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CACV 178/2006
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF APPEAL
CIVIL APPEAL NO. 178 OF 2006
(ON APPEAL FROM HCMP 2701 OF 2005 )
______________________
BETWEEN:
ANTHONY ERIC RYAN HOTUNG Plaintiff
and
HO YUEN KI Defendant
Before: Hon. Cheung and Yuen JJA and Yam J in Court
Date of hearing: 6 December 2006
Date of Judgment: 10 July 2007
----------------
JUDGMENT
----------------
Hon. Cheung JA:
1. I agree with the judgment of Yuen JA.
Hon. Yuen JA:
2. This is an appeal from a judgment of Deputy Judge Gill given after
the hearing of an Originating Summons issued under Order 85 rules
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2(3)(a) and (c) of the Rules of the High Court. The order that the
judge made in favour of the Plaintiff is set out in paragraph 27 below
but before discussing the order, it is necessary to briefly set out some
facts which are relevant to this appeal.
Background
3. The Plaintiff (“Anthony”) is one of eight children (five sons and three
daughters) of Eric Edward Hotung ("the father"). The Plaintiff and
two of his brothers Michael and Sean are beneficiaries under a
Declaration of Trust made on 29 November 1979 by the Defendant
(“the Trustee”) of shares registered in her name in Hotung
Enterprises Ltd ("HEL") a company operated by the father. They are
also beneficiaries under a Declaration of Trust made on 6 February
1980 by the Trustee of shares registered in her name in another
company operated by the father Hotung Investment (China) Ltd
(“HICL”) which is a subsidiary of HEL.
4. The Trustee is (at the time of these proceedings) not a director of
either HEL or HICL. However it appears from exhibit “AERH-7"
that she had been a director of HEL between 1980 and 1985.
HEL - Declarations of trust of shares (29 November 1979)
5. As far as HEL is concerned, it would appear that a total of 20,004
shares have been issued.
(1) On 29 November 1979, 3,334 shares were declared by
Hillhead Ltd, a professional trustee company, to be held on
trust for each of the three daughters i.e. affecting a total of
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10,002 shares. The recital of this Declaration of Trust stated
that these shares had been transferred on 17 September 1979
by the father to Hillhead as nominee for the daughters, and that
new share certificates were issued pursuant to the transfer. All
these shares were held under one share certificate, viz. Share
Certificate No. 1;
(2) on the same day, 3,334 shares were declared by the Trustee to
be held on trust for each of Anthony, Michael and Sean, i.e.
again affecting a total of 10,002 shares. (i) According to the
judgment of Tang JA (now Tang V-P) in HCA571/2003, the
Trustee held 1 share originally on trust for the father
(para.132); (ii) in 1979 the father transferred a further 9,997
shares to the Trustee; and (iii) 4 further shares were allotted by
HEL to the Trustee - thus making up 10,002 shares which
(after the issue of new share certificates) were held under Share
Certificate No.2.
6. However Tang JA held that as far as the original 1 share held by the
Trustee on trust for the father was concerned, the disposition of that
equitable interest was invalid as it did not satisfy the requirement for
writing under s.6(1)(c) of the Law Amendment and Reform
(Consolidation) Ordinance Cap. 23. Accordingly the equitable
interest in that 1 share remained with the father (para. 143). It follows
that the Trustee‟s Declaration of Trust in favour of Anthony, Michael
and Sean only affected 10,001 shares.
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HICL - Declaration of trust of shares (6 February 1980)
7. As far as HICL is concerned, a total of 96 shares have been issued.
(1) By a declaration of trust dated 6 February 1980, 1 share was
declared by Hillhead to be held on trust for each of the three
daughters (all 3 shares being held under Share Certificate
No.2).
(2) By another declaration of trust (the date of which is not clear
but which was held by Tang JA to be probably on the same day
as the declaration for the daughters, i.e. 6 February 1980), 1
share was declared by the Trustee to be held on trust for each of
Anthony, Michael and Sean (all 3 shares being held under
Share Certificate No.1).
(3) The balance of 90 shares were held by HEL.
HICL features significantly as it had acquired certain land in Kam
Chin in the New Territories in 1991 which land was sold in 1998 in a
transaction that has caused Anthony concern.
The Trusts
8. The trusts in favour of Anthony, Michael and Sean (which have been
referred to as the "Ho trusts", in contrast to the trusts in favour of the
daughters which have been referred to as the “Hillhead trusts”) were
declared when they were minors. Apparently the trusts were not
made known to them until nearly twenty years after the trusts were
created, since when they have given rise to a number of proceedings.
9. To understand the orders which have been sought from the court in
the present proceedings, it may be helpful to list out the proceedings
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concerning the trusts as they appear in the documents before us.
Proceedings
10. In chronological order the material proceedings are as follows:
(A - Anthony; S - Sean; T - Trustee; F - Father; HH - Hillhead)
Item Date Proceedings Parties Object Outcome
(1) 5/11/01 MP5851/01 A&S v T For docts See (2)
(2) 11/12/01 MP5851/01 As per (1) Granted.
(Gill Dep.
J.)
(3) 12/3/02 MP5851/01 As per (1) T to comply See (4)
with Gill
order
(4) 16/4/02 MP5851/01 As per (1) Dismissed
(Kwan J)
See para.
21 of this
jmt.
(5) 24/5/02 MP2031/02 A&S v T To be T‟s See (6)
attorneys
(6) 26/6/02 MP2031/02 As per (5) Dismissed
(Chung J).
See (11)
(7) 19/7/02 MP2820/02 S v HH To be HH‟s See (13)
attorney
(8) 2/11/02 MP4511/02 S v HH Order HH See (13)
to call
HEL meetg
(9) 21/11/02 MP4815/02 A&S v T Order T to Adj‟d
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call co. sine die
meetgs 14.2.03
(10) 13/2/03 HCA 571/03 F v T, A, S, Decl that See (13)
HH & trusts are
2 daughters revocable etc.
