STELLA MARIA DA SILVA AND OTHERS v. HSBC TRUSTEE (HONG KONG) LTD

HCMP100/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.100 OF 2009

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BETWEEN

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J U D G M E N T

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1.  In these proceedings commenced by originating summons, the plaintiffs seek a declaration that the 2^nd and 3^rd plaintiffs have become absolutely entitled to the remainder interest in the estate of the late Mr Ebraham Sadick (“the Testator”), and in the alternative the appointment of a different trustee to replace the defendant. The issues turn on the construction of the last will of the Testator.

The family background

2.  The Testator had one son and one daughter. The son is Cameron Armand Sadick (“Cameron”). The daughter is Stella Maria Sadick (“Stella”), who is the 1^st plaintiff.

3.  The Testator died on 18 November 1986. Under his last will dated 19 June 1978 (“the Will”), the defendant (“the Trustee”) was appointed the executor and trustee of the Will. Probate was granted to the Trustee on 11 August 1987.

4.  Cameron died on 7 January 2008 at the age of 82. It is the plaintiffs’ case, and accepted by the Trustee for the purpose of these proceedings, that Cameron was never married and had never fathered any child. Under Cameron’s last will dated 8 January 2002, Stella was named the sole executrix and beneficiary.

5.  Stella was born in 1926 and is now aged 83. She was married to Mr Manuel da Silva and they had two sons during the marriage. They are Christopher Charles da Silva (“Christopher”) and Anthony Andrew da Silva (“Anthony”), who are respectively the 2^nd and 3^rd plaintiffs. They are aged 58 and 55, being born in 1951 and 1954 respectively. Stella’s husband died on 16 March 1991.

The Will

6.  The part in the Will that are relevant to these proceedings are clauses 5(c)(i), (ii) and (iii). They provide as follows:

“5.  SUBJECT to the payment of debts estate duty and executorship expenses I GIVE DEVISE BEQUEATH AND APPOINT all my estate not by this Will or by any Codicil to it otherwise disposed of to my Trustee UPON TRUST

…

(c)  to hold the balance then remaining together with all parts of my estate for the time being unsold (hereinafter called “my Residuary Estate”) UPON TRUST to divide it into two equal shares and to hold: -

(i)  one of such equal shares of my Residuary Estate to pay the income thereof to my daughter STELLA MARIA DA SILVA during her lifetime and after her death should my son CAMERON ARMAND (ARMEND) SADICK still be alive to pay the income thereof to such of the husband and children of my said daughter and if more than one in equal shares absolutely and after the death of my said son to divide the capital and income thereof between such of the husband and children of my said daughter as shall survive her and if more than one in equal shares absolutely PROVIDED that if any child of my said daughter is already dead or dies before attaining a vested interest leaving children then those children shall on reaching 21 years take equally the share which their parent would otherwise have taken;

(ii)  the other one of such equal shares of my Residuary Estate to pay the income thereof to my son CAMERON ARMAND (ARMEND) SADICK during his lifetime and after his death should my said daughter STELLA MARIA DA SILVA still be alive to pay the income thereof to such of the wife and children of my said son and if more than one in equal shares absolutely and after the death of my said daughter to divide the capital and income thereof between such of the wife and children of my said son as shall survive him and if more than one in equal shares absolutely PROVIDED that if any child of my said son is already dead or dies before attaining a vested interest leaving children then those children shall on reaching 21 years take equally the share which their parent would otherwise have taken;

(iii)  PROVIDED ALWAYS that if no one shall take a vested interest in my Residuary Estate under the foregoing sub-clause (ii) hereof then such share of my Residuary Estate shall accrue to the trusts created by the foregoing sub-clause (i) hereof or such of them as shall be capable of taking effect at the date of such accrual AND FURTHER PROVIDED ALWAYS that if no one shall take a vested interest in my Residuary Estate under the foregoing sub-clause (i) hereof then such share of my Residuary Estate shall accrue to the trusts created by the foregoing sub-clause (ii) hereof or such of them as shall be capable of taking effect at the date of such accrual;”

7.  The effect of clause 5(c) in broad terms is this: The residuary estate of the Testator is divided into two equal shares, one is for the benefit of Stella and her family (Stella’s Share”) and another for the benefit of Cameron and his family (“Cameron’s Share”).

