HCAP 2/2004
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
PROBATE ACTION NO 2 OF 2004
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IN THE ESTATE OF MUI YIM FONG,
deceased.
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BETWEEN TAM MEI KAM Plaintiff and HSBC INTERNATIONAL TRUSTEE LIMITED 1st Defendant (in the capacity as the sole executor and trustee named in the Purported Will of the Deceased dated 3rd December 2003) HSBC INTERNATIONAL TRUSTEE LIMITED 2nd Defendant (in the capacity as the Trustee of the Karen Trust, which is the sole devisee named in the Purported Will of the Deceased dated 3rd December 2003) NEW HORIZON BUDDHIST ASSOCIATION 3rd Defendant LIMITED AU KAI EDDIE 4th Defendant
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Before: Hon A Cheung J in Court
Dates of Hearing: 15-18, 21-25 & 28-30 April, 2, 5, 9 & 14-16 May 2008
Date of Judgment: 16 June 2008
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J U D G M E N T
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Introduction
1. Mui Yim-fong (梅艷芳), also known as Anita Mui, needs no introduction in Hong Kong.
2. During her brief lifetime (1963-2003), she was a highly popular Hong Kong pop singer and actress. At the height of her career which took off in 1982 after winning a television singing contest, she received numerous singing awards. Her concerts were sold-outs and she was well known not only in Hong Kong but also on the Mainland, in Taiwan and overseas Chinese communities. She was also an acclaimed movie actress and had won important acting awards.
3. In September 2003, she announced in a press conference held in Hong Kong that she was suffering from cervical cancer, which was first diagnosed in 2001, and she was undergoing treatment. Notwithstanding her illness and treatment, she held a series of eight concerts at Hong Kong Coliseum in November 2003 and after the concert, she flew to Japan to shoot a television commercial. She felt ill during her short stay in Japan and immediately upon her return to Hong Kong on 27 November, she was admitted to Hong Kong Sanatorium & Hospital. That, unfortunately, turned out to be her final admission. Despite treatment, her condition deteriorated and she passed away on 30 December 2003 due to liver complications.
4. The deceased was single, and is survived by her elderly mother who is now 84 years old as well as two elder brothers. An elder sister who was close to the deceased had also succumbed to cancer in 2000.
5. On 3 December 2003, ie around a week after the deceased’s final admission and less than 1 month before her eventual demise , she executed a will at Hong Kong Sanatorium & Hospital which essentially left her entire estate to a trust known as the Karen Trust. The Karen Trust is a trust set up by the deceased on the same day at hospital, immediately before she executed the will. It is a “discretionary trust” set up by the deceased as settlor, with HSBC International Trustee Limited (HSBC) acting as trustee. Indeed the will also named HSBC as executor.
6. Under the Karen Trust, which gives HSBC as trustee extremely wide discretionary powers, the mother of the deceased as well as 4 nieces and nephews – they being the daughters of one of the elder brothers of the deceased and the sons of the late elder sister of the deceased – are the named beneficiaries. New Horizon Buddhist Association Limited, a charity promulgating the Tibetian Buddhist faith, is named as the final repository.
7. Apart from executing the trust documents and the will, the deceased also confirmed with HSBC’s representative, Mrs Doris Lau, who explained the relevant documents to the deceased and attended to the deceased’s execution of these documents, the contents of a trustee memorandum. In the trustee memorandum, the deceased as settlor set out her “suggestions” to the trustee for the trustee’s consideration. Amongst other things, the deceased suggested to the trustee to leave two properties, one in Happy Valley and another in London, to Mr Lau Kai Eddie, better known in his Chinese alias “劉培基”, a well-known image and costume designer who had worked with the deceased since the early 1980s.
8. Besides, the trustee memorandum also recorded the deceased’s wishes to set aside a total sum of $1.7 million to subsidise her nephews’ and nieces’ tertiary education.
9. Most importantly, the trustee memorandum set out the deceased’s suggestion that the trustee should hold the balance of the trust fund for her mother, while she is alive and make a monthly distribution of $70,000 for her use and benefit. Upon her mother’s death, the trustee shall distribute the entire balance then remaining to New Horizon Buddhist Association Limited as final repository.
10. What happened in the private ward of the deceased on the morning of 3 December was witnessed by three persons, namely, Mrs Doris Lau, Mrs Sheila Ho and Dr Peter Teo. Mrs Sheila Ho was very close to the deceased. In fact, the deceased was the goddaughter of Mrs Ho and her late husband, Mr Ho Koon-cheung (何冠昌) – a co-founder of Golden Harvest, a well-known movie production and distribution company. Indeed, the deceased had a less well-known name in Chinese, “何加男”, by reason of her relationship with her godparents. There is little doubt that the name of the trust, “Karen”, was based on this particular name of the deceased – “加男” (which sounds like Karen in Cantonese).
11. Dr Peter Teo is a well-known and experienced oncologist. He is and was at the time the director of the Comprehensive Oncologist Centre as well as the director of the Department of Radiotherapy at Hong Kong Sanatorium & Hospital. Most importantly, he was the treating doctor of the deceased at the time. Indeed, he had treated the deceased since July 2003. Dr Teo, together with a team of expert colleagues at the hospital, were in charge of treating the deceased during her final admission until her eventual demise on 30 December 2003.
12. Both Mrs Sheila Ho and Dr Teo were present when Mrs Doris Lau explained the contents of the trust deed and the will to the deceased. Mrs Lau actually signed the trust deed as witness. As regards the will, both Dr Teo and Mrs Lau signed as attesting witnesses. After the execution of the will, Dr Teo left the ward, whereas Mrs Sheila Ho remained behind, in whose presence Mrs Lau explained and confirmed the contents of the trustee memorandum with the deceased, who also executed a number of related trust documents.
13. The deceased kept her mother in the dark on her final admission to hospital. The mother only learnt of her admission and her critical condition on 28 December 2003 when she was required by the hospital to sign consent forms for administering urgent treatment for the deceased. She was also wholly ignorant of the making of the will and the setting up of the Karen Trust.
Litigation
14. After the death of the deceased, the mother learnt of the contents of the will and part of the contents of the trust and trustee memorandum (insofar as they concerned her). She and apparently her son(s) could not accept the contents of the will and the trust arrangement, and that eventually led to the commencement of the present probate action in 2004. Originally, only HSBC was named as the defendant, it being the executor of the will as well as the trustee under the Karen Trust. Following directions given by Lam J in related proceedings taken out by HSBC for a Beddoe order, HSBC has since adopted a neutral stance in the present action – leaving it to New Horizon Buddhist Association Limited as well as Eddie Lau, who have since been joined as the 3rd and 4th defendants, to defend the mother’s claim. The mother challenges both the will and the trust arrangement.
15. Indeed, New Horizon Buddhist Association Limited, as 3rd defendant has taken on the task of propounding the will and defending the validity of the trust arrangement, under which it is the final repository. In its task, the 3rd defendant is assisted by Eddie Lau, the 4th defendant, who also supports both the trust and the will.
Issues
16. So far as propounding the will is concerned, there is no dispute that the 3rd defendant as propounder bears the burden of establishing due execution, testamentary capacity and knowledge and approval. Up to the first day of trial, the mother as plaintiff had also alleged undue influence against Mrs Sheila Ho. Very wisely, in my view, Mr Chan SC – Mr Liu with him – abandoned the allegation on the first day of trial. In those circumstances, so far as the will is concerned, the 3rd defendant bears the burden of proof on all material factual issues.