(11) 7/11/02 CACV315/02 As per (5) Appeal
dismissed.
See (12)
(12) 29/4/03 CACV315/02 As per (5) Leave to
appeal to
CFA to
depend on
HCA
571/03
(13) 4/3/05 (7), (8), (10) As per (7), F‟s action
consolidated (8), (10) dismissed
(Tang JA)
(14) 9/12/05 MP2701/05 A v T For docts See (15)
(15) 25/4/06 MP2701/05 As per (14) Some
docts
ordered
(Gill Dep
J.)
(16) 6/6/06 HCA1216/06 A v T, F & Damages
Hotung for breach
Estates of trust etc.
Ltd
(Proceedings initiated by Hillhead i.e. MP5250/02 and MP2757/2005 have
not been included).
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MP5851/01
11. The first of the proceedings between the parties (MP5851/01) is
significant to this appeal. In those proceedings, Anthony and Sean
alleged that in December 1998, HICL assigned the Kam Chin land to
Hotung Estates Ltd (not to be confused with HEL) for $17.5m and
that the Kam Chin land (together with other lots controlled by the
father) were subsequently sold by Hotung Estates Ltd in April 2001
for $204m to a company called Base One. It has subsequently been
alleged by Anthony (in HCA1216/06) that the Kam Chin land
constitute a third of the total area of the land sold to Base One and
that the Kam Chin land was especially valuable as it bisected the
other lots.
12. In MP5851/01 Anthony and Sean alleged that they "became
concerned that the [Kam Chin land] might have been sold at an
undervalue by HICL to Hotung Estates Limited in 1998 ...". They
asked the Trustee to furnish or procure 4 categories of documents,
namely copies of :-
(a) the Share Certificates in HEL and HICL which the Trustee was
holding in trust for each of them;
(b) the audited financial statements and profits tax returns of HEL
and HICL from 1980 to 2001;
(c) minutes of shareholders and directors meetings of HICL
authorising the sale of the Kam Chin land and an account of the
sale proceeds received and disbursed by HICL; and
(d) authorizations signed by the Anthony and Sean (and similar
documents signed by Michael) as beneficial owners of the
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respective shareholdings in HEL and HICL authorizing the
Trustee to approve the sale of the Kam Chin land.
13. The Trustee did not file any affirmations at the time.
Deputy Judge Gill’s Order in MP 5851/01
14. The matter came before Deputy Judge Gill in December 2001. The
judge gave the orders sought in the Originating Summons with an
amendment (set out in the passage quoted below). Unfortunately the
judge did not provide a written decision but the following appears
from the transcript of the hearing (p.8 E-L):
" I‟m going to make an order, but I‟m going to amend the wording
and in particular, the second line in paragraph 1. And the reason for the
amendment is that it seems to me that the trustee has an obligation to
pursue within the bounds of her entitlement, of course, that which is being
pursued legitimately by the beneficiaries. And it‟s not, I think, good
enough for her simply to say, „Well I don‟t have these documents‟.
I think she‟s got .. If she doesn‟t, she‟s got to make available, those
that she does have, and she‟s got to make reasonable inquiry for those that
she does not have, and if it be that that inquiry comes to nowt, well, she‟s
done her best in that regard and the matter can be pursued further, if need
be, with the assistance of the court, if need be.
So between the words „are‟ and „available‟, will be inserted the words
which are „or may be‟ available."
15. It is clear from that passage that the judge considered that Anthony
and Sean were entitled to obtain the documents sought in the
Originating Summons and that he considered it the Trustee‟s duty to
hand over what she had and to “make reasonable inquiry” for what
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she did not have.
16. There was no appeal from Deputy Judge Gill‟s order.
Compliance summons before Kwan J.
17. The Court file of MP5851/01 reveals that on 12 March 2002,
Anthony and Sean filed a summons for an order that the Trustee
comply with Deputy Judge Gill‟s Order and furnish the documents
listed in para. 12 (a) and (b) above as well as “a full account of the
sale proceeds received and disbursed by HICL” of the sale of the
Kam Chin land. I shall refer to this application as “the compliance
summons”.
18. The summons was supported by an affirmation made by Anthony and
Sean‟s then solicitor who deposed that after Deputy Judge Gill‟s
order, the only documents the Trustee had given them were:
- a share certificate of HICL dated 6 February 1990 (i.e. not the
one referred to in the Declaration of Trust) and
- audited financial statements of HEL from 1995 to 2000 and of
HICL from 1992 to 2000.
19. However a few days before the hearing of the summons, solicitors for
HEL and HICL supplied to the Trustee the audited report for HEL for
1989 and 1994 and the audited report for HICL for 2001. These
companies‟ solicitors had previously informed the Trustee‟s
solicitors that there was no shareholders‟ meeting in relation to
HICL‟s sale of the Kam Chin land in 1998 and that she was not
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entitled to minutes of any directors‟ meetings as she was not a
director. Shortly before the hearing, they also informed her that
similarly as she was not a director, she was not entitled to profits tax
returns or the account of proceeds and disbursements relating to the
sale of the Kam Chin land.
20. After copying these documents to Anthony and Sean‟s solicitors,
the Trustee deposed on affirmation filed on 12 April 2002 that she
had supplied to them all the documents available to her.
21. Apparently Anthony and Sean were content with that. The Court
file reveals that at the hearing before Kwan J on 16 April 2002,
Anthony and Sean‟s solicitors informed the court that having
received the further documents and in light of the Trustee‟s
affirmation that she had no further documents to produce, they
wished to withdraw the summons (leave of the court being required
under Order 21 rule 6) or seek no order. They did not argue that
what the Trustee had done was not enough for compliance with
Deputy Judge Gill‟s order and that she should have done more. The
only argument was as to the costs of the hearing. The summons was
dismissed with no order as to costs. There was no appeal.