8.  The arrangement for Stella’s Share, as provided for in clause 5(c)(i), is as follows:

(1)  The income of Stella’s Share would be paid to Stella during her lifetime.

(2)  If Stella dies and if Cameron is still alive, the income of Stella’s Share would be paid to her surviving husband and children in equal share;

(3)  If Stella dies and if Cameron has also died, the capital and income of Stella’s Share would be paid to Stella’s surviving husband and children; and

(4)  If any of Stella’s children dies before attaining a vested interest and leaving children, then such children of the deceased child of Stella would, upon reaching 21 years old, take the share that their parent would otherwise have taken.

9.  The arrangement for Cameron’s Share, as provided for in clause 5(c)(ii) mirrors that for Stella’s Share.

10.  Clause 5(c)(iii) caters for the eventuality that the interest in either Stella’s Share or Cameron’s Share does not vest. In the event this happens to Cameron’s Share, the interest would accrue to the Stella’s Share and vice versa.

Stella’s share

11.  By a deed dated 12 July 2001 made between Stella and Christopher and Anthony, Stella as the life tenant consented to the advancement of one-half of the capital fund pertaining to her share to Christopher and Anthony in equal shares. The Trustee, exercising its power under section 34(1) of the Trustee Ordinance, Cap.29, had carried out the capital advancement.

12.  By another deed dated 14 January 2002 made between Cameron, Stella, Christopher and Anthony and the Trustee, it was agreed that the capital fund pertaining to Stella’s share should be terminated and distributed to Stella, Christopher and Anthony.

13.  Consequently, the residuary estate of the Testator comprises only Cameron’s Share.

Deed dated 12 January 2009

14.  Upon Cameron’s death, clause 5(c)(ii) of the Will ceases to have effect since he was never married and never fathered any child. Clause 5(c)(iii) applies and Stella becomes entitled to the income of Cameron’s Share as a life tenant under the terms of clause 5(c)(i).

15.  By a Deed of Disclaimer and Surrender dated 12 January 2009 made between Stella, Christopher and Anthony, Stella disclaimed and surrendered all her rights and entitlements in the remainder interest in the Testator’s residuary estate. The intention of the disclaimer and surrender, as expressed in paragraph (8) of the Recital and the body of the Deed, is to accelerate the remainder interest so that such remainder interest may become immediately and absolutely vested in possession in the remaindermen, namely, Christopher and Anthony.

16.  Although the Deed is termed a disclaimer and surrender, as the Trustee points out, and which the plaintiffs accept, Stella can only surrender, but cannot disclaim, her interest as a life tenant as she had entered into enjoyment of it.

The Trustee’s position

17.  The Trustee, on the basis of legal advice, has doubts whether it should accept early termination of the trust and transfer the remainder interest in the residuary estate to Christopher and Anthony without first obtaining the court’s sanction. In these proceedings, it does not seek to actively oppose the application, but wishes to draw to the court’s attention its concern and doubts.

18.  The concerns of the Trustee are: First, whether the interest of Christopher and Anthony is vested or contingent. It is said that in light of the language in clause 5(c)(i), especially the inclusion of a gift over in the event of their death “before attaining a vested interest”, it may be that Christopher and Anthony only have a contingent interest in the residuary estate. Second, if Christopher and Anthony’s interest is vested, but subject to being divested, then whether acceleration of an absolute interest in the residuary estate to them should be deferred pending the happening of the divestment (i.e. the death of Stella). Third, as the subsequent interest of Christopher and Anthony is a class gift, whether a premature closing of the class in the event of acceleration is permissible.

Vested or contingent interest?