17. Mr Chan, on behalf of the plaintiff, has also raised a number of legal arguments to challenge the will/trust arrangement, which raises a number of interesting if not important points.
18. The trial lasted 18 days. But for the restraint and good sense of counsel on all sides, the trial would have lasted much longer.
19. Insofar as the standard probate issues are concerned, namely, due execution, testamentary capacity and knowledge and approval, they turn on the facts and expert medical evidence. As propounder of the will, the 3rd defendant bears the burden of proof. The plaintiff does not put forward any positive case to challenge the will. She just puts the 3rd defendant to strict proof.
20. That notwithstanding, the plaintiff has raised certain issues for the 3rd defendant to meet. In terms of testamentary capacity, the plaintiff, who was of course ignorant of the deceased’s final admission and particularly her execution of the will and trust documents on 3 December, has commissioned Dr Edmund Woo, a well-known neurologist, to prepare expert reports based on some contemporaneous notes kept by Mrs Doris Lau as well as the medical notes and records of the hospital, including that of the treating doctors and nurses. In short, Dr Edmund Woo opines that the deceased was suffering from stage 1 to 2 (probably stage 2 or stage “1.5”) hepatic encephalopathy (HE) on 4 December 2003, less than 1 day before she executed the crucial documents. HE is a reversible functional brain disorder which results from liver function derangement. Dr Woo takes the view that there was a 50-50 chance of the deceased also suffering from some form of HE (such as stage 1) on 3 December when she executed the will and trust documents. As a result, Dr Woo further says that there was also a 50-50 chance of the deceased’s brain functions being so compromised by HE on 3 December as to render her mentally incapable of making the will or setting up the trust arrangement. “50-50”, I should emphasize, is as far as Dr Woo can and is prepared to go.
21. That sets the scene for the plaintiff’s challenge against the will and trust arrangement on the ground of mental capacity.
22. So far as knowledge and approval is concerned, Mr Chan, on behalf of the plaintiff, puts forward a rather complicated argument that the deceased was not sufficiently advised of the implications of making the trust the sole beneficiary under her will. He argues that the trust arrangement – under which the plaintiff is only to receive $70,000 per month – was meant by the deceased to cater for the scenario where the deceased was to live for a relatively substantial period of time, in which event she would have to expend a substantial amount of money on her own living as well as medical expenses. The will, on the other hand, counsel contends, was intended by the deceased to govern distribution of her estate in case she should die within a relatively short period of time – in which case the size of her estate would have been much more substantial than under the first scenario where she should live for a relatively long period of time – given the savings in terms of her own living and medical expenses. Under that latter scenario, the estate would have more money available to leave to her mother after death and that indeed was the deceased’s intention. Mr Chan contends, in essence, that given the different financial implications, the deceased actually intended to provide more generously for her mother under the will, than under the trust arrangement, in case she should die within a short period of time. And (originally) this was reflected in the various draft wills prepared. However, all this was abruptly changed one or two days before 3 December by her following Mrs Lau’s sudden advice to name the trust as the sole beneficiary under the will. That change had the effect of limiting the plaintiff’s enjoyment of the estate to $70,000 per month, which was never the deceased’s intention under the scenario where she should die within a relatively short period of time, counsel contends.
23. In the circumstances, Mr Chan argues that the deceased has not been sufficiently advised of the implications of the change caused by naming the trust as the sole beneficiary in the will. In other words, she did not sufficiently know and approve of the contents of the will.
24. These are essentially factual issues, depending to a large extent on the evidence of factual witnesses.
25. In this regard, the plaintiff’s input is minimal because she was ignorant of the preparation and execution of the will and trust documents at the time. Indeed, apart from Dr Edmund Woo and an expert pathologist from Singapore (Dr Lai), and other than giving evidence herself, the plaintiff has no other witness to call.
Factual evidence
26. The case thus turns very much on the factual evidence given by Mrs Doris Lau and Mrs Sheila Ho, who acted as the go-between in relaying advices from Mrs Lau to the deceased and instructions from the deceased to Mrs Lau, for the purposes of preparation and execution of the will and trust documents. Dr Teo, as the deceased’s treating doctor, has also given very important factual as well as medical evidence at trial.
27. Given this peculiar situation, I wish to say at the outset, both for the ease of writing, as well as of reading, this judgment, that I have found all three witnesses, namely, Mrs Doris Lau, Mrs Sheila Ho and Dr Teo, honest, credible and reliable witnesses. All three have given very detailed factual evidence in Court, and have been subjected to very lengthy and detailed cross-examinations. They have stood their ground and their evidence has been firm. The demeanour of each witness was impeccable and in their own ways, all three were very impressive witnesses. There were, of course, minor “inconsistencies” or “discrepancies” in their evidence (including their witness statements or, in the case of Dr Teo, his “aide memoire”), but having given careful and anxious thought to these matters, I have come to the firm view that insofar as these so-called inconsistencies or discrepancies existed at all, they were innocent lapses of memory or slips. In particular, it must be borne in mind that it is easy to spot these so-called inconsistencies and discrepancies with the benefit of hindsight, when the issues have been sharpened and refined in the process of trial. But it must not be forgotten that when documents such as contemporaneous file notes, aide memoire, medical records and even witness statements (especially those prepared at the earlier stage of the proceedings) were prepared, they were done at a time when neither the authors of these documents nor the lawyers then involved (if any) had the advantage of having all the relevant issues clearly defined before them. This is so particularly when the documents in question were prepared by laymen themselves without the assistance of lawyers. And even counsel have had changes of mind on many occasions, as is evidenced by the various amendments made to the pleadings. Indeed, many of the important arguments advanced by Mr Chan at trial only found their way into this litigation by way of amendments introduced by Mr Chan himself after commencement of the trial.
28. Returning to my acceptance of the factual evidence of the three crucial witnesses, my point is that I have borne in mind not only their demeanour in Court, but have also carefully considered the contents of their oral evidence and the documents made by them (including witness statements and so forth), other evidence including other witnesses’ evidence as well as the documentary evidence that has been adduced, the surrounding circumstances of the case, as well as the inherent probabilities and improbabilities of their evidence. As I say, I have no doubt that they were truthful and reliable witnesses at trial.
29. This has greatly eased my task of making findings of fact and deciding on the issues raised.
Due execution
30. I will now deal with the issues in greater detail.
31. First, due execution of the will. This is more than sufficiently established. All three persons who were present when the deceased executed the will and trust deed gave evidence at trial. Both Mrs Lau and Dr Teo signed as attesting witnesses to the will. Mrs Ho also eye-witnessed the execution of the will by the deceased. Their evidence on execution has not been challenged at all. Due execution of the will is duly proved.
32. Insofar as execution of the trust deed is in issue, it is likewise established. The trust deed was executed before the will and I have the three factual witnesses testifying to the deceased’s execution of the trust deed. The execution of other trust related documents was confirmed by the oral evidence of Mrs Lau and generally by Mrs Ho. Their evidence is accepted. Due execution of the trust deed and all related documents by the deceased is again well established.
Detailed account of the facts
– Condition prior to final admission –
33. Turning to testamentary capacity and knowledge and approval, it is necessary to give a more detailed account of the deceased’s condition in the last 6 months of her life and the events leading to the preparation and execution of the will and trust documents. Save where otherwise indicated, this account also constitutes my findings of fact.
