SHAON LAL HIRANAND AND OTHERS v. PADMA HARI HARILELA AND ANOTHER

HCA 2401/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2401 OF 2004

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J U D G M E N T

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Factual background:

1.  For a number of years now there have been unhappy differences in the Hiranand family.  In the course of those differences Mr Lal Manghanmal Hiranand, (Mr Lal Hiranand), expressed the view that he would not pay for the wedding celebrations of his three children, the plaintiffs.  This was a matter of great concern to the children.  One of the children, Mr Shaon Hiranand, approached their father’s sister, Mrs Padma Harilela, and asked her to intercede with their father.

2.  As a result of that intercession, on about 3 June 1998, Mr Lal Hiranand made a payment of $6 million to Dr Hari Harilela and his wife, Mrs Padma Harilela, expressing the view that that sum should be applied towards paying for his children’s wedding expenses as and when they should get married.  On various occasions Mr Lal Hiranand informed his children of the payment he had made and assured them that they need not worry any further about their wedding expenses.

3.  On 2 November 2000, Mr Lal Hiranand wrote to Dr and Mrs Harilela revoking the instruction to apply the funds to pay the expenses of the marriages of his children, and undertaking that he would be responsible to reimburse them in respect of any legal fees incurred in relation to that and another matter.  The letter confirmed that Dr and Mrs Harilela may retain the sum of $4 million from the fund as security for the undertaking in respect of legal fees, and requesting that the balance of $2 million be transferred to Mr Lal Hiranand’s London solicitors.  That was duly done.

4.  The Hiranand children learned what had happened and now seek to restore the trust fund.  In these proceedings they seek a declaration that Dr and Mrs Harilela held the sum of $6 million on trust for them with a view to accomplishing the purpose of meeting their wedding expenses, together with other appropriate declarations and orders designed to ensure that the fund remains held in trust for that purpose.

The application:

5.  Dr and Mrs Harilela seek an order that the proceedings be struck out pursuant to O 18 r 19, on the basis that the statement of claim is frivolous and vexatious, that it may prejudice or embarrass the fair trial of the action, and that it is otherwise an abuse of the process of the court.  Both parties were agreed that it is only in plain and obvious cases that the court should exercise its summary powers to strike out.  The claim must be obviously unsustainable and it must be impossible, not just improbable, for the claim to succeed before the Court will strike it out.

6.  There should be no trial upon affidavit, and disputed facts are to be taken in favour of the party sought to be struck out.   Thus, for the purpose of this application, it may be assumed that the facts as I have set them out in the first three paragraphs of this judgment can be established.

Prior procedural background:

7.  The issues between the parties first came before the courts in the form of a statutory demand made by Dr and Mrs Harilela to each of the Hiranand children in relation to costs in other proceedings.  The Hiranand children sought to avoid the statutory demands on the grounds that they had a counterclaim against Dr and Mrs Harilela which equalled or exceeded the amount due by way of costs in the other proceedings.

8.  The Hiranand children’s application to set aside the statutory demands was dismissed.  They appealed to the Court of Appeal.  As recorded by Le Pichon JA in the judgment, (CACV 74/2004):

“To succeed in these appeals, the (Hiranand children) not only have to make out a viable case that a trust exists but also that they are entitled to call for the corpus of the trust.”

9.  The Court of Appeal found that it was not remotely arguable that an outright or absolute gift to the Hiranand children of the sum of $6 million was intended at the time that sum was transferred to Dr and Mrs Harilela.  That decision has not been appealed, and it is now a matter of res judicata between the parties that the Hiranand children are not entitled to put an end to the trust, (assuming a trust existed), and to call for the capital to be paid over to them.

10.  Two days before the appeal to the Court of Appeal was heard the writ in the present proceedings was issued.  When first filed, the statement of claim sought an order that Dr and Mrs Harilela pay to the Hiranand children the sum of $6 million together with appropriate tracing and other ancillary orders.  Plainly, following the decision of the Court of Appeal, a claim that Dr and Mrs Harilela should pay the Hiranand children the corpus of the trust fund could not succeed.

11.  An application was made to the Master pursuant to O 18 r 19 to strike out the action.  Not surprisingly, in the light of the decision of the Court of Appeal, the Master struck out the action.

12.  The Hiranand children have appealed that decision to this Court.  But the statement of claim now before me is an amended statement of claim.  No longer do the children seek the payment of the corpus of the trust fund to them.  Now they simply seek that the trust fund be re-established.  Thus the matter comes before me on a quite different basis than it was before the Master.