19.  In Re Flower’s Settlement Trusts [1957] 1 WLR 401, it was established that a subsequent interest can be accelerated upon the surrender of a prior interest. The principle of acceleration was explained by Jenkins LJ (at 405) as follows:

“The principle, I think, is well settled, at all events in relation to wills, that where there is a gift to some person for life, and a vested gift in remainder expressed to take effect on the death of the first taker, the gift in remainder is construed as a gift taking effect on the death of the first taker or on any earlier failure of determination of his interest, with the result that if the gift to the first taker fails – as, for example, because he witnessed the will – or if the gift to the first taker does not take effect because it is disclaimed, then the person entitled in remainder will take immediately upon the failure or determination of the prior interest, and will not be kept waiting until the death of the first taker.”

20.  The Trustee does not dispute this principle or its applicability. The Trustee accepts that Stella’s interest as a life tenant may be surrendered and that acceleration can be brought about by surrender. It is common ground that whether acceleration can take place depends on whether the testator had intended it to occur, which is a question of construction of the will: Re Flower’s Settlement Trusts, at 407. What the Trustee questions is: whether, in light of the language employed in clause 5(c)(i) and the inclusion of a gift over in the event of Christopher’s or Anthony’s death “before attaining a vested interest”, this suggests Christopher or Anthony only has a contingent interest in the residuary estate.

21.  The authorities referred to by counsel demonstrate that words such as those used in clause 5(c)(i) (namely, “ after her death” and “after the death of my said son” and “before attaining a vested interest”) may have one of two imports, either that the donee is to take nothing till after the occurrence of the event specified (for example, the death of the life tenant) or that they are merely to show the order of the limitation, through which the estate was to pass. And prima facie, these words are to be understood as denoting the order of succession of the limitations, unless there is something in the will to lead to a different conclusion: Lainson v. Lainson (1854) 5 De GM & G 754, 756, Re Taylor [1957] 1 WLR 1043, 1046-1047 and Tompkins v. Simmons (1930) 44 CLR 546, 558-559.

22.  In the present case, under clause 5(c)(i), the capital and income are to be divided between Stella’s surviving husband and children absolutely after her and Cameron’s deaths. Applying the authorities, the words “ after her death” and “after the death of my said son” and “before attaining a vested interest” should prima facie be construed as denoting the order of succession of the limitations. At the same time, there is nothing in the will to show a contrary intention that the Testator had intended Stella’s husband and children could not have immediate enjoyment of the capital and income in the event Stella were to surrender her interest.

Vested subject to being divested?

23.  The Trustee further questions whether the interest of Christopher and Anthony is “vested subject to being divested”, hence whether the acceleration of the residuary estate to them should be deferred pending the occurrence of the divestment, namely, the death of Stella. The basis of the Trustee’s doubt is the words “PROVIDED that if any child of my said daughter is already dead or dies before attaining a vested interest leaving children then those children shall on reaching 21 years take equally the share which their parent would otherwise have taken” and the case of Re Taylor.

24.  In Re Taylor, the testatrix by her will gave her residuary estate upon trust to pay the income to her brother during his life. Clause 6 of the will further provided as follows:

“After the death of my brother… [the executor] shall stand possessed of my residuary estate in trust to pay and divide the same unto and equally between [Jones] and [Percival] or such of them as shall be living at the death of the survivor of myself and my brother … absolutely, Provided always that if either of them … shall die before the death of the survivor of myself and my brother … leaving issue him surviving who being male attaining the age of 21 years of being female attain that age or marry under that age such issue shall take per stirpes and if more than one equally between them the share which his her or their parent would have taken of and in my residuary trust estate if he had survived myself and my brother …”.