34. As described, the deceased first learnt of the diagnosis of cervical cancer in 2001 – at that time her cancer was at an early stage and treatable. However, by the time she consulted Dr Teo in July 2003, the cancer had reached an advanced and incurable stage. It was uncontrolled and she had multiple liver and para–aortic nodal metastases. She was treated with combined abdominal radiotherapy and systemic chemotherapy in the same month. There was satisfactory resolution of the primary cervical and the nodal disease over the next two months. The liver metastases, however, increased in size and number. They were treated by selective intra-hepatic radiotherapy in October 2003 with an apparently good response.
35. Between 23 July 2003 and 17 October 2003, she was admitted to the hospital on more than 10 occasions, usually for blood and platelet transfusions. Moreover, according to Dr Teo, he also paid home visits to the deceased to render treatment to her on a number of occasions. As mentioned, the deceased had a series of concerts in early November. She was admitted to the hospital from 21 to 23 November 2003 because of fever, anaemia and thrombocytopenia (reduction in blood platelets). After discharge, she flew to Japan to shoot a television commercial.
36. As described, immediately upon her return to Hong Kong on 27 November, she was admitted to the hospital again for ascites (fluid in the peritoneal cavity) and thrombocytopenia with subcutaneous petechiae (dark red spots beneath the skin caused by bleeding). – Idea of setting up a trust and making a will –
37. According to Dr Teo, he informed the deceased when he was first consulted in July 2003 that her cancer was terminal, and it was merely a matter of time. He advised her to make a will.
38. According to Mrs Sheila Ho, who was aware of the deceased’s cancer from the beginning, the deceased consulted her in early 2003 about making provisions for her mother after her passing away – she having realised that her condition had become serious in late 2002. The deceased said she wanted to provide for her mother’s living expenses for the rest of her life and she expressed the concern that as her mother was not good at management of finance, she might be cheated of her money if she was to be given a lump sum. Mrs Ho, in reply, suggested to the deceased to consider employing a professional to advise her and she introduced to her Mrs Doris Lau of HSBC, with whom Mrs Ho herself had set up a discretionary trust.
39. The deceased raised the matter with Mrs Ho again in July or August the same year and told Mrs Ho that she wanted to retain Mrs Lau and HSBC for the intended services.
40. Mrs Doris Lau was at the material time a private trust director of HSBC, a non-bank member of the HSBC group. She was a highly experienced private trust professional, having worked in HSBC for 21 years. Her professionalism and experience in the field was plain to see when she was in the box.
41. She testified that on 19 October 2003, she received a telephone call from the deceased who asked her some general questions regarding estate and succession planning. After giving the deceased some general advice over the phone, Mrs Lau advised the deceased to ask her accountant (Rachael Lo) to liaise with Mrs Lau and to prepare for her details of the deceased’s assets so that she could carry out an initial appraisal of the same before arranging a meeting with the deceased. This telephone conversation was evidenced by a file note made by Mrs Lau.
42. Rachael Lo supplied to Mrs Lau the requisite information about a week after the initial telephone conversation. Having assessed the deceased’s assets, Mrs Lau prepared a chart of the deceased’s companies and assets and arranged a meeting with the deceased at her residence in Shouson Hill on 31 October 2003.
– Meeting on 31 October 2003 –
43. What happened at that first meeting between Mrs Lau and the deceased, at which Mrs Ho was also present, is well documented by another file note prepared by Mrs Lau after the meeting. The note corroborates the oral evidence given both by Mrs Lau and by Mrs Ho about that meeting.
44. At the meeting, Mrs Lau explained to the deceased in greater detail the benefits of placing her assets into a discretionary trust. She emphasised that being the asset contributor (settlor), the deceased should be excluded from being a beneficiary so as to minimise the exposure to challenge by the Estate Duty Office. The deceased said she was particularly appreciative of the fact that in appointing a professional trustee, she could be sure that her wishes regarding disposal of her assets would be respected and the trustee would act in good faith and in the best interest of the beneficiaries.
45. The deceased then told Mrs Lau how she wanted her assets to be distributed via a trust arrangement, and this was meticulously recorded in the file note prepared by Mrs Lau after the meeting. In short, first, two properties were to be given to a “very special friend” (whom Mr Lau subsequently found out to be Eddie Lau). Secondly, the deceased wanted to set aside some funds to subsidise her nephews’ and nieces’ tertiary education.
46. Thirdly and most importantly, according to the file note:
“[The deceased] said that she would like to make sure that upon her death, her mother should be given a monthly allowance until her mother’s death to maintain her present life style: one chauffeur, two domestic helpers. She said it should be about HK$70,000 per month. (She said, rather sadly, that her mother would live a much longer life than she would.)
[The deceased] said very determinedly that she would not want her estate to pass outright to her mother for fear that she would be incapable of managing wealth and would end up penniless for the rest of her life.”
47. Lastly, the deceased wanted to name the 3rd defendant the final repository of the trust.
48. According to Mrs Lau’s oral evidence in Court, which I have no difficulty in accepting in full, the deceased told her at the meeting that she had carefully thought through the provisions to be made after her death. She wanted to maintain her mother at the same level that she was then enjoying (two maids plus one chauffeur). She told Mrs Lau that her relationship with her mother was not particularly good and her mother had poor financial discipline. If she were to leave her mother a lump sum of money for her living for the rest of her life, she feared that her mother would lose all money and become penniless in no time. She said she had made calculations and $70,000 per month was the right amount.
49. The deceased also told Mrs Lau emphatically that apart from her mother and her nieces and nephews, she did not want any part of her estate to pass to any other Muis.
50. Indeed, according to Mrs Ho and Eddie Lau, the deceased had a very bad relationship with her eldest brother. Their evidence in this regard was not challenged in cross-examination. Nor was it denied by the plaintiff when she gave evidence.
51. Mrs Lau explained in the box that she did not want to put down these sensitive and highly personal matters in the file note that she prepared after the meeting. She added that after the trust was successfully set up and management of the trust was handed over to the trust manager, she would prepare another note (a cautionary note) to inform the trust manager of what she learnt from the deceased in greater detail.
52. As regards the figure of $70,000, Mrs Ho confirmed in her evidence that that figure was carefully worked out by the deceased, who was meticulous about money to be given to her mother.
53. At that meeting, Mrs Lau also advised the deceased to seek independent tax advice from an accountant. The deceased agreed and asked Mrs Lau to approach Price Waterhouse on her behalf for a quotation.
54. More importantly, Mrs Lau also advised the deceased of the advantage of making a will as a “backup” measure pending the decision to set up a trust and the setting up of the trust itself, having ascertained from the deceased that she had not made any will at all. This would avoid the situation of partial or total intestacy because amongst other things, it would take time to inject assets into the trust. Mrs Lau left with the deceased a “will appointment questionnaire” to fill in, after going through with her the information required to be supplied in the standard form.
55. According to Mrs Lau and Mrs Ho, the deceased was in very good mental and physical condition on the day of the meeting. Indeed she went on to hold 8 concerts in a roll at Hong Kong Coliseum in early November.
56. After the meeting, Mrs Lau, on her part, sought Price Waterhouse’s fees quotation for providing advice on estate planning and for tailor-making a trust arrangement to suit the deceased’s situation.
– Completing the will appointment questionnaire –
57. On the other hand, the deceased and Mrs Ho went through the contents of the will appointment questionnaire together, and the deceased asked Mrs Ho to fill out the form for her based on her (the deceased’s) wishes.