Events after MP5851/01
22. It will be seen from the chronology of proceedings tabulated in para.
10 that after the hearing before Kwan J, the parties were involved in
various other proceedings, the most important of which was of
course the father‟s action (HCA571/03) seeking a declaration that
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the trusts were revocable and that he had revoked them. I shall refer
to those proceedings as “the revocability proceedings”.
23. On 4 March 2005 Tang JA (sitting as an additional judge of the Court
of First Instance) held that the trusts were not revocable.
MP2701/05
24. A few months later Anthony commenced MP2701/05 under Order 85
rules 2(3)(a) and (c) which provide:
“(3) ... an action may be brought for any of the following
reliefs:
(a) an order requiring a ... trustee to furnish and if
necessary verify accounts.
(c) an order directing a person to do or abstain from
doing a particular act in his capacity as ... trustee”.
25. In the Originating Summons, Anthony sought an order that the
Trustee supply to him 22 categories of documents and information
“which are available to the Defendant as trustee of the Plaintiff ... or
alternatively to the extent such documents and information are
available to the Defendant by way of diligent demand for the same”.
The 22 categories of documents and information sought - listed as (a)
to (v) - were not set out in any discernible order and covered a wide
range of matters. The demand was supported by two short affidavits
from Anthony, but as far as some of the categories were concerned,
the affidavits did not even provide basic background facts.
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26. The Trustee opposed the application, her case being advanced in
similarly brief evidence - a short affirmation from her solicitor and a
short affirmation from herself.
27. In his order, Deputy Judge Gill “pruned down” the documents and
information to be provided to the following 10 categories, viz:
“(a) All bank statements, brokerage account statements, tax
returns, insurance policies, title deeds, contracts,
minutes and board resolutions of HEL and HICL for the
period from 1 January 1996 to 30 September 2005
(hereinafter called “the Term”);
(b) [amendment of (i) in the Originating Summons] A
detailed explanation as to the thirteen debtor
corporations to which funds of the Trust were loaned
together with the nature of the loans, the terms of each
loan and an explanation as to the Trust purposes for
which the loans were made including scheduled
repayment dates and copies of the Loan Instruments and
Agreements during the Term;
(c) [amendment of (j) in the Originating Summons]
Information of the number of publicly traded shares of
Cosmopolitan International Holding Ltd (“CIHL”) held
by HICL and HEL for the benefit of the Trusts during
the Term;
(d) Names of all employees of HICL and HEL or the Trusts
since 1997;
(e) Copies of the Share Certificates covering:-
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(i) The 3,334 shares in HEL which the Defendant is
holding in trust for the Plaintiff; and
(ii) The 1 share in HICL which the Defendant is
holding in trust for the Plaintiff;
(f) Copies of the audited Financial Statements of HEL from
the year 1980 to 1994 and 2001;
(g) Copies of the audited Financial Statements of HICL
from the year 1980 to 1991 and 2001;
(h) Copies of Profits Tax Returns for HEL and HICL from
1980 to 2001;
(I) A full account of the sales proceeds received by HICL in
respect of the sale of various Lots in Demarcation
District 92 on the 28th
December 1998 for HK$17.5
million from HICL to Hotung Estates Limited under
Memorial No.431167, and verification of the taxes paid
thereon to the Hong Kong Government;
(j) An accounting in respect of the identification of
property referred to at paragraph 11 on page 12 of the
HEL financial report for the year ended 31st December
2003 exhibited to the Originating Summons dated 9th
December 2005 and marked „OS-1' including the date of
sale, parties to the sale and an account of receipt and
management of said sale proceeds.”.
28. It is from this order that the Trustee is appealing.
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Should the court hear the Trustee’s appeal?
29. Before I deal with the merits of the appeal, I should first examine the
argument advanced by counsel for Anthony that this court should
decline to hear the appeal as the Trustee has failed to comply with the
judge‟s order even though there has not been a stay of execution.
30. Mr Egan relied on Hadkinson v Hadkinson [1952] 2 All ER 567
(CA). In that case a judge had made an order giving custody of a
child to the mother subject to the direction that the child should not be
removed from the jurisdiction without the court‟s sanction (“the first
order”). In breach of that first order, the mother took the child to
Australia without obtaining the court‟s sanction. The father then
obtained an order requiring the mother to bring the child back (“the
second order”). Whilst keeping the child in Australia, the mother
sought to appeal the second order. The Court of Appeal held that as
the mother was in contempt of the first order, she would not be heard
on her appeal against the second order until she had purged her
contempt.
31. The present appeal is quite different from that in Hadkinson. Here
the order which has not been complied with is the very order that is
being appealed, and that is an exception to the rule that a party in
contempt would not be heard by the court whose order he had
disobeyed. As Romer LJ held (p.570):
“Is this case, then, an exception from the general rule which would debar
the mother, as a person in contempt, from being heard by the courts whose
order she has disobeyed? One of such exceptions is that a person can
apply for the purpose of purging his contempt, and another is that he can
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appeal with a view to setting aside the order against which his alleged
contempt is founded”. (Emphasis added).
32. In any event, it is within the discretion of the court whether to hear
the party in contempt. Some guidance was given by Denning LJ in
Hadkinson who held (p.574-575):
“... It is a strong thing for a court to refuse to hear a party to a cause and it
is only to be justified by grave considerations of public policy. It is a step
which a court will only take when the contempt itself impedes the course
of justice and there is no other effective means of securing his compliance.
In this regard I would like to refer to what Sir George Jessel MR said (46
L.J. Ch. 383) in a similar connection in Re Clements & Costa Rica
Republic v Erlanger:
„I have myself had on many occasions to consider this jurisdiction,
and I have always thought that necessary though it may be, it is
necessary only in the sense in which extreme measures are
sometimes necessary to preserve men‟s rights, that is, if no other
pertinent remedy can be found. Probably that will be discovered
after consideration to be the true measure of the exercise of this
jurisdiction‟.