The question for consideration:

13.  In the course of its decision the Court of Appeal commented that the circumstances of the basis upon which Dr and Mrs Harilela held the fund appeared to bear the hallmarks of a Quistclose trust: see Barclays Bank v Quistclose Investments Ltd [1970] AC 567 and Twinsectra Ltd v Yardley & Ors [2002] 2 AC.

14.  These proceedings raise the question posed by Mr Peter Millett QC, as he then was, in an article entitled: “The Quistclose Trust: Who Can Enforce It” (1985) 101 LQR 269.  At the commencement of the article the following question was posed:

“A lends a sum of money to B for the specific purpose of enabling him to pay his (B’s) creditors or a particular class of them, and for no other purpose.  Can the creditors or any of them (C), compel B to apply the money in payment of the debts owing to them?”

For the purpose of this case the question may be posed thus:

Mr Lal Hiranand, (A), pays a sum of money, $6 million, to Dr and Mrs Harilela, (B), for the specific purpose of enabling them to pay the wedding expenses of his children, (C).  Can the children, (C), compel Dr and Mrs Harilela, (B), to maintain that sum until such time as they may marry, and to meet such wedding expenses as may be incurred?

The grounds for striking out:

15.  In support of his position Mr Wong contended first that there could be no trust of the sum of $6 million because the necessary requirement of a beneficiary did not exist in relation to the payment by Mr Lal Hiranand to Dr and Mrs Harilela.  He next contended that as the Court of Appeal had found that the Hiranand children were not entitled to the corpus of the trust fund they had no beneficial interest in the trust property and were accordingly unable to enforce any trust.  His contention was that if any trust arose it was a resulting trust in favour of Mr Lal Hiranand.

The beneficiary principle:

16.  The law is clear that it is an essential ingredient for the effectual creation of a trust that there should be some beneficiary capable of enforcing it: Snell’s Equity, 31^st Ed, para 19-13; Morice v Bishop of Durham (1804) 9 Ves 399; Re Denley’s Trust Deed [1969] 1 Ch 373.

17.  Unlike Mr Wong, I do not read the decision of the Court of Appeal in holding that the trust in the present case could not be a Denley type of trust.  All that the Court of Appeal said, (see para 8 of the judgment), was that Denley was not of assistance.  The issue before the Court of Appeal was not whether or not a trust could arise, but, whether, assuming that a trust could arise, the Hiranand children were entitled to put it to an end and call for the capital.  As noted by Le Pichon JA, that question did not arise in Denley.  The decision of the Court of Appeal is in my view not res judicata between the parties on the issue as to whether the Hiranand children have a beneficial interest in the sum of $6 million, as distinct from an entitlement to put the trust to an end and to call for the capital.

18.  With respect to Mr Wong, his submission has, as Mr Shieh put it, confused the concept of “ascertainability of beneficiaries” with the concept of whether a beneficiary’s interest has become vested, or is contention.  There is no difficulty in the present case in ascertaining the beneficiaries of the sum of $6 million.  The beneficiaries of the fund are the Hiranand children, contingent upon their marriage.  Their interest is limited, not only in respect of the requirement of marriage, but also in that the fund may only be applied in meeting wedding celebration expenses.  It is not a fund which may be applied to their general benefit or for other purposes.

19.  As none of the Hiranand children are presently married their interest remains contingent, and may or may not become vested until some later time.  That has no bearing on the antecedent question of whether the beneficiaries are capable of being ascertained.  Mr Wong was quite unable to cite any authority imposing a requirement in law that a contingency, upon which a beneficiary’s interest will become vested, must be one which is bound to occur.

20.  The simplest example showing that there is no requirement that a contingency must be bound to occur, is that of a trust of a sum of money to pay that sum to an infant beneficiary upon his attaining the age of 18 years.  The infant may die before obtaining that age.  No one would suggest that such a trust fails for want of a beneficiary.  The infant has a contingent interest which will vest upon him attaining the age of 18.  On precisely the same basis it is arguable that the Hiranand children are the contingent beneficiaries of the sum paid by Mr Lal Hiranand to Dr and Mrs Harilela.

21.  A question that may arise is what is to happen to the trust fund upon the failure of the contingency.  That will, in most cases, be determined by the terms of the gift, for it is usual in such cases to make provision for failure of the contingency.  For example, in a will, the sum, the subject of the trust, may fall into residue in the event of the failure of a contingency.  In the present type of case it is clear from both Quistclose and Twinsectra, that there will be a resulting trust in favour of Mr Lal Hiranand.  Accordingly, in the event of failure of the contingency, that is the failure of the Hiranand children to marry prior to their death, the fund, or so much of it as then remains, will revert to the donor.

22.  But until the failure of the contingency it seems to me to be clearly arguable that the Hiranand children have a contingent beneficial interest in the sum of $6 million, the contingency being whether or not they marry.