58. Mrs Ho testified in Court that ever since the deceased became her goddaughter back in the 1980s, she had treated and taken care of the deceased as if she were one of her daughters. They had a very close relationship and for all practical purposes, they regarded (and addressed) each other as mother and daughter. In relation to the setting up of the trust and the making of the will, Mrs Ho said she acted as the go–between for the deceased to relay her instructions to Mrs Lau and Mrs Lau’s advices to the deceased. The filling out of the questionnaire and the return of the completed questionnaire to Mrs Lau were done in those circumstances by Mrs Ho through her assistant, Pauline.
59. According to Mrs Ho, both she and the deceased treated the questionnaire as a preliminary document to provide information to HSBC both for the purposes of setting up the trust and for making a will as a backup measure. The setting up of the trust and the making of the will were, according to Mrs Ho, “twin sisters”. It was throughout the intention of the deceased, after learning of the device of discretionary trusts, to set up a trust to make provisions regarding her estate. It was never her intention to make a will alone. Mrs Ho said in Court, most convincingly, that if it had been the intention of the deceased to make a will only, she need not have approached HSBC or Mrs Lau – rather she would have approached a solicitor with ease.
60. Thus Mrs Ho insisted in Court that the information set out in the questionnaire was both for the purposes of making the will and that of setting up the trust; the two simply could not be separated. Although at the time, the deceased had not yet given HSBC definite instructions to proceed with setting up a trust as such, preliminary steps were already being carried out by HSBC at her request, such as obtaining a quotation from Price Waterhouse regarding the provision of tax advice and the design of a suitable trust arrangement.
61. Mrs Ho pointed out in evidence that the deceased’s intention was definite throughout, ie to set up a discretionary trust; as regards the method, it depended on HSBC’s advice.
62. All this is important because section H of the questionnaire related to the distribution of the residuary estate. In the completed form itself, what was written down (by Pauline) was simply “To: (1) the Trust (2) New Horizon Buddhist Association Ltd”.
63. Mrs Ho explained in Court that what actually was said by the deceased when the two of them went through the contents of the questionnaire together was that she would first give money to her mother and after her mother’s death, she would give the remaining assets to the 3rd defendant. This was said immediately after the meeting with Mrs Lau and Mrs Ho clearly understood this to mean – given what the deceased had told Mrs Lau regarding her wishes during the meeting – that the deceased wanted to give her mother $70,000 per month to maintain her living during her lifetime, and after her death, to give the rest of the trust fund to the 3rd defendant. Mrs Ho emphasised in evidence that these instructions, as summarized in section H of the completed questionnaire, represented the deceased’s intentions and wishes regarding the disposal of her residuary estate both under the trust arrangement as well as under the will – the latter being a temporary arrangement only pending the setting up of the trust arrangement. No distinction was to be drawn between the two.
64. The completed questionnaire was eventually sent over to Mrs Lau on or about 25 November 2003, after the deceased had completed her series of concerts at Hong Kong Coliseum and had flown to Japan to shoot the television commercial. Quite obviously, the deceased thought at the time that time was yet on her side and she was still doing all right. According to Dr Teo, who had feared that the deceased might not be able to withstand the vigorous physical and mental demands that holding a series of concerts at Hong Kong Coliseum would make on her, he was surprised by the deceased’s extraordinary sense of determination and willpower in completing the concerts most successfully.
– Instructions to proceed given –
65. In any event, by then Mrs Lau had obtained quotations from Price Waterhouse. By a telephone conversation between Mrs Lau and Mrs Ho on 27 November 2003, she obtained the deceased’s instructions to proceed to retain Price Waterhouse for the necessary advice on establishing the trust. According to Mrs Lau, it was during that conversation that she obtained the deceased’s definite instructions to proceed with setting up the trust.
66. Moreover, it was during the same telephone conversation that Mrs Ho passed on the deceased’s request to have the will prepared and executed as soon as possible. It is not clear from the evidence whether that request of the deceased was in any way affected by the deterioration of the deceased’s condition while she was shooting the television commercial in Japan. In any event, the telephone conversation took place on the very day the deceased returned from Japan to Hong Kong which was followed by her immediate admission to Hong Kong Sanatorium & Hospital.
67. Anyhow, Mrs Lau immediately gave the completed will appointment questionnaire to her colleagues in the Probate Department of HSBC to prepare draft wills for the client’s consideration. Mrs Lau testified in Court that her department (Private Trust Department) maintained a Chinese wall with the Probate Department so that her colleagues in the Probate Department were not privy to, for instance, her file note for the meeting of 31 October in which the deceased’s wishes regarding disposition of her estate were clearly set out. Rather, the Probate Department was only given the will appointment questionnaire and some general information to work on.
– Initial drafts of the will –
68. This, unfortunately, gave rise to some confusion. This was because section H of the completed questionnaire was filled out in a most simplified way, as already described. Thus, it was taken to mean, in the first draft prepared by the Probate Department, that the deceased wanted to give 50% of her residuary estate to the discretionary trust to be set up (which would of course distribute the assets so received in accordance with the terms of the trust which the probate people knew nothing about) and the remaining 50% to the 3rd defendant who, in fact, was only meant to be a final repository under the trust arrangement. Moreover, despite the deceased’s specific request to Mrs Lau to keep confidential the identity of the specific devisee, the name of Eddie Lau appeared prominently on the first page of the draft will. On the following day (28 November), three further drafts were prepared. They were, according to Mrs Lau’s understanding, prepared as alternatives or variations by the Probate Department so that the client could have more options to choose from. They were, as it were, suggested possible variations that the client could consider if she should so wish.
69. Mrs Lau explained that somehow she was not aware of the first draft prepared on 27 November. She only got hold of the three subsequent drafts prepared on 28 November and in her hurry, she did not check the contents of the three drafts but simply faxed them over to Mrs Sheila Ho. (A fifth draft – which was an amended version of the first draft – was subsequently prepared but it was never sent over to Mrs Ho.)
70. The three subsequent drafts did not provide for leaving any part of the residuary estate to any inter vivos trust. Rather, they provided for the distribution of the residuary estate amongst the mother and the 3rd defendant in various different ways.
71. According to the oral evidence of both Mrs Lau and Mrs Ho, which I accept after careful consideration, on receiving the faxed copies, Mrs Ho immediately noticed at the top right corner of the first page of each draft that a caption reading “no trust established” appeared – which Mrs Ho rightly understood to mean that the draft will did not provide for the giving of any part of the estate to an inter vivos trust that the deceased had been wanting to establish. Moreover, Mrs Ho lost no time in noticing that the name of the 4th defendant clearly appeared on the first page of each draft. She therefore found the drafts quite unacceptable as they were contrary to the wishes of the deceased, and she did not even bother to read the contents of the drafts. She telephoned Mrs Lau immediately to point out the discrepancies.
72. Mrs Lau felt most embarrassed by the mix-up and after the telephone conversation (which most probably took place on 28 November), she read the drafts and realized that her colleagues in the Probate Department had misunderstood the deceased’s wishes as set out in section H of the questionnaire. (Mrs Ho told the deceased about the matter and the deceased shared her dissatisfaction with the drafts.)
73. Although the faxing over of the draft wills and the subsequent telephone conversation were not evidenced by any file note, after due consideration I have no difficulty in accepting Mrs Lau’s and Mrs Ho’s respective accounts of the same. In particular, I accept Mrs Lau’s evidence that in her view, the colleagues in the Probate Department had misunderstood the deceased’s instructions in the questionnaire (as understood by her) and the contents of the various draft wills did not reflect the deceased’s true intentions. I will presently return to this theme when I deal with Mr Chan’s argument on knowledge and approval.