Applying this principle, I am of opinion that the fact that a party to a cause
has disobeyed an order of the court is not of itself a bar to his being heard,
but if his disobedience is such that, so long as it continues, it impedes the
course of justice in the cause, by making it more difficult for the court to
ascertain the truth or to enforce the orders which it may make, then the
court may in its discretion refuse to hear him until the impediment is
removed or good reason is shown why it should not be removed”.
(Emphasis added).
33. In Hadkinson, it was clear that until the child was returned to the
jurisdiction of the English courts, any orders which the court might
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make as to where he should stay would be ineffective. In the present
appeal, even if any exercise of discretion were involved, I would not
refuse to hear the Trustee because there are other means at Anthony‟s
disposal for securing her compliance with the order.
Issues on appeal
34. I then come to the arguments advanced by counsel for the Trustee.
They were these:
(1) Under Order 85 rule 2(3)(a) the court can only order a trustee
to furnish and if necessary verify accounts, and therefore it is
not open to Anthony in these proceedings to obtain documents
and information which are not “accounts”.
(2) In any event, Tang JA held in the revocability proceedings that
the father as settlor had imposed a condition at the time of
setting up the trusts that the trustees were not to interfere in the
management of the companies, and the Trustee was therefore
under no duty to make inquiries about the management of the
companies.
(3) Even if the Trustee had power to call for the documents and
information, it was a matter within her discretion and she could
not be compelled to act against her wishes.
(4) Further, it was not competent for Anthony to act in the absence
of the other beneficiaries as he has only a “notional 1/3
undivided share in the trust property as a whole”.
(5) The proceedings are an abuse of process because the relief
could and should have been sought in the previous proceedings
between the parties and Anthony should not be allowed to
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relitigate issues.
Discussion
(1) Order 85 rule 2(3)(a) and (c)
35. Mr Yin argued that the range of the documents and information
sought exceeds the ambit of Order 85 rule 2(3)(a). He emphasized
that rule 2(3)(a) allows a beneficiary to ask a trustee to furnish (and if
necessary verify) accounts only and not other documents or
information.
36. With respect I do not think there is anything in this argument. The
application was also made under rule 2(3)(c) which is in more general
terms. The form in which a beneficiary has made a request to a
trustee to perform an act is of secondary importance; the primary
issue is whether as a matter of substance what a beneficiary is
seeking from a trustee is the performance of a duty which the trustee
owes to the beneficiary.
(2) Effect of “condition” imposed by settlor
37. In the revocability proceedings, the father had argued that the trusts
he intended to set up were subject to three conditions, summarized in
the judgment as follows (para. 19):
(1) that the trusts would be subject to a power of revocation
exercisable by the father during his lifetime and that the trustee
would only be entitled to distribute the shares to Anthony,
Michael and Sean in equal shares after his death;
(2) that during the father‟s lifetime, the trustee was to hold and to
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deal with any income that may be derived from the shares, in
the trustee‟s absolute discretion, by distributing the same to the
father, the mother, Anthony, Michael, Sean and two other sons
Robert and Eric (or any of them), or to accumulate the same;
and
(3) that the trustee was not to be concerned with and would be
relieved of all duties regarding the management of the
company to which the shares related.
38. Tang JA held the conditions not proved. He held (at para. 128) that
“the only „condition‟ at the time [when the trusts were created] was
that the trustees were not to interfere in the management of the
companies”. In respect of this „condition‟, Tang JA held (para. 125):
“Mr McCoy [counsel for the father] made the point that all the witnesses
spoke to the Plaintiff‟s insistence on absolute control. I am prepared to
accept that he wanted absolute control vis-a-vis Hillhead and the
[Trustee] and that in the case of Hillhead the possession of blank
transfers would ensure control. Also that the [Trustee] would simply do
his bidding. I believe the [father] was used to getting his way. I also
accept that the trustees were not permitted to interfere in the affairs of
the companies. This is similar to the third condition though not quite the
same”. (Emphasis added).
He further held (at para. 129):
“ As for the third condition, I am prepared to accept that probably it had
been made known to Alan Hann and Ronald Ho [who were involved with
Hillhead] that they were not to interfere with the management of the
companies. I am also satisfied that the [father] insisted on secrecy. As for
the [Trustee], I do not think it even entered into the [father’s] mind that
she would interfere. ... “. (Emphasis added).
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39. Mr Yin argued that in view of this finding, the Trustee was under no
duty to do what Deputy Judge Gill held in para. 22 of the judgment,
i.e. “to make appropriate enquiry if it came to her attention as a
member of HEL and HICL that those in control had undertaken some
transaction or other that threw up certain questions or that there was
some other matter that needed verification or explanation”.
40. Mr Yin relied on Armitage v Nurse [1998] Ch 241, where a man
settled property in favour of his then infant granddaughter with her
mother as a life tenant. The settlement was in writing and contained
an exemption clause in very wide terms exempting the trustees from
liability for any loss unless caused by the trustees‟ “own actual
fraud”. After the granddaughter reached majority, she sued the
trustees for breach of trust, alleging that there was a deliberate course
of conduct to disregard her interests and to favour her mother‟s
instead.
41. The trustees of course relied on the exemption clause. The
granddaughter argued that the trustee exemption clause was void for
repugnancy or was contrary to public policy. The granddaughter
argued that there was an irreducible core of obligations owed by
trustees to beneficiaries, which include the duties of skill and care,
prudence and diligence, and as the exemption clause exempted
liability from these duties, it was void.
