HSBC TRUSTEE (HONG KONG) LTD. v. THE SECRETARY FOR JUSTICE AND OTHERS

HCMP1975/97

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.1975 OF 1997

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J U D G M E N T

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1. By an originating summons dated 20 June 1997 and amended on 27 April 1999, HSBC Trustee (Hong Kong) Limited, who are the trustees of The Sir Robert Ho Tung Charitable Fund ("the Fund") seek (1) a determination by the court of the true construction of clause 9(c) of the Will of the late Sir Robert Ho Tung ("the Testator") dated 4 July 1955 which established the Fund and (2) the sanction of a scheme for the administration of the Fund.

Construction of clause 9(c)

2. Clause 9(c) reads as follows :-

"(c) the sum of $500,000 (say Five Hundred Thousand Dollars of the Currency of Hong Kong) unto my Trustees to constitute the Fund to be called 'THE SIR ROBERT HO TUNG CHARITABLE FUND' UPON TRUST to invest the same in any investment hereby authorised and to stand possessed of the same and of the investments from time to time representing the same UPON TRUST to apply the income thereof in perpetuity for the furtherance of such charitable objects (including educational objects which are wholly charitable) in the British Colony of Hong Kong as His Excellency the Governor for the time being of the said Colony may specify as deserving causes PROVIDED THAT my Trustees shall not be bound to expend in any year the whole of the income of that year for the said purposes but may accumulate such part thereof as shall not be expended for distribution in any subsequent year." (emphasis added)

The present application has been brought because of the change in Hong Kong's status on 1 July 1997, from a "British Colony" to that of a Special Administrative Region of the People's Republic of China. On that date the "Governor's" office also ceased to exist. The Trustees seek a declaration that the change in sovereignty did not cause the charitable trusts established by the Will to fail. The 1st Respondent, the Secretary for Justice, who is interested on behalf of charity supports the Trustees' application. The 2nd to 8th Respondents are the residuary beneficiaries who would stand to benefit should those trusts fail. Peter Alan Lee Vine whose firm represents the 2nd Respondent who in turn was given a power of attorney to represent the 7th and 8th Respondents has filed an affidavit on their behalf. On 10 August 1999, the 7th Respondent decided against participating further in the proceedings. At the hearing, leading counsel for the 2nd and 8th Respondents ("the Opposing Respondents"), put forward arguments for the opposite case so as to assist the court in arriving at the true construction of clause 9(c).

3. The Testator died on 26 April 1956. At the date of his death, there was no question but that clause 9(c) took effect as a charitable trust. During the period between the date of the Testator's death and 30 June 1997, an Allocation Committee of which the Deputy Secretary for Health and Welfare was chairman assisted the Governor in identifying deserving causes under clause 9(c). The Allocation Committee notified the Trustees of the Governor's decision and the Fund's income was distributed accordingly.

4. The question of construction which arises is whether the change in sovereignty which occurred on 1 July 1997 caused the charitable trusts contained in clause 9(c) to fail. That would be the case if, on the true construction of the Will, the charitable trusts were to take effect only so long as Hong Kong remained a British Colony. The question is whether the gift contained such a condition.

5. It is common ground that the Testator's intention is to be ascertained from his Will and codicils.

6. Prima facie, the expression "British Colony" can unquestionably be purely descriptive. In fact, the Will and codicils contained differing references to Hong Kong. One finds references to "Hong Kong" simpliciter (as in clauses 8(g)(h), 11 and 19), "the Colony of Hong Kong" or "the said Colony" (as in clauses 2, 3, 4, 6(3), the opening paragraph and clause 4(d) of the First Codicil). The terms appear to have been used interchangeably in that there would not appear to be any discernible reason for using one rather than the other in the clauses mentioned. Further, the references to "Colony" in those clauses were purely descriptive and nothing else. Whilst the phrase "the British Colony of Hong Kong" was used only once in the Will, that fact, of itself, is not determinative of the question whether the word "British" coupled with the word "Colony" necessarily became something more than being purely descriptive and that implicit in the term "British Colony" was a condition equivalent to "so long as it remains a British Colony". It is necessary to consider what indicia (if any) of the Testator's intention can be found in his Will and codicils.

7. There is, of course, the reference to "the Governor for the time being" in clause 9(c) itself. However, I do not regard that as of particular significance since it was inextricably linked to the words "British Colony" immediately preceding and formed part and parcel of the same. What is of greater significance is the fact that the Testator contemplated that the income of the Fund would be applied "in perpetuity" for the furtherance of charitable objects. That is hardly consistent with the gift being either conditional or determinable. None of the other provisions of the Will itself throws further light on the Testator's intention.