74. By then, the deceased had been admitted to Hong Kong Sanatorium & Hospital – sadly, this was to be her final admission. Stated very shortly, her final admission was immediately due to liver function derangement. Although the exact cause was unknown to the treating doctors headed by Dr Teo, Dr Teo’s own guess was that it was due to irradiation changes. The deceased had a high bilirubin level and abdominal distension. She was given transfusion of blood and the gastrointestinal bleeding apparently improved.
75. Of importance was that her consciousness and cognitive functions were all normal. She was as intelligent and alert as ever. – 1 December 2003: changing and finalising the instructions –
76. On 1 December 2003, while the deceased was in hospital, Mrs Ho called Mrs Lau on behalf of the deceased to express the latter’s concern over the time that would be required to set up the trust and to inject assets into the trust. During the conversation, Mrs Ho also expressed the concern about the dispository provisions in the will (that was being redrafted) “matching” the provisions in the trust to be set up. Although Mrs Ho did not specifically say so in evidence, I have the impression that Mrs Ho was to some extent alarmed by the erroneous provisions contained in the three draft wills that were sent to her from HSBC and she did not want there to be any discrepancies between the will and the trust arrangement in terms of disposition of the estate, particularly if the assets could not be injected into the trust in time.
77. In any event, Mrs Lau advised over the phone that the “matching” concern could be eliminated by naming the trust as sole beneficiary under the will so that all assets of the estate would pass to the trust to be distributed in accordance with the terms of the trust. Mrs Lau explained in the box that this type of arrangements had been done before in other cases and throughout she had this idea in her mind. The 1 December telephone conversation provided the opportunity for her to make the suggestion to the deceased through Mrs Ho.
78. Mrs Lau explained that this arrangement had the advantage of ensuring that there would be no discrepancy between the will and the trust in terms of disposition so long as the trust could be set up in time (as opposed to the injection of assets into the trust), which could be done very quickly. Moreover, this arrangement would ensure that whatever was not injected into the trust during the lifetime of the settlor/testator would be given to the trust after death (via the will), to be distributed along with other assets that had already been injected into the trust during lifetime. The naming of the trust as the sole beneficiary under the will also had the added advantage of preserving confidentiality.
79. According to both Mrs Lau and Mrs Ho, Mrs Ho relayed the message to the deceased for her instructions after the telephone conversation and after the deceased expressed the view that this was the best arrangement to make, Mrs Ho called Mrs Lau on the same day to pass on the message. She instructed Mrs Lau to set up the trust first and name it as the sole beneficiary under the will. She also told Mrs Lau that the deceased had named the trust “The Karen Trust”. Mrs Lau told Mrs Ho that a doctor would need to be present when the documents were executed to certify the deceased’s mental capacity in view of the fact that she was then hospitalised.
80. What took place was summarised by Mrs Lau in a file note she prepared for the telephone conversations with Mrs Ho on that day.
81. On the same day, Mrs Lau immediately gave instructions to her colleagues to prepare the trust deed (based on HSBC’s standard form) and a trustee memorandum, and to redraft the will.
82. The instructions were evidenced by an internal memo dated 1 December 2003 which Mrs Lau sent to Gladys Lo and Phoenix Lam.
– 2 December 2003: finalising the documents –
83. The draft documents were ready on 2 December and Mrs Lau immediately called Mrs Ho to confirm the contents of the drafts. In particular, she explained to Mrs Ho the contents of the trustee memorandum, which provided for the deceased’s suggestions to the trustee to gift the two properties to Eddie Lau, to provide subsidies to the nieces/nephews for their tertiary education, to pay monthly living allowances to the mother for life and to leave the residue to the 3rd defendant. But Mrs Lau made a mistake. She thought that the monthly sum of $70,000 to the mother was to be on top of the rental income of a property situated at Happy Court, Village Road in Happy Valley. Mrs Ho spotted the mistake and in a subsequent telephone conversation (after confirming the same with the deceased), she clarified with Mrs Lau that the deceased’s intention was only to give $70,000 per month to her mother. The two ladies confirmed that the documents could be executed on the following day – 3 December.
84. Mrs Lau prepared a very short file note to record the matter. It simply said that she had advised Mrs Ho that both the trust deed and related documents as well as the will were ready for signature and Mrs Ho had rung her back to advise that the deceased would like to execute the documents on the following day and her doctor had confirmed that he would be present. Despite the incompleteness of the file note and the omission of references to the explanation of the draft trustee memorandum and to correction of the mistake contained in the draft memorandum, I have no doubt that what has happened was as related to me by both Mrs Lau and Mrs Ho orally in the box. Indeed one can see from the perspective of Mrs Lau, who prepared the file note at the time, that what were actually recorded in the file note were the most important matters. The omissions focused upon at trial only became issues very late in the day.
85. It is convenient to record here that the deceased’s close association with the 3rd defendant and her spiritual master was testified to by a director of the 3rd defendant, whose evidence was not challenged at all. I have no reason not to accept the evidence given. There were more than sufficient reasons for naming the 3rd defendant as the final repository. It should be noted that under the trust deed, the position of the final repository need not be taken into account when the trustee considers how to exercise its wide discretions. According to Mrs Lau’s and Mrs Ho’s evidence, both the deceased and Mrs Ho were fully aware of that.
– 2 December 2003 late afternoon: CT scan results known –
86. On the late afternoon of 2 December 2003, the abdomen and pelvis CT scan results of the deceased were out. The results were not encouraging and as a matter of fact, the picture was bleak. According to Dr Teo, most probably he immediately explained the contents of the CT scan report to the deceased during the evening ward round on that day. These ward rounds, done twice a day, usually lasted around 15 minutes, but when there were matters to be discussed, it could take as long as 45 minutes. In all probabilities, Dr Teo had a long discussion with the deceased during the evening ward round on 2 December. From his interaction with the deceased that evening, Dr Teo told the Court, he formed the view that the deceased was most alert and concerned about her condition. She had no difficulties in understanding Dr Teo’s explanations, she asked questions (including leading questions) and her responses quite clearly showed that she was fully following what was going on. She expressed concerns about her future singing career. She repeated her wishes not to let her mother know about her condition until the last moment. Dr Teo testified that the deceased’s queries and responses showed foresight and insight, as well as full understanding and eagerness to learn more.
– 3 December 2003 morning: executing will and trust documents –
87. When Dr Teo saw the deceased again at around 8:30 am on 3 December, the deceased had already woken up and had breakfast. She could remember the colour of her urine that morning, which was independently verified by Dr Teo. Dr Teo testified in Court that most probably, he and the deceased again discussed the results of the CT scan after the deceased had time to digest what she had been told the previous evening. Although Dr Teo could not be 100% sure, he probably had discussions with the deceased in two or three ward rounds on the CT scan results which painted a very gloomy picture. Dr Teo testified that on 3 December, the deceased was her normal self, fully alert and as attentive, responsive and smart as before. Thus when Mrs Lau arrived at around 11 am that day at the hospital and he was asked to be present to witness the explanation and execution of the documents, he had no hesitation whatsoever in advising Mrs Lau that in his view, the deceased had full mental capacity and was of a “sound and clear mind” to execute the documents. And Dr Teo did not consider it necessary at all to consult a neurologist or psychiatrist on the matter.