23.  I accordingly hold that it is arguable that the trust imposed upon Dr and Mrs Harilela does not fail under the beneficiary principle.

Can the Harilela children enforce the trust:

24.  In the Court of Appeal, Le Pichon JA, in the course of describing the circumstances in which the fund had been paid to Dr and Mrs Harilela, commented that the circumstances bore the hallmarks of a Quistclose trust, and held that it was arguable that a Quistclose trust can be said to have arisen.  Mr Wong’s argument was that the Hiranand children had no right to enforce any trust that may have arisen.

25.  In any consideration of Lord Millett’s article as to the enforcement of a Quistclose trust it must be remembered that the factual scenario under consideration was limited to that set out in the question that I have described in para 14 above.  It is important in this context also to note that Lord Millett did not postulate, or give consideration to, circumstances where there was a contingent beneficial interest in the trust fund.  The article, although dealing with matters of principle, was confined to answering specific questions in relation to Quistclose trusts arising as a result of loans made for the purpose of paying debts.  A Quistclose trust may arise in other circumstances, see for example Typhoon 8 Research Ltd v Seapower Resources International Ltd & Anor [2002] 2 HKLRD 660.

26.  The conclusion reached by Lord Millett as to who may enforce such a trust was that it depended upon A’s intention.  Consequently, the article concluded, if A’s intention was to benefit C, the trust would be enforceable by C, in whom the beneficial interest in the trust property resided.  Conversely, if A’s intention was to benefit B, (though without investing in beneficial interest in him) or to benefit himself by furthering some private or commercial interests of his own, and not (except incidentally) to benefit C, then the transaction would create a trust in favour of A alone, and B would hold the trust property in trust to comply with A’s directions.  The trust would be enforceable by A, but not by C, and the beneficial interest remained in A.

27.  In my view it is plainly arguable that the intention of Mr Lal Hiranand was to benefit his children by ensuring that they had wedding celebrations of nature appropriate to their status in the Indian community in Hong Kong, and that they should not themselves have to meet the cost of those celebrations.  It is right that it may be also be argued that it was the intention of Mr Lal Hiranand solely to further his own personal interests, and to ensure that his own status in the Indian community in Hong Kong was maintained, by a demonstration of wedding celebrations for his children of a style that he would consider appropriate to that status.  With that argument would go the assertion that it was a mere coincidence that the Hiranand children received a benefit from the payment for the wedding expenses.

28.  But which intention it was must be a matter for trial.  At this stage of the proceedings it is sufficient that the case of the Hiranand children be arguable.

29.  If the Hiranand children have a contingent beneficial interest in the trust property they must have a right to enforce the trust against the trustees.  The orders now sought do not seek any immediate payment of any part of the trust fund, on the capital or interest, to the Hiranand children.  Through their counsel they acknowledge that they have no right to the fund until such time as they may marry.  But just as contingent residuary beneficiaries in an estate have the right to demand that the trustees of the estate preserve the estate in terms of the testamentary document, so in my view must the Hiranand children have the right to demand that the trustees of the sum paid to the trustees by the children’s father preserve of the fund in the terms in which the trustees received it.

The consequences of communication of the arrangement to the children:

30.  There is a second basis upon which it may be argued that the Hiranand children have the right to enforce the trust.  As Lord Millett records in his article, at p. 290, where the existence of the arrangements is communicated to C, (the children), an irrevocable trust in C’s favour is created.

31.  While prior to communication it may be argued that Mr Hiranand retained the right to revoke the trust, it seems beyond argument that once the arrangements are communicated to the beneficiary of the trust, the Hiranand children, the fact of communication converts the revocable mandate into in irrevocable trust.  Thus, the beneficial interest in the trust property, albeit a contingent beneficial interest, will be in the Hiranand children who are then entitled to enforce the trust.

32.  It is not necessary in this judgment to consider the basis upon which the trust becomes irrevocable.  As Lord Millett notes, there appears to be an argument as to whether the fact of irrevocability arises from an estoppel or from ordinary principles of communication.  It is sufficient that it is arguable that communication has rendered the trust irrevocable and accordingly enforceable by the Hiranand children.

Conclusion:

33.  For the foregoing reasons I am satisfied that the claim is not obviously unsustainable or impossible.

34.  Mr Shieh correctly acknowledged that as the appeal proceeded on a quite different basis before me than it did before the Master, if allowed, the costs order below should not be disturbed.  There will accordingly be an order that the appeal should be allowed and the summons to strike out dismissed, save that the order for costs below remains.

35.  There will be an order nisi, to be made absolute in 7 days, that costs on the appeal will be to the plaintiffs, in the cause.