appears immaterial, given that Ps already disclosed to the ex parte judge that D3 was a professional services company that appeared to be in good standing (as opposed to a recently incorporated SPV), and the court was expressly informed that there is no direct evidence suggesting that D3 was involved in causing or procuring the Resignation Resolution and/or that D3 acted against the interests of Ps, there is no clear evidence suggesting that D3 was colluding or conspiring with D1/D2 (or any other person), and that Ps’ claim against D3 does not depend on bad faith or misconduct on the part of D3. Viewed in a round, I agree that the alleged non-disclosure are minor and insignificant, and do not materially add to the matters already disclosed by Ps to the ex parte judge. This is particularly so since it is not Ps’ case that D3 colluded or conspired with D1/D2 or that D3 was a bad actor.

97.  For completeness, D3 also complains of various other non-disclosure at §79 of its submissions. I do not intend to deal with each and every of them at length, and I accept Ps’ argument in response that those matters are essentially D3’s submissions and/or analysis of the law and/or evidence, which do not constitute subject of non-disclosure: National Bank Trust v Yurov [2016] EWHC 1931 at [19]. Moreover, I agree that an applicant cannot be expected to know the defence with hindsight, and hotly disputed matters cannot be the subject of material non-disclosure: Cheer Signal Development Ltd v Wong Siu Fan, HCA 780/2015 (26 October 2015, unreported) at [47]-[49].

98.  I also take note that Ps’ ex parte skeleton submissions have made extremely detailed full and frank disclosure, by reference to evidence filed by Ps. In any event, I agree with Ps’ substantive responses, namely that:

(1) The issue of consideration has been extensively dealt with in Ps’ skeleton before this Court – apparently the point is that Ps reasonably do not think much of such defence, and as mentioned I accept that Ps cannot be expected to know the defence with hindsight.

(2) The argument that D3 should not be prevented from exercising a contractual right is beside the point as Ps’ claim is precisely that D3 should not have those rights – as I have explained above, D3’s argument presupposes that D3 was validly appointed, or that Ps could have no recourse to recover the Appointorship from D3.

(3) The argument that D3 may not wish to remain as Appointor was and is at the forefront of Ps’ case – indeed this is a ground for secrecy in bringing the application ex parte without notice. D3’s personal service argument is addressed in Ps’ skeleton before this Court – again the point seems to be that Ps reasonably do not think much of such argument.

(4) The argument that the Appointor only have negative control powers to supervise the Trustee, and not powers to deal with assets directly, was repeatedly emphasised at the ex parte stage.

99.  In relation to the last point, I note that D3 also argues that by preventing D3 from acting, any Prior Notice issued by the Trustee would become validly actionable after 75 days and without any ability to remove the Trustee. There is some force in D3’s argument. The point goes to the utility or side effects of the Injunction Order. By restraining D3 from exercising the Powers, it may have the undesirable effect of removing D3’s check and balance over the powers of the Trustee. As I have intimated to Mr Wong SC for Ps, it seems better for the protection of Ps that they seek the appointment of a “provisional” Appointor who may exercise the Powers (if necessary with the requirement of the Court’s leave), but Mr Wong SC fairly accept that there is no such application before this Court.

100.  Turning back to D3’s argument, what D3 is trying to say is that the ex parte judge should be informed of the limited utility or side effects of restraining D3 from exercising the Powers. However, there is the other side of the coin. If D3 is not restrained from exercising the Powers, the concern is that such Powers may be exercised to the prejudice of Ps. For instance, the Trustee may request for waiver of the notice period and D3 may give waiver which would shorten the 75 days’ period. Hence, the Injunction Order (together with the Disclosure Order sought) at least ensures that there is a window of 75 days which may enable Ps to take further actions (by way of other proceedings or otherwise). In short, given the countervailing considerations discussed above, I do not think Ps should be criticised for not mentioning D3’s point (which does not seem to convey the full picture).

E. CONCLUSION

101.  For all these reasons, I do not accept the grounds of objection put forth by D3. Having considered the evidence and the parties’ submissions (including various miscellaneous points which are not expressly dealt with above but have been considered by me in a round), I order that the Injunction Order be continued against D3 until final determination of the proceedings herein or until further order. The Disclosure Order, which was granted pursuant to §2 of the Summons, remains in effect until further order of the Court, and there is no reason for it to be disturbed. Insofar as necessary, I am in any event prepared to order that the Disclosure Order be continued as in the case of the Injunction Order.

102.  On the question of costs, whilst I have found in favour of Ps on an interlocutory basis, I also bear in mind that it is D3’s case that Ps are not entitled to seek any proprietary relief against D3, and there is novelty in the legal arguments on the same. In these circumstances, and having considered the matter in the round, I make an order nisi that Ps’ costs of and occasioned by this hearing and application, including all costs reserved, be Ps’ costs in the cause, with certificate for two Counsel.

103.  It remains for me to thank Mr Wong SC and Mr Lau for Ps, and Mr Brown and Ms Chui for D3, for their submissions and assistance rendered to the Court.