88. Dr Teo’s impression of the deceased’s condition was fully shared by the respective observations made by Mrs Lau and Mrs Ho (who was also present). Mrs Lau said she had some chit chats with the deceased before Dr Teo arrived, and she started explaining the documents to the deceased after obtaining Dr Teo’s confirmation on the deceased’s mental and physical fitness to execute the documents. The deceased was observant and attentive and her conversations and responses were nothing other than normal. She was in good spirit and the condition of the deceased was much better than what Mrs Lau had imagined. It was the second time she saw the deceased after the 31 October meeting. Mrs Lau said the deceased was in very good spirit; she was relaxed and smart/sharp (“眼仔靈靈”).
89. Mrs Lau, who quite plainly possessed an excellent memory, gave detailed evidence on what happened that morning. She first explained the contents of the trust deed to the deceased. She explained it clause by clause although not line-by-line. What is important for our purposes is that the deceased, according to all those present, followed the explanation well and gave appropriate responses. She asked pertinent questions and reacted appropriately in words, facial expressions and body languages. After the explanation, the deceased executed the trust deed and Mrs Lau signed the same as a witness. Then Mrs Lau explained the contents of the will to the deceased. Following explanation, the deceased executed the will in the presence of Dr Teo, Mrs Lau and Mrs Ho. Dr Teo and Mrs Lau then signed the will in each other’s presence as attesting witnesses. The process took about 45 minutes and throughout Dr Teo was present although he had to leave the ward on two or three occasions to answer calls. Then Dr Teo left to attend to some other business and only the three ladies remained in the ward. Mrs Lau continued to explain the trustee memorandum to the deceased. Again from the deceased’s responses as observed by Mrs Lau (and corroborated by Mrs Ho), the deceased fully followed and agreed to the contents of the trustee memorandum. The trustee memorandum was not required to be signed by the deceased, who however signed a number of related trust documents.
90. According to Mrs Lau, during the explanation and execution process, which together lasted a substantial period of time, the deceased remained attentive and focused. She understood that she would no longer be the owner of the assets once they were injected into the trust. She asked about whether she could change her wishes after setting up the trust and her confirmation of the terms in the trustee memorandum. The deceased, without prompting, noted that the name of the 4th defendant did not appear in the third schedule of the trust deed which set out the names of the beneficiaries. She felt relieved evidently when she was told that the name of Eddie Lau would appear in the trustee memorandum.
91. The deceased confirmed the schedules set out in the trust deed and asked questions regarding adding beneficiaries later. The deceased also asked Mrs Lau during the explanation process whether a beneficiary could disclaim the gift given to him or her under the trust. The deceased further asked Mrs Lau where the trustee would place the money comprising the trust fund and she also said she supposed the trustee would place it with HSBC (the bank).
92. The deceased, as precise as ever when it came to money, could remember HSBC’s fees structure – less would be charged when she was alive than after her passing away. She also asked, when she was told the trustee had a power to increase its own remuneration, what if HSBC were to increase it by a huge amount.
93. When told that under the trust deed, the trustee could vary the provisions at its discretion, she asked questions regarding the trustee’s exercise of the power of its own volition particularly after her death. She was also slightly surprised to learn that the standard provisions in the trust deed gave the trustee a very wide indemnity; she remarked that the trustee was having a very good bargain under the trust deed (“好着數”).
94. Equally impressive about the deceased’s understanding and insight into the transaction that she was entering into was her concern that she had previously appointed nominee directors into companies beneficially owned by her, which were to be injected into the trust. Plainly she was concerned that that could complicate her tax position.
95. At one stage, the deceased also asked whether the trust could be abandoned or terminated (“唔要”).
96. In relation to clause 32 of the trust deed (no charitable intent), the deceased remarked that that was precisely what she wanted.
97. In relation to clause 33 (absence of any responsibility on the part of the trustee to inform the beneficiaries their interest in the trust), the deceased asked how the trustee was to distribute the assets in favour of the beneficiaries if they were not aware of the trust.
98. The deceased also remarked, in relation to investment of the trust assets, that in that regard HSBC was the professional to be trusted.
99. At a later stage of the explanation, the deceased posed questions in the alternative regarding adding and removing beneficiaries: she asked whether the trustee would, on its own initiative, add or remove beneficiaries from the third schedule of the trust deed; she also asked the procedure to follow if she herself should want to change the beneficiaries later.
100. Mrs Lau said the deceased asked Mrs Ho to get $1,000 cash from her handbag to give to Mrs Lau to establish the trust.
101. Regarding the interpretation of the will to the deceased, the deceased expressed her understanding that under the will everything would go to the trust. As regards the other standard and detailed terms in the will giving the executor/trustee various powers, the deceased observed that they would not really be required to be exercised as everything would be given to the trust.
102. During execution of will, the deceased also asked Mrs Lau why she and the attesting witnesses needed to initial each and every page of the will.
103. As regards the trustee memorandum, the deceased confirmed with Mrs Lau that her wishes were correctly set out in the memorandum. When Mrs Lau came to a clause during explanation which stipulated for the survival of a beneficiary for 30 days as a condition for receiving the gift, the deceased observed that she was sure Eddie Lau would survive her for more than 30 days.
104. The deceased was as sharp as ever on money matters and asked how the figure of $1.7 million, earmarked for the tertiary education of the nieces/nephews, was arrived at, since each of them was to receive $400,000 maximum. Mrs Lau explained to her that the additional $100,000 was meant to cover administration expenses etc.
105. After the explanation of the trustee memorandum, the deceased asked for a copy of the trustee memorandum to keep.
106. Dr Teo confirmed in evidence that although he could no longer remember the contents of the explanation or the questions and answers, during the whole process while he was present, the deceased’s questions and responses were all appropriate and pertinent, and no non-sensical questions were asked by the deceased. That wholly conforms with Mrs Lau’s observation.
107. Mrs Ho’s evidence in this regard, although relatively brief, was to the same effect.
– 3 December 2003 afternoon: ordering of blood ammonia testing –
108. On the late afternoon of the same day, testing of the deceased’s blood ammonia level was ordered. According to Dr Teo, it was an exercise to gather more information on the liver function of the deceased. At that time, the team of doctors treating the deceased was still unsure as to the real cause of the deceased’s liver function derangement. (Dr Teo testified that in his mind, irradiation changes were the cause.) All they knew at the time was that her bilirubin level was abnormally high, whereas the prothrombin time was slightly higher than normal. They did not have any data on the deceased’s blood ammonia level. Dr Teo explained that in those circumstances, they wanted to collect more data and thus the deceased’s blood ammonia level, as well as a number of other biochemical tests, were ordered. Since it was nothing urgent, the tests were only to be done on the following day. Dr Teo maintained firmly, despite vigorous cross-examination on this point, that the testing of the deceased’s ammonia level was really part of an exercise in data collection. It was not due to any symptoms or suspected symptoms referable to HE (see below).
– 4 December 2003: suspected diagnosis of hepatic pre-coma –
109. However, when the result of the blood ammonia test – the blood sample was taken at 7:20 am – came out at around 11 am on the following day, it came as a surprise. The ammonia level was 99, three times the upper limit of the normal range (9-33). According to the notes made by Dr Teo after his morning ward round on 4 December, the deceased was “drowsy” and had “interrupted speech”. Together with the abnormally high level of ammonia, Dr Teo made the suspected diagnosis of hepatic pre-coma, which can mean either stage 1 or stage 2 HE.