By a deed of disclaimer, the testatrix’s brother disclaimed his life interest and any interest as the testatrix’s next-of-kin in the estate.  The executor sought a determination as to whether, and if so in what manner, the interests of Jones and Percival had been accelerated by the disclaimer.  Upjohn J was of the view that the words “after the death” were mere words of limitation and that the gift to Jones and Percival took effect immediately on the operation of the disclaimer.  He, however, held that the interest of Jones and Percival was a vested remainder liable to be divested for he considered it would be misconstruing the will to hold that the reference to survivorship were a reference to the determination of the prior life interest.  It is clear from the judgment that the decision was as a result of construction of clause 6 of the will (at 1048):

“The testatrix has made it perfectly clear that the gift is to be to ‘such of them as shall be living at the death of the survivor of myself and the said Thomas Taylor, and she has said it again at the conclusion of clause 6.  I do not feel at liberty to depart from her precise language.”

25.  In the present case, construing clause 5(c)(i) according to its ordinary meaning, the Testator was merely intending to make provision for a number of eventualities, including that Christopher or Anthony were to die before attaining a vested interest in the residuary estate. There is no obvious or necessary basis for construing the clause and, in particular, the words in the proviso as showing that the Testator intended that the subsequent interests of Christopher and Anthony to be contingent upon them surviving Stella. I do not read the words “before attaining a vested interest” as expression or clear expression of such an intention.

26.  In the Australian case of Collins v. The Equity Trustees Executors and Agency Company Limited [1997] 2 VR 166, the deceased by his will left a life interest in his residuary estate to his widow with the remainder to his son after the death of the widow, or if the son was not then surviving to such of his wife and children as were then surviving and who had attained the age of 18 years. The widow wished to surrender her life interest so that her son’s interest could be accelerated. The son was not married and had no children. The widow and son proposed to execute a deed by which the widow surrendered her interest and directed the trustee to transfer the residuary estate to the son. Upon their application, the Court granted a declaration declaring that, by executing and delivering the deed to the trustee, the remainder interest in the residuary estate would be accelerated and that the son would become absolutely entitled in possession to the residuary estate.

27.  Batt J (at p.173) referred to Re Taylor and considered it was distinguishable. He was of the view that because of the particular form of the gift to Jones and Percival, it was necessary to construe the reference to survivorship as a reference to them actually outliving the testatrix and her brother. In respect of the will before him, Batt J took the view that references to the son “then surviving” did not exclude acceleration and the word “then” referred to the time of determination of the interest of the widow. It followed from this interpretation that upon the determination of the widow’s interest by execution of the deed of surrender, the possibility of defeasance of the son’s interest would be removed. In other words, the contingency on which the interest has been liable to be divested (namely, failure to survive the determination of the widow’s prior interest) could no longer arise.

28.  In my view, the same reasoning also applies here. For reasons indicated above, the references to after the death of Stella and after the death of Cameron in clause 5(c)(i) are merely to denote the order of succession. The execution of the Deed dated 12 January 2009 by Stella has the effect of determining her life interest and bringing about acceleration, thereby vesting the remainder interest in Christopher and Anthony. Upon the determination of Stella’s interest and the vesting of the remainder interest in Christopher and Anthony, there is no possibility of them having died before attaining a vested interest in the residuary estate. Accordingly, even if the subsequent interests of Christopher and Anthony were construed as vested but subject to being divested, the possibility of defeasance or the event of contingency was removed upon the surrender of the Stella’s interest in the residuary estate.

29.  In brief, I am of the view that clause 5(c)(i) of the Will should be construed as accelerating the subsequent interests upon the failure of the prior interest. Further, the effect of the surrender by Stella is to vest the interest in remainder in Christopher and Anthony immediately and absolutely.

Closing of class

30.  I turn then to the issue of closing of class. The Trustee’s concern here is that in light of the fact that the subsequent interest of Christopher and Anthony is a class interest, whether it is permissible to close the class at the point of acceleration. In the Trustee’s view, the class of beneficiaries of the subsequent interest is arguably not closed until the death of the life tenant.