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42. Fraud or dishonesty not having been pleaded, the question posed by
Millett LJ (as he then was) was this: “can a trustee exemption clause
validly exclude liability for gross negligence?” (p.253)
43. Millett LJ (giving the judgment of the Court of Appeal) held that
what is true of a contract must be true of a settlement and that it would
be open to a settlor by appropriate words to limit the scope of a
trustee‟s liability for ordinary or even gross negligence (p.253). He
accepted the granddaughter‟s argument of an “irreducible core of
obligations” but rejected her submissions of the extent of those
obligations. He held (p.253G-p.254B):
“I accept the submission made on behalf of [the granddaughter] that there
is an irreducible core of obligations owed by the trustees to the
beneficiaries and enforceable by them which is fundamental to the
concept of a trust. If the beneficiaries have no rights enforceable against
the trustees there are no trusts. But I do not accept the further submission
that these core obligations include the duties of skill and care, prudence
and diligence. The duty of the trustees to perform the trusts honestly and
in good faith for the benefit of the beneficiaries is the minimum necessary
to give substance to the trusts, but in my opinion it is sufficient. ... [A]
trustee who relied on the presence of a trustee exemption clause to justify
what he proposed to do would thereby lose its protection: he would be
acting recklessly in the proper sense of the term”. (Emphasis added).
44. Accordingly it was held in that case that the trustee exemption clause
in the settlement was not void. But the court proceeded to order
inspection of trust documents and gave leave to the granddaughter to
amend her pleadings.
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45. What is to be made of the “condition” found by Tang JA in our case?
There was no contemporaneous record of what exactly the settlor had
said at the time and “interference with management” may take many
forms. Tang JA found that the father wished to have control over the
companies. But it is one thing to exclude trustees from participating
in day to day business or even strategically sensitive deals of a
company. It is another to say that a trustee is entitled to sit back and
do nothing even if it became reasonably apparent to her that trust
property comprising shares of a company were being stripped of
significant value. It is pertinent to note that Tang JA did not find
proved the third condition (which referred to the trustees being
“relieved of all duties”) and in his Ruling on Order and Costs on 17
June 2005 His Lordship specifically said (para. 7):
“The condition as pleaded has little meaning, since the trustees as trustees
of the shares were not obliged to manage any of the companies. It was not
the [father‟s] case that the trustees were required to turn a blind eye to
mismanagement or that the trustees should not look after the interests of
the beneficiaries as shareholders. Nor did it purport to qualify or limit the
right of the trustees as shareholders or their duties towards the
beneficiaries”.
46. Accordingly I do not agree with the submission of counsel for the
Trustee that by reason of Tang JA‟s finding in the revocability
proceedings, the Trustee was under no duty to make any inquiries
under any circumstances about the management of the companies.
(3) Trustee’s discretionary power?
47. Mr Yin also argued that even if the Trustee had power to call for the
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documents and information from the companies, it was a matter
within her discretion and she could not be compelled to act against
her wishes. He referred to In re Brockbank [1948] 1 Ch 206. I do not
see how that decision assists him. The court there was dealing with a
trustee‟s discretionary power of nominating a new trustee. In the
present case, what Anthony is seeking to do is to compel the Trustee
to furnish or procure documents and information as part of her duty to
furnish trust documents and to preserve the trust property. This court
(Mayo VP, Stock and Cheung JJA) has held in Hotung and another v
Ho Yuen Ki [2002] 4 HKC 233 at para. 32 that
“ ... while the shares are held for the beneficiaries absolutely, the trustee
obviously still has duties to perform as a registered owner of the shares in
order to safeguard the interest of beneficiaries. For example, she can
attend shareholders‟ meetings, she can requisition company meetings, she
has to ensure the operation of the company is properly run and she can
receive and direct payment of dividends of the shares. See also the
discussion of the role of bare trustee in Dal Pont at p 601. This includes
the requirement that he cannot divest himself of his legal duty to preserve
the trust property so long as his trusteeship subsists”.
As I have explained earlier, Tang JA‟s finding of the settlor‟s
condition that the trustees do not “interfere with management” does
not affect this duty to preserve trust property.
(4) Effect of absence of other beneficiaries
48. Mr Yin also argued that it was not competent for Anthony to act in
the absence of the other beneficiaries as he “only has a notional 1/3
undivided share in the trust property as a whole”.
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49. I am afraid I do not follow that argument at all. The terms of the
Declarations of Trust were that Anthony, Michael and Sean were
given 3,334 shares each in HEL and 1 share each in HICL. The total
of 10,002 shares in HEL and 3 shares in HICL happened to be put
under 1 share certificate respectively. But that is not to say that
Anthony obtained only a 1/3 undivided share in 10,002 shares in
HEL or a 1/3 undivided share in 3 shares in HICL. Each individual
share in a company is a right to a specific amount of the share capital,
with rights and liabilities. The fact that a number of shares happen to
be bundled under one share certificate does not alter the nature of a
share. Nor does it matter that the actual serial numbers of the shares
given to Anthony had not been set out in the Declarations of Trust.
There is no evidence that any of the shares was any different from the
others. It can therefore be presumed that they all rank pari passu.
50. I recognize that there is a slight complication with HEL in that the
father failed to divest himself of his equitable interest in 1 share of
HEL. It may be arguable that the court should imply a term that each
son would have 3,333 shares with the two remaining shares to be held
jointly by them. But it is not necessary for this court to decide that
issue, because in any event Anthony is the beneficiary of at least
3,333 shares in HEL and 1 share in HICL.
51. Under Order 85 rules 3(1) and 3(2), whilst it is necessary for all
trustees to be made parties to proceedings under that order, it is not
necessary for all beneficiaries to be made parties. These proceedings
are therefore competent.
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(5) Relitigation and abuse of process
52. Both parties have accused the other of abuse of the process in seeking
to relitigate issues that have already been decided or which could
have been litigated in earlier proceedings. Regrettably however the
degree of assistance provided by counsel was somewhat less than that
desired.
53. As I have said, the 22 categories of documents and information
sought in the Originating Summons were difficult to follow and the
affidavits from Anthony left a great deal to be desired but I only need
to confine my views to the 10 categories ordered by the judge.
- Duplicated categories: (e), (f), (g), (h), (i)
54. What would be noted immediately is that some of them exactly
duplicated the categories in the compliance summons. The
duplicated categories may be set out conveniently in the following
table:
Compliance summons Order in
MP5851/01 MP2701/05
Categs. (a) (e)
(b) (f)
(c) (g)
(d) (h)
(e) (i) with an additional
request for “verification
of taxes paid thereon to
the HK Government”.