8. So far as the codicils are concerned, only the First Codicil is of any relevance.

The First Codicil

9. By his First Codicil, the Testator established the North China Fund and the South China Fund (collectively "the China Charitable Fund") which was to be applied towards such charitable purposes as the Trustees thought fit in connection with the prevention of damage by floods, the rehabilitation of land and property so damaged or destroyed, the resettlement of persons dispossessed of their homes or hereditaments by floods and for the relief of such persons. This charitable gift was subject to two provisos :

"(A) that so long as any of the laws or regulations of the United States of America at present in force which might preclude the remittance of American Funds belonging to me or to my Estate into China for application towards the foregoing purposes remain valid and subsisting it shall not be lawful for my Trustees to apply any part of the income or the capital of the North China Fund or the South China Fund towards the objects hereinbefore declared

(B) if at the expiration of ten years from my death no part of the North China Fund or the South China Fund or the income thereof shall have been applied towards the foregoing purposes, the trusts hereinbefore declared for the North China Fund and the South China Fund shall cease and determine and shall be deemed always to have been void and of no effect as though they had not been included herein and in lieu thereof..."

There was a gift-over in that event as to one-third to the Fund and as to two-thirds to the residuary estate.

10. At first blush, the rationale for proviso (A) is not immediately apparent. However, the circumstances prevailing in Hong Kong in 1955 were set out in Mr Vine's affidavit. His account was not challenged :-

"... Relations between the Crown Colony of Hong Kong and the People's Republic of China were then extremely fraught. The Korean War which in an uneasy armistice ended in July 1953 had seen the United Kingdom as an ally with the United States of America, the Government of South Korea and others under the auspices of the United Nations, engaged in a war with the forces of North Korea in combination with those of the People's Republic of China. A resolution of the United Nations had imposed on Hong Kong (and others) an embargo on trade with the People's Republic of China which was rigorously enforced by U.S. naval forces...."

So, there was an embargo subsisting at the date of the Will and the First Codicil. Plainly, remittance of funds into China during the subsistence of the embargo would have excited suspicion. The proviso effectively ensured that no question of the China Charitable Fund being used to circumvent or breach the embargo could arise.

11. The First Codicil also contained the following statement made by the Testator for the information of his Trustees :

"... having made a careful survey and study of the principles of the Carnegie Trust, the Rockefeller Foundation and the Alfred Noble Foundation I had conceived plans for a Foundation to operate on broadly similar principles which would under the old conditions operating in China have brought great benefits to the people of China and indirectly to humanity in general. My purpose was and so far as it can legally be achieved under the different conditions now prevailing in China and the limitations imposed by the law of Hong Kong on bequests which are not wholly charitable remains that the North China Fund and the South China Fund should be applied in furtherance of the following objects, all of which I regard as pre-eminently desirable for China, the Chinese people and the world :-"

There followed various objects including the reclamation of land in China, the taking of preventative measures against floods, rehabilitation of damage and the relief of distress caused by floods.

12. It was suggested that the statement showed the Testator's hostility or, at any rate, mistrust towards the regime in China at the time. From that, the court was in effect invited to extrapolate an intention on the part of the Testator that the clause 9(c) charitable trusts should take effect only so long as Hong Kong remained a British Colony.

13. The Testator was clearly cognizant of the different conditions prevailing in China at the time he made his Will as distinct from "the old conditions". Nonetheless, that did not deter him from creating the China Charitable Fund. It is clear that, "so far as it can legally be achieved", the Testator remained desirous of benefiting China and the Chinese people living under those "different conditions". That he genuinely wished to benefit China and the Chinese people cannot be doubted. On a fair reading of his statement, it could not be said that it evinced any hostility or even mistrust towards the regime then in place. The Testator's clear intention was to benefit the people then living in China under that regime were it possible so to do. At the same time, he was well aware of conditions outside his control which made it impossible for his intentions to be carried out at the date of the Will : proviso (A) was a pragmatic acknowledgement of the practical difficulties of remitting funds into China so long as the embargo subsisted. The Testator also realized that those difficulties might persist for some time, hence, the second proviso which provided for a period of 10 years after the date of his death for his wishes to be effectuated. True it is that he made those trusts determinable should no part of the China Charitable Fund have been applied during the 10 year period, but that cannot properly be construed as an indication of his opposition or hostility to the Communist regime for the reasons appearing below. The practical difficulties in implementing the gift at the time he made his First Codicil no doubt caused the Testator to recognize the possibility that the China Charitable Fund might fail; so provision was made for a gift-over to take effect in that eventuality. One-third was to be paid over to the trusts created by clause 9(c) under which trust income was to be applied "in perpetuity" for the charitable purposes therein contained.