110. In short, HE is a reversible functional brain disorder characterized by disturbances of consciousness and other neuro-psychiatric manifestations due to metabolic disturbances associated with liver disease. According to Dr Woo, the pathogenic mechanism is felt to be the failure of the liver to remove toxic substances from the blood circulation so that the latter accumulate and disturb the functions of the brain. Although the exact culprit is still unknown, a substantial amount of clinical and experimental evidence indicates that ammonia as one of those toxic substances probably plays a major role in the pathogenesis of HE. On the other hand, based on the expert evidence actually adduced before the Court, there is a substantial proportion of patients suffering from HE who have a normal level of ammonia in their blood. Conversely, there is also a substantial proportion of liver patients who do not develop HE despite a very high level of ammonia in their blood.
111. Leaving that aside for the time being, it is a fair summary of the evidence that from 4 to 7 or 8 December 2003, the deceased was in a drowsy state and Dr Teo accepted in oral evidence that without a proper mental state examination (and none was done at the time), he could not be sure whether the deceased was of sufficient mental capacity to make a will or to sign other legal documents during that period of time. He frankly accepted that the suggestion in his aide memoire that until the last 48 hours of her life, the deceased was throughout of a sound and logical mind was an over-statement. He qualified it in Court by excluding the period from 4 to 7 or 8 December as well as the period after 24 December (when the deceased was intubated) from his statement. Having made that concession in the box, Dr Teo remained adamant that on 3 December when the legal documents were explained to and executed by the deceased, she was of a sound and logical mind, with good mental capacity to understand and execute the documents.
112. Dr Teo said that on 4 December, because of the drowsiness and interrupted speech that he clinically observed as well as the high level of ammonia, he made the suspected diagnosis of hepatic pre-coma. He said in the box that with the benefit of hindsight, that suspected diagnosis was the correct one. The main reason he gave was that after making the suspected diagnosis, the team of treating doctors took measures to reduce the blood ammonia level, including the administration of neomycin, the dosage of which was doubled at a subsequent stage. The measures eventually brought about a lowering of the ammonia level. Improvement on the deceased’s drowsiness was observed and the condition was gone by 8 December. With the benefit of hindsight, Dr Teo opined that the treatment was effective and that in turn confirmed the correctness of the initial provisional diagnosis of hepatic pre-coma.
113. Dr Teo further said in evidence that in his view, based on his own clinical observations and medical knowledge – although he was neither a neurologist or psychiatrist, the deceased was only suffering from stage 1 HE on 4 December. She was not, he maintained, suffering from any form of HE on 3 December. In any event, he was very firm in his evidence that on 3 December, the deceased had the requisite mental capacity to understand and execute the legal documents.
– Subsequent events –
114. To complete this detailed narrative of the relevant events, it should be noted that the deceased executed an enduring power of attorney on 20 December 2003 at the hospital. At that time, the deceased’s liver condition was even worse than before, although there is no serious suggestion that she was still suffering from HE. According to the evidence of Ms Jacklyn Ng, a solicitor from JSM, who explained the relevant documents to the deceased and attended to the execution, the deceased appeared to her to be fully aware of what she was doing. She followed her explanation and asked questions. She understood the effect of signing an enduring power of attorney and knew what she was doing. I fully accept Ms Ng’s evidence.
115. Mrs Doris Lau was present on that occasion because HSBC was the donee under the enduring power of attorney. By then, the necessary documents for injecting the deceased’s assets into the Karen Trust had already been put in place and they could be executed at any time. So she asked the deceased on that occasion whether she wanted to execute the necessary documents before Christmas, as Mrs Lau was taking a vacation over Christmas. The deceased, who was obviously not contemplating imminent death within a matter of days, replied that she would like to execute the documents after Mrs Lau’s return from her holidays. The optimism was indeed shared by Mrs Lau and Mrs Sheila Ho. To be fair, none of them thought that the deceased would pass away so soon. But it was not to be. The deceased’s liver condition continued to deteriorate. She eventually lapsed into a coma and died of acute liver failure resulting from cytomegalovirus infection on 30 December. The meeting on 20 December turned out to be the last occasion when Mrs Lau saw the deceased alive. 116. As a result, the deceased never managed to inject her assets into the Karen Trust. Rather, if the will and trust arrangement are held to be valid in this action, those assets will pass to the Karen Trust and they will be distributed in accordance with the terms of the trust (and the trustee memorandum – see below).
117. It should be remembered that one of the reasons for employing the will/discretionary trust arrangement was to avoid estate duty. To that extent, given the failure to inject assets into the trust before death, that purpose was not achieved. However, according to the evidence of Mrs Sheila Ho, which I accept, the saving of estate duty was never the main purpose of the deceased’s employing a discretionary trust arrangement. Although the value of the estate was substantial, it was not astronomical in amount – and the deceased realised that. The main purpose, according to Mrs Ho, was to have a professional trustee to administer the estate of the deceased after her demise , so as to make provisions to maintain the deceased’s mother’s living and to subsidise the tertiary education of the nieces/nephews. Another purpose was to make the gifts in favour of Eddie Lau in a confidential manner.
– Eddie Lau’s evidence –
118. Indeed Eddie Lau testified in Court to the same effect. The deceased had told him that she wanted to give her mother money just sufficient for her monthly expenditure; she would not give her any lump sum because otherwise she would squander it in no time. She mentioned similar things to Eddie Lau on several occasions. He found that the deceased felt it was her obligation to take care of her mother’s living well. She was a very filial daughter. Eddie Lau was like an elder brother to the deceased. They enjoyed a very close relationship.
119. I have no difficulty in accepting Eddie Lau’s evidence in full.
Knowledge and approval
120. Based on the above narrative of events, which constitutes my findings of fact, I can turn to Mr Chan’s argument on knowledge and approval, which is independent from his further argument on testamentary capacity. In other words, Mr Chan’s runs the argument that because of the deceased’s lack of testamentary capacity, she did not know and approve of the contents of the will. However, irrespective of the deceased’s testamentary capacity, Mr Chan further argues that the deceased did not know and approve of the contents of the will for a particular reason. And it is to that latter argument I now turn.
121. In essence, Mr Chan argues that the deceased was making arrangements regarding disposal of her estate under two scenarios. First, on the basis that she was going to be alive for a relatively long period of time, she wanted to set up a trust so that a substantial part of her assets would be injected into the trust to be disposed of after her death by her trustee in accordance with the terms of the trust. However, secondly, on the alternative basis that she would not live long so that either there would not be sufficient time for the trust to be set up or for the assets to be injected into the trust, she wanted to make a will to provide for the disposition of her estate after her demise . That was why she needed a will as well. And in that case, the will would serve as a sort of “backup” instrument or “safety net”.
122. Mr Chan further develops his argument by contending that the deceased’s intentions and wishes under the two different scenarios were different. In the former case – where she would live for a long period of time, because of her own financial needs in terms of living and medical expenses and so forth, she was only in the position and was only prepared to give her mother $70,000 per month during her lifetime – at least as a start-off. And depending on her actual circumstances and her resources later on, she might or might not want to change that amount, via future communication with the trustee, at a later point of time. All this was assuming that she was going to live for an indefinite and substantial period of time.
123. However, in the second scenario where she was not going to survive for long, her intentions and wishes were different, counsel contends. Because, by definition, she need not expend a huge amount of money on her living and medical expenses, there would be much more money left in the estate to be distributed after her death. In that scenario, she did not intend to restrict the provision to her mother to $70,000 per month. Rather, she could afford and did intend to be more generous to her mother than a mere $70,000 per month. That explained and was indeed evidenced by the contents of section H of the will appointment questionnaire, which simply stated, in relation to the residuary estate, that it should go, first, to the mother and secondly, to the 3rd defendant respectively, without any reference to the restriction of $70,000 per month.