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55. However neither party specifically referred to the compliance
summons before Kwan J and the effect of the order dismissing
Anthony‟s summons. Indeed this court only became aware of the
compliance summons and Kwan J‟s order after it caused the Court
file in MP5851/01 to be retrieved for its perusal (it was necessary to
do so as Anthony‟s affidavit in the present proceedings exhibited his
affidavit in MP5851/01 but did not include the exhibits to the
affidavit).
56. In the affidavit supporting the present application, Anthony referred
in paragraph 3 to MP5851/01 and said in paragraph 4 “since such
time no satisfactory resolution was reached in relation to such”.
Anthony did not however refer to the compliance summons or to
Kwan J‟s dismissal of that summons after the Trustee supplied only
some of the documents sought. In fact Anthony sought (in
MP2701/05) some documents which he had already received before
Kwan J‟s hearing (in MP5851/01). These are the audited Financial
Statements of HEL for 1989 and 1994 and the audited Financial
Statement of HICL for 2001.
57. For her part, the Trustee also did not refer to the compliance
summons. In her solicitor‟s affirmation he referred to what the
Trustee had received from HEL and HICL and said simply “in the
premises and by reason of the situation as aforesaid [which did not
refer to the compliance summons] the [Trustee] had, prior to the
commencement of the present proceedings, complied with the same,
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i.e. the request under Item (a) to (m) inclusive of Clause 1 thereof”.
58. I have also read the skeleton submissions before Deputy Judge Gill
and the transcript of the hearing. Neither party referred to the
compliance summons and Kwan J‟s order. Understandably therefore,
Deputy Judge Gill did not refer to them. In para. 7 of his judgment,
he said “I understand that Madam Ho did take some steps towards
complying with the order but was unable to provide or make
available much of the material sought; there the matter rested”.
Accordingly it falls to this court to determine the issue whether
Anthony should be allowed to relitigate the compliance summons.
59. Whilst Kwan J was not required to adjudicate on the issues in the
compliance summons (save the dispute over costs), it should be noted
that although the Trustee applied for leave to withdraw the summons
it was not given and in the result the summons was dismissed by
Kwan J. Presumably that was because Anthony‟s solicitors had
accepted that what the Trustee provided was sufficient compliance
with Deputy Judge Gill‟s order in MP5851/01. The summons had
therefore been dismissed substantively, not merely on a procedural
technicality.
60. The compliance summons was of course only an interlocutory
application and res judicata in its strict sense may not apply , but this
court (Mayo VP and Le Pichon JA) has held in Chu Hung Ching v
Chan Kam Ming [2001] 1 HKC 396, 401 that the court should
exercise its discretion not to entertain relitigation of an issue already
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dealt with by the court and in respect of which an order has been filed
unless certain exceptions apply. Those exceptions have been
conveniently set out in Hong Kong Civil Procedure 2007, Vol. 1,
p.337-8, para. 18/19/11 as follows:
“(a) if the ruling on the first application was not based on the merits
of the issue but on a technical objection;
(b) if upon the first application the applicant had failed to prove
essential facts from mistake or inadvertence;
(c) if there is new evidence that seriously justifies reconsideration
of the issue;
(d) if there is a material change of circumstances of a
non-evidentiary nature”.
61. The question before us is whether exceptions (c) and/or (d) apply. In
my view the passing of s.152FA Companies Ordinance in 2004 is a
material non-evidentiary change of circumstance which would enable
Anthony to relitigate the compliance summons in respect of some of
the duplicated categories of items. Sections 152FA - 152FC allow a
member of a company to apply to court for inspection of its records,
subject to the safeguards of s.152FD (legal professional privilege)
and s.152FE (privacy). Section 152 FA provides where material:
“152FA. Order for Inspection
(1) Subject to sections 152FD and 152FE, on application by such
number of members of a specified corporation as is specified in
subsection (2) (in this section referred to as “applicant”), the court
may make an order –
(a) authorizing the applicant ... to inspect any records of the
specified corporation;
...
(2) For the purpose of subsection (1), an application may be made by
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–
(a) any number of members representing not less than
one-fortieth of the total voting rights of all members
having at the date of the application a right to vote at a
general meeting of the specified corporation;
(b) any number of members holding shares in the specified
corporation on which there has been paid up an aggregate
sum of not less than $100,000; ...
(3) The court may only make an order under subsection (1) if it is
satisfied that –
(a) the application is made in good faith; and
(b) the inspection applied for is for a proper purpose”.
Section 152FB deals with ancillary orders that may be made by the
court, including an order to specify the records that may be inspected
and an order requiring the applicant to pay the reasonable expenses of
the corporation.
- Categories (f), (g), (h) and (i)
62. Categories (f), (g), (h) and (i, subject to the addition of verification of
taxes paid) in the order appealed from are documents which appear to
be “records” for the purposes of s.152FA. Mr Yin has not challenged
the applicability of s.152FA on the basis that the Trustee does not
hold the necessary proportion of shares. As such, it is now possible
in law for the Trustee as a member of HEL and HICL to apply to the
court for the companies to supply these documents for her inspection
even though she is not a director. It is no longer open to her now to
argue that a beneficiary is not entitled to ask her to obtain these
documents from the companies, as she did not appeal Deputy Judge
Gill‟s order in MP5851/01. She may of course require an indemnity
from Anthony for her expenses including her legal costs if the
companies refuse to provide the records and she needs to make an
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application to the court under s.152FA. (I would add out of an
abundance of caution that this court is not deciding that the
companies would be obliged to provide the documents sought. It is
for the court hearing that application to decide whether or not to make
an order for inspection).
63. As for the addition in category (i) that the companies provide
“verification of taxes paid on the sale of the [Kam Chin land]”,
presumably what is meant is the stamp duty paid on that transaction
as profits tax is not paid on an individual transaction. As the amount
of stamp duty may be an indication of the value of the property sold, I
think it is an appropriate addendum to the other categories already
ordered by Deputy Judge Gill in MP5851/01.