31.  The Trustee refers to a tension among the authorities on this point. There is a line of English cases beginning with Re Johnson (1893) 68 LT 20, which was applied in Re Crothers Trust [1915] 1 Ir R 53, which held that upon the class gift taking effect, the class then closes. In Re Davies [1957] 1WLR 922, Vaisey J, relying on Re Johnson, held that the disclaimer by the life tenant operated to accelerate the gift to her issue. It was further held that as a result of the disclaimer, the class of issue was to be ascertained at the date of the death of the testatrix. This decision was approved by Upjohn J in Re Taylor, at 1047-1048.

32.  On the other hand, in Re Kebty-Flectcher’s Will Trusts [1969] 1 Ch 339, Stamp J refused to extend the acceleration principles to cases where the prior interest was brought to an end not by the testator or by operation by law, but by a person who would otherwise take under the will. In that case, the testator by his will left a share of his residuary estate to be held on trust for each of his nephews and nieces during his or her life and after the death of such nephew or niece on trust “for the child of children of such nephew or niece who … shall attain the age of 21 years … and if more than one in equal shares.” One of his nephews assigned and released to the trustee “all his interest during the remainder of his life … to the intent that such income should henceforth be held by the trustee on the same trusts and subject to the same powers and provisions as would have been applied had he been dead”. The question that arose was whether, as a result of the assignment, a child of the nephew, who had attained the age of 21, was entitled to have the share transferred to him on the basis that the class had closed. Stamp J held that the testator had intended a gift to children following a life interest to their parent, and the date of distribution contemplated by the testator was after the class had closed on the death of the parent. Accordingly, the disposition of the life interest could not, as a matter of construction, alter the composition of the class intended by the testator and the class was still open to include the unborn children of the nephew. In coming to this conclusion, Stamp J expressed doubts as to whether Re Davies was correctly decided.

33.  Re Davies was also not followed by Goff J in Re Harker’s Will Trusts [1969] 1 WLR 1124. In that case, there was a gift of income for life and after the death of the life tenant, a gift of the capital to his children on attaining 21. The life tenant surrendered his life interest to the trustees to the intent that it should “forthwith cease merge and be extinguished in the reversionary interests” of his children. One of his children had attained 21 years. The questions for determination by the court were: (i) whether the effect of the surrender was to accelerate and vest the children’s interests in possession; and (2) whether the rule in Andrews v. Partington (1791) 3 Bro.C.C. 401 applied so as to close the class of children. Goff J held that it was a clear case of acceleration, but that the class of children remained open until the death of the life tenant.

34.  Despite the differences in the outcome of these English cases, what is clear is that the courts had approached the question of whether the class closes upon an acceleration of subsequent interest as a matter of construing the testator’s intention from the instrument in question. Both Mr Fung and Mr Hickin agree that ultimately it is a matter of construing the language of the instrument to ascertain the testator’s intention.

35.  In the more recent Australian case of Bassett v. Bassett (2003) 58 NSWLR 258, a testator by will gave a property to the trustee upon trust for her grandson during his lifetime and directed that on the death of the grandson, the property shall pass to the children of the grandson and if more than one, in equal shares. The grandson wished to surrender his interest so that his children would become immediately entitled to the interests they would otherwise take on his death. The trustees sought the court’s direction on whether, in the event of surrender by the grandson, they could pay to his children the accelerated interests in remainder. Windeyer J reviewed the relevant English and Australian authorities, including the cases mentioned above, and held that a surrender of the life interest would accelerate the vested interests in remainder and the class would close on the surrender of the life interest, there being no contrary intention expressed in the will. At p.266, para.18, he explained his decision as follows:

“After much consideration I have come to the conclusion that it is somewhat artificial to treat acceleration separately from class closing. If an event accelerates an interest then it seems to me that the closing rule should be applied on the basis of non-existence of the interest revoked, forfeited, disclaimed, surrendered or otherwise brought to an end.  The task then is to see whether the language of the will demands or leads to a finding against closure.  It is not, I think, possible to distinguish cases where acceleration occurs through act of beneficiary from those cases where it occurs by act of testator or operation of law.  A beneficiary life tenant who commits suicide advances the subsequent interest; a life tenant whose interest is postponed to a prior life interest may lose his interest if he kills the prior life tenant: Cleaver v. Mutual Reserve Fund Life Association [1892] 1 QB 147 at 157; thus causing acceleration.  It is difficult to see why a different rule should apply in such cases of destruction of a prior interest brought about by a beneficiary than apply in a case of action of a testator.”