14. In the final analysis, the provisions of the First Codicil do not support the contention that the Testator had no intention of furthering charitable causes because of the regime then in place in China. Rather, implicit in the provisos was the possibility of the trusts taking effect under that regime. That would have been the case had the embargo been withdrawn. Further, while mistrust of the regime in China might have led to a condition determining the trusts upon Hong Kong becoming part of China, it would not have led to a condition determining the trusts upon Hong Kong ceasing to be a British Colony. That is because a change in sovereignty could result from other events such as independence. So there is an important difference between the two conditions. The construction urged by the Opposing Respondents goes far beyond what was necessary had the determining event been prompted by the suggested mistrust. Not only does the First Codicil not support the wider construction advanced by the Opposing Respondents, it does not even support the narrower construction that the trusts should determine if Hong Kong should become part of China.

Conclusion

15. Since no assistance can be derived from the First Codicil, one is left with the provisions of the Will itself. Although the Opposing Respondents submitted that a literal construction of the term "British Colony" in clause 9(c) should be applied, that is not necessarily apposite where "British Colony" could equally well be purely descriptive.

16. Counsel for the Trustees referred to Weir v. Crum-Brown [1908] AC 162 where Lord Loreburn L.C. said (at 167) :

"There is no better rule than that a benignant construction will be placed upon charitable bequests."

It was submitted that if a bequest is capable of two constructions, one of which would make it void and the other would make it effectual, the latter will be adopted : "It is better to effectuate than to destroy the intention". See Tudor on Charities 8th Ed at 164 citing Re Lloyd-Greame (1893) 10 TLR 66.

17. In the present case, I see no need to resort to those principles. The only question is whether one can discern a condition attaching to the gift such that it takes effect on condition that Hong Kong was a British Colony or whether "British Colony" was purely descriptive of the place which the Testator wished to benefit. In the absence of clear and unequivocal language making the gift conditional or determinable in the event of a change of sovereignty, at the very least, there must be some indicia that the gift was intended so to determine. As noted above, none can be found in either the Will or the First Codicil. In those circumstances, the gift in clause 9(c) should not be construed as conditional on Hong Kong being a British Colony. Those words were purely descriptive of Hong Kong at the date of the Will. Accordingly, I hold that the charitable trusts contained in clause 9(c) did not fail upon Hong Kong ceasing to be a British Colony on 1 July 1997.

18. A concomitant question which arises for construction is whether the fact that the office of Governor no longer exists caused the trusts to fail. With the change in sovereignty, there is no longer a Governor on whom had devolved the task of specifying or identifying the deserving causes.

19. It is trite law that where the overriding intention of the donor is charitable but no mode for carrying it into effect has been prescribed, the law provides a mode. See Moggridge v. Thackwell (1802) 7 Ves 36 and Tudor on Charities, 8th Edn. at 9. The breaking down of the particular trust machinery through which the donor intended the gift to be carried into effect will not defeat the gift. Accordingly, in my judgment, the fact that the office of Governor of Hong Kong ceased to exist as from 1 July 1997 also did not cause the charitable trusts to fail.

The scheme

20. The second part of the application related to a scheme for the administration of the Fund to provide for-

(a) the nomination of the person to take the Governor's place as nominator or selector under clause 9(c) of the Will; and

(b) the provision for additional powers of investment and administration to assist the Applicant in carrying out their duties as trustees of the Fund.

The court heard submissions from the Applicant on these matters. In relation to (a), the Applicant proposed that the Chief Executive for the time being of Hong Kong, or such Bureau Director of the Government of the Hong Kong Special Administrative Region as the Chief Executive may designate should be nominated.

21. Whilst the court would provide the mode for carrying the Testator's intention into effect, it is not the role of the court to rewrite his Will or to depart from its terms unnecessarily. To adopt the proposal put forward by the Applicant would be to go beyond what is the clear intention of the Testator, namely, that the power of selection be vested in the person for the time being holding the highest office in the land. The proposed delegation of this power appeared to be wholly unwarranted. In view of the court's observations on this issue as well as on some of the powers proposed in the scheme, the Applicant sought an adjournment of the second part of the application.

22. Accordingly, the settlement of the scheme stands adjourned with liberty to restore.

23. The costs of and incidental to this application of the 1st Respondent and the Applicant be paid out of the Fund and the costs of the 2nd, 7th and 8th Respondents be taxed on the common fund basis if not agreed, and paid out of the Fund.