- Order in respect of Categories (f), (g), (h) and (i)
64. Accordingly I would dismiss the Trustee‟s appeal from the judge‟s
order in respect of Categories (f), (g), (h) and (i), save that the order
should also state that the Trustee should be indemnified by Anthony
for her expenses including the legal costs of any applications that
may have to be made to the court under s.152FA.
- Category (e)
65. Category (e) requires separate consideration. Share certificates of
issued shares are not normally kept by companies so s.152FA would
not assist Anthony.
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66. Is there any new evidence that seriously justifies reconsideration of
the issue? There appears to have been some evidence at the
revocability proceedings about the whereabouts of the share
certificates but Tang JA did not make any specific findings as to their
present whereabouts. I do not see any new evidence that indicates
any change from the situation at the time of the compliance summons.
For instance Anthony has not alleged that after the dismissal of the
compliance summons, the Trustee has in fact obtained the Share
Certificates and in fact the Trustee has said on affirmation that she
does not have possession of them.
67. In Anthony‟s affidavit he emphasized Tang JA‟s finding that the
Trustee lacked neutrality when giving evidence about the father‟s
intention at the time the trusts were created. However that finding
does not show that the Trustee has the documents, nor does it affect
whether the Trustee had complied with Deputy Judge Gill‟s order or
not. Put another way, when the matter came before Kwan J, the
Trustee had either complied with Deputy Judge Gill‟s order in
MP5851/01 or she had not. By taking the position that he did before
Kwan J, Anthony has accepted that the Trustee need not do anything
else by way of compliance with Deputy Judge Gill‟s order in
MP5851/01, in other words that she had adequately complied with
the order.
- Order in respect of Category (e)
68. Accordingly I would allow the Trustee‟s appeal in respect of the
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order for Category (e).
- Categories (a), (b), (c), (d) and (j)
69. That leaves Categories (a), (b), (c), (d) and (j). Mr Yin has argued in
a general way that these categories could have been demanded in
previous proceedings and therefore it is an abuse of process for
Anthony to demand these categories now. I would observe that
whilst the principles of abuse of process apply as much to litigation
between trustee and beneficiary as they do to litigation between other
parties, one should remember that in this case there is an extant
ongoing trustee-beneficiary relationship. If what is sought are trust
documents or actions that a trustee should take to perform her duty as
a trustee, a court should not reject a beneficiary‟s demands for them
simply because he could have asked for them in earlier proceedings.
70. So the question is: are these categories trust documents in the
Trustee‟s possession and if they are not in the Trustee‟s possession,
should the court order the Trustee to take steps to obtain them, such
as by making applications to the court under s.152FA?
71. I am mindful that when making his orders, Deputy Judge Gill was
exercising his discretion and it is well-established that an appellate
court would not lightly interfere in the exercise of a judge‟s
discretion. One exception however is where there is no evidence to
support the exercise of discretion.
72. The beneficiary‟s entitlement to some or all of these documents must
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be examined against the history of the proceedings and the evidence
before the court. I have set out the history of the proceedings earlier
in this judgment. As for the evidence, Anthony‟s affidavits contain
many serious allegations against the Trustee but he has not exhibited
the source materials which have led him to make demands for some
of these documents and information.
73. In Anthony‟s affidavits, he has accused the Trustee (in general terms)
of conduct in breach of her fiduciary duty as trustee and deposed to
his belief that secret profits had been made and that other
irregularities existed in connection with her position as trustee. He
exhibited a letter dated 10 November 2005 from his present solicitors
to the Trustee‟s solicitors. The letter contained the same
wide-ranging request for documents and information but did not set
out the grounds for requesting those documents and information
other than the Trustee‟s lack of neutrality in the father‟s revocability
proceedings. In relation to the Kam Chin land, the letter made even
more serious allegations. It said “to date [the Trustee] has failed to
provide any details relating to the Trust land transaction [the Kam
Chin land]. It is in this area in particular that it is felt fraud and/or
dishonesty or collusion to the detriment of the Beneficiaries has taken
place” and that the Trustee “has proved herself to be criminally
reckless” as to the administration of the Ho Trusts.
74. Those are serious allegations but they do not give a licence to adopt a
“scattershot” approach. Although Anthony has instituted hostile
litigation against the Trustee, there is a distinction between a
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beneficiary‟s right to trust documents and a litigant‟s right to
disclosure in the discovery process in hostile litigation (Underhill and
Hayton, Law of Trusts and Trustees 17th
ed paras. 60.36 - 60.38). For
example, documents relating to a trustee‟s exercise of discretion may
not be disclosable in proceedings under Order 85 rule 2 but may be
disclosable in the hostile litigation. The other side of the coin in my
view is that it is not legitimate for a beneficiary, under the guise of
asking for “trust documents”, to “fish” for evidence to support an
action against a trustee for damages for breach of trust. He must
show that what he is asking for is grounded in the law of trusts and
justified by the evidence.
75. Furthermore, even if it were permissible for a beneficiary to ask for
documents from his trustee so as to arm himself for hostile litigation
against the trustee, I still cannot see what evidence justifies requiring
the Trustee to procure some of the documents Anthony is demanding.
- Category (d)
76. Anthony applied under Category (d) for disclosure of “names of all
employees of HICL and HEL or the Trust since 1997". He has not
explained at all in his affidavits why as a beneficiary of a shareholder
he is entitled to know the identities of employees of the companies.
And there is no evidence that the Trust even had any employees at all.
The inquiry may be a “fishing expedition” for the names of possible
witnesses that he may wish to contact. In any event, I cannot see any
legitimate ground for the demand under Category (d) on the evidence
before the judge and Mr Egan has not been able to suggest any in
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submissions.