36.  Windeyer J referred to Re Kebty-Fletcher’s Will Trusts and Re Harker’s Will Trusts, pointing out that there seemed to be in the two cases a tendency to look with disfavour on the rule in Andrews v. Partington and to find reasons for finding a contrary intention: see also Prichard, “Acceleration and Contingent Remainders” (1973) 32 Cambridge Law Journal 246, at p.247. He went on to stress the importance of recognising the fact that the interests were vested, in which cases the class closing rules are clear.

37.  Windeyer J’s approach was followed in Hamersley v. Newton (2005) 30 WAR 568. In that case, the testator by his will left a farm to his great nephew for life and after the latter’s death to the then eldest living son of the great nephew in remainder absolutely. The court was asked to determine whether in the event of the great nephew renouncing his life interest, the effect was to pass an immediate interest to his eldest son then living, or whether the effect was to pass the interest for the great nephew’s life to the eldest living son, subject to the remainder taking effect as provided in the will. Heenan J held that the effect of a valid surrender of the life interest would be that the present fee simple interest in remainder in the farm would thereupon immediately become an interest in fee simple absolutely. He (at para.54) considered that the question is ultimately a question of considering the testator’s intention as expressed in the will. Following Bassett v. Bassett, Heenan J (at para.59) held that the class would close at the expiration of or sooner determination of the life interest which would take place upon the effective surrender by the great nephew of his present life interest.

38.  Mr Fung submits, and I agree, that the reasoning and approach of the Australian cases, notably Bassett v. Bassett, are to be preferred and should be applied to the present case. Where upon the principle of acceleration, a subsequent interest becomes vested immediately and absolutely, then unless there is a clear contrary intention expressed in the will, acceleration will close the class. It matters not how the prior interest is determined, whether it is by an act of a beneficiary or by the act of the testator or operation of law.

39.  In the present case, on a proper construction of clause 5(c)(i), once Stella surrenders her life interest, the interests of Christopher and Anthony as remaindermen vest immediately and absolutely. On the basis of the non-existence of the interest surrendered, the closing rule will apply. There is nothing in the language of the Will to show a clear contrary intention. It is also accepted by the Trustee that, as Stella was 52 years old and Christopher and Anthony were in their mid 20’s when the Will was made in 1978, the intention of the Testator was probably that the three of them were to be the primary beneficiaries of his estate.

Conclusion

40.  For the above reasons, I am of the view that upon Stella surrendering her interest in the Deceased’s residuary estate, the interests of Christopher and Anthony in the estate have been accelerated and they become absolutely entitled to Cameron’s share and are further entitled to act together to direct the Trustee to terminate the trust.

41.  Accordingly, I make the following order:

(1)  A declaration that upon the execution of the Deed dated 12 January 2009, the 2^nd and 3^rd plaintiffs have become absolutely entitled in possession to the remainder interest in the residuary estate of the Testator.

(2)  The defendant shall within 28 days or such extended period as may be agreed between the parties or ordered by the Court, transfer all the remainder interest in the residuary estate of the Testator to the 2^nd and 3^rd plaintiffs in equal shares.

42.  Given my decision on the Originating Summons, it is not necessary to deal with the summons dated 20 August 2009 for amendment of the Originating Summons to add an alternative relief. I make no order on the summons.

43.  Parties are in agreement that their costs should all come out of the estate of the Testator. Since these proceedings are to seek the court’s directions on the conduct and administration of the trust created by the Will, I accept it is appropriate that the parties’ costs in these proceedings be paid by the Testator’s estate. And I so order.