- Category (c)
77. Similarly, there is nothing in the evidence to support the request
under Category (c) - the number of publicly traded shares in CIHL
held by HEL and HICL for the nearly 10 years between 1 January
1996 and 30 September 2005. It is evident from Tang JA‟s judgment
that CIHL is a company that the father had taken to listing but (other
than the page from HEL‟s financial statements for the year ended 31
December 2003 annexed to the Originating Summons) there was no
evidence before the judge to show that HEL or HICL had ever held
any of its shares and what impact that had on those companies, let
alone the Trust. Even taking into account the allegations in the
Statement of Claim in HCA1216/06, one can find no reference to any
trading of shares of CIHL as an indication of mismanagement.
- Order in respect of categories (d) and (c)
78. Accordingly I would allow the Trustee‟s appeal in respect of the
orders for Categories (d) and (c).
- Category (a)
79. This is a demand for the Trustee to furnish or procure “all bank
statements, brokerage account statements, tax returns, insurance
policies, title deeds, contracts, minutes and board resolutions of HEL
and HICL for the period from 1 January 1996 to 30 September 2005".
It is obvious that the more wide-ranging the categories of documents
and the longer the period covered, the more oppressive the demand.
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Has that demand been justified by the evidence?
80. The only evidence before the judge that provides a basis for
Anthony‟s concerns about the way in which HEL and HICL were run
related to:
(1) the price at which the Kam Chin land was sold in 1998
(although no expert valuations have been exhibited);
(2) the fact that in January 2005 the father testified in the
revocability proceedings that the value of the Trusts in 2003-4
or 2005 was approximately $100 million when the audited
accounts for 2003 showed a deficit of $15 million (according
to the letter from Anthony‟s solicitors dated 10 November
2005, exhibit “AERH-4") and the audited accounts for the year
ending 31 March 2004 showed a deficit of $15.6 million
(according to the Statement of Claim in HCA1216/06);
(3) (although not strictly speaking evidence) the allegations in the
Statement of Claim in HCA1216/06 that
- HICL had made unsecured, non-interest bearing and
open-ended advances to the father in the year ending 31
March 1997 (para. 18);
- HICL had given a guarantee to a bank in favour of a
director in the years ending 31 March 1997 (para. 18),
31 March 1998 (para. 26) and 31 March 1999 (para. 36);
- HICL had made unsecured and open-ended loans to
related companies in the years ending 31 March 1998
(para. 26) and 31 March 1999 (para.36) which were
owned or controlled by the father (para. 48).
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81. It can be seen immediately that the demand under Category (a) is
therefore far too wide. For instance, I can see no evidence justifying
Anthony‟s demand that the Trustee furnish or procure the companies‟
brokerage account statements or insurance policies at all, let alone for
a period of nearly 10 years. Nor is there any evidence to say why it is
necessary for title deeds to be procured when what is in dispute is
only the valuation of land. Nor is there any evidence to justify why
any documents prior to the financial year 1 April 1996 to 31 March
1997 would be relevant at all. Moreover there is some overlap in the
period of years of profit tax returns between Category (a) and
Category (h).
82. As far as the other documents are concerned, I am mindful of an
appellate court‟s duty to respect the judge‟s exercise of discretion
where there is some evidence to support his decision and the order I
propose to make reflects that approach.
- Order in respect of Category (a)
83. Accordingly I would allow the Trustee‟s appeal in respect of the
order under Category (a) and substitute it with the following order:
“all bank statements, contracts, minutes and board resolutions
of HEL and HICL for the period from 1 April 1996 to 30
September 2005 relating to
(1) HICL‟s land in Demarcation District 92;
(2) advances to Eric Edward Hotung;
(3) guarantees given to third parties in favour of directors of
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the companies;
(4) loans to related companies, and
tax returns of HEL and HICL from 2002 to 2005".
The order should also state that the Trustee should be indemnified by
Anthony for her expenses including the legal costs of any
applications made to the court under s.152FA.
- Category (b)
84. This category is covered by the order proposed under Category (a)
which includes the contracts, minutes and resolutions relating to the
loans to related companies. A further order in the terms under
Category (b) is premature.
- Order in respect of Category (b)
85. Accordingly I would make an order setting aside the judge‟s order
under Category (b).
- Category (j)
86. This demand springs from HEL‟s Notes to the Financial Statements
for the year ended 31 December 2003. There is recorded under “Post
Balance Sheet Event”, a statement that HEL had “disposed [sic] the
land and building for an aggregate consideration of approximately
HK$6,466,200". Anthony sought under Category (j) “an accounting
in respect of the identification of property referred to at para. 11 on
page 12 of the HEL financial report for the year ended 31 December
2003 ... including the date of sale, parties to the sale and an account of
receipt and management of said sale proceeds”.
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87. I would have thought that the property would have been identified in
other parts of the financial statements but presumably that is not the
case. In her affirmation the Trustee has said simply that she has “no
knowledge or information on the matters in question/the Plaintiff is
not entitled to the same”. This is not the attitude to be expected of a
trustee of a majority shareholding (cf Bartlett v Barclays Bank Trust
Co Ltd [1980] Ch 515). Therefore although the evidence from
Anthony is not entirely satisfactory, I am not prepared to interfere
with the judge‟s exercise of discretion.
- Order in respect of Category (j)
88. Accordingly I would dismiss the Trustee‟s appeal in respect of the
order for Category (j).
Order nisi as to costs
89. Taking the appeal in the round, I consider that the Trustee has been
unsuccessful and applying the principle that costs should follow the
event, I would make an order nisi that the Trustee pay the costs of the
appeal.
Hon. Yam J:
90. I agree with the judgment of Yuen JA and there is nothing I can
usefully add.
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(PETER CHEUNG) (MARIA YUEN) (DAVID YAM)
Justice of Appeal Justice of Appeal Judge of the Court of
First Instance
Mr Kevin Egan instructed by Oldham Li & Nie for the Plaintiff
(Respondent)
Mr Michael Yin instructed by CK Mok & Co for the Defendant (Appellant)