124. Developing his theme still further, counsel therefore submits that in fact the Probate Department of HSBC did not misunderstand the instructions of the deceased in the questionnaire when they prepared the various draft versions of the will – none of which provided for a restriction of $70,000 per month. Rather, Mr Chan argues, to the extent that they did not stipulate such a restriction, they reflected correctly the intentions and wishes of the deceased.
125. Mr Chan therefore does not accept the relevant part of the evidence of Mrs Doris Lau and Mrs Sheila Ho. In particular, he does not accept Mrs Lau’s evidence that the drafts did not reflect the deceased’s true intentions and that there was a misunderstanding by the Probate Department when drafting the will because of the Chinese wall maintained between Mrs Lau’s department and the Probate Department so that the latter was not privy to the instructions given by the deceased to Mrs Lau, as was recorded in the file note for 31 October. Mr Chan does not accept the evidence of Mrs Ho that the deceased had not read the contents of the draft wills or that they would be unacceptable to her.
126. The final leg of Mr Chan’s argument is therefore that when all of a sudden during the telephone conversation on 1 December, Mrs Lau suggested to Mrs Ho to replace the beneficiaries as set out in the various draft wills with the trust as the sole beneficiary, Mrs Lau was mixing up the deceased’s true intentions and wishes in the will with that under the trust arrangement. In other words, by equating the two, Mrs Lau was in fact frustrating the deceased’s intentions in making the will. All this was done without rendering proper advice to the deceased on the very subtle differences made (in terms of what the mother would get) by using the trust as the sole beneficiary under the will, thereby making testamentary disposition of the estate follow the trust, when the deceased’s original underlying considerations for the two were quite different.
127. Depending on one’s perspective, Mr Chan’s argument can either be described as ingenuous or desperate. In any event, I have no hesitation in rejecting it. It is an argument that essentially turns on facts, and the facts do not support Mr Chan’s argument.
128. Mr Chan’s argument is premised on there being a distinction in terms of the deceased’s intentions and wishes under the trust arrangement and the will respectively. On the facts, I reject such a distinction. Both according to Mrs Lau’s evidence and Mrs Ho’s evidence, the deceased did not draw any such distinction at all. The contemporaneous file note prepared by Mrs Lau referred to no such distinction. Nor was there a distinction that turned on how long the deceased thought she would survive. On the facts of the case, no such distinction was drawn. In other words, the deceased’s intention to provide for her mother’s living expenditure at the fixed monthly sum of $70,000 was not dependant on how long she (the deceased) was to live or thought she was to live, nor was the amount intended to be applicable only to the time when she was still alive. It did not depend on her own resources nor the size of her estate. On the evidence, I find no trace of any such consideration.
129. What is plain to me from the evidence is that the deceased only wanted to give her mother just sufficient money to maintain her then living standard, and nothing more. In fact, the deceased was very meticulous with her calculations in this regard and according to Mrs Sheila Ho’s evidence, which I accept, the deceased required a lot of persuasion to increase the calculations by a mere $5,000 per month. To be sure, the deceased wanted to maintain her mother for life at the same level as she was enjoying whilst she was alive, which was typified by the provision of 2 maids and a chauffeur, which was on top of the free accommodation that the mother was already enjoying in her Happy Valley flat. But she did not want to provide her with more. The rationale is quite plain on the facts – she did not trust her mother on managing money. It is not necessary to debate whether that view of the deceased was correct or not; at any rate, her mother did not convincingly challenge the proposition when she gave evidence. From Mrs Doris Lau to Mrs Ho and Eddie Lau, they all testified to the effect that the deceased did not trust her mother on financial discipline and feared that she would squander whatever extra money that she might have in no time.
130. Moreover, the deceased’s relationship with her eldest brother was bad, whereas quite apparently his relationship with his mother was close. It requires little imagination to understand the deceased’s thinking that she did not want any extra money that she might otherwise provide to her mother to fall into the hands of her eldest brother. Indeed she said so in terms when she met Mrs Lau on 31 October. She told her rather bluntly that she did not want any part of her estate to go to any other Muis – apart from her mother and the nieces/nephews.
131. Another fallacy in Mr Chan’s argument is that to some extent, his argument depends on the assumption that during her lifetime and because of her own needs, the deceased could not afford to give her mother more than $70,000 per month. In the absence of any evidence on the actual income of the deceased, this argument simply lacks the necessary evidential support.
132. But most importantly, according to the evidence of Mrs Lau and Mrs Ho, the deceased simply did not draw any distinction between the will and the trust in terms of making provisions for the disposition of the estate. In the words of Mrs Ho, the will and the trust were twins, and the information in the questionnaire was meant to be used not only for the will but for the trust as well. And this was corroborated by the contents of the file note for 31 October. The extracted portion from the file note clearly and simply stated that the deceased wished to give her mother $70,000 per month “upon her death” – regardless of when she was going to die .
133. Far from indicating that the deceased held different intentions and wishes under the will and the trust arrangement, the concern about “matching” was another clear indication that the deceased wanted the disposition under the will to be exactly the same as that under the trust. And that was why she readily accepted Mrs Lau’s proposal to name the trust the sole beneficiary under the will. It must be remembered that all this took place on 1 December 2003, and there is no suggestion whatsoever that the deceased was then suffering from any condition that could affect her mental capacity.
134. Once that is accepted, there is no place for an argument that the deceased might have missed the “subtle” differences between disposition under the will and disposition under the trust. According to the evidence, although the deceased had received rather humble formal education, she was a highly intelligent and meticulous person, with a very keen eye on money matters. If it had been her intention to leave more to her mother under the will than under the trust arrangement, she would have been the first person to spot the difficulty or difference created by naming the trust the sole beneficiary under her will. I do not believe that she would require any advice from Mrs Lau or Mrs Ho, or, for that matter, anyone else, to notice the difference.
135. Mr Chan argues that there has been a change of case on the part of Mrs Lau and Mrs Ho regarding the evolution of the various draft wills. I firmly reject the argument. Having closely observed the demeanour of the two witnesses in the box, I am more than certain that they were both honest and reliable witnesses. Any discrepancies or omissions in the witness statements are, in my view, innocent slips and lapses. I have described generally my view on these so-called inconsistencies or omissions at an earlier part of my judgment and I do not wish to repeat myself here.
136. I am particularly impressed by Mrs Lau’s excellent recollection of details and (professional) sensitivity to the needs of her clients. She is a true professional and has served the deceased diligently and conscientiously. Whilst I am aware from the court record that there is pending litigation between the plaintiff and Mrs Lau (HCA 1671/2007), having given the matter serious consideration, I do not believe that that affects the credibility and reliability of Mrs Lau’s evidence at all. In any event, no submission to that effect was made by Mr Chan, nor was there any question relating to the other litigation put to Mrs Lau whilst she was in the box.
137. As for Mrs Ho, she is quite plainly a very straightforward and no-nonsense type of person, who had nothing but the best interest and care of the deceased in her mind. She has nothing to gain from the litigation and there is no motive for her to lie regarding what has happened.
138. Another hard fact that contradicts Mr Chan’s argument or theory is that the trust deed itself does not draw any distinction between provisions for the mother whilst the deceased is still alive and provisions for her after she is dead. Nor did any of the contemporaneous file notes and internal documents of HSBC refer to any such distinction.
139. I have already described how section H of the will appointment questionnaire came to be filled out. I accept in entirety Mrs Ho’s evidence in this regard. I do not believe that section H can be read literally. Rather, it must be read together with the instructions given by the deceased to Mrs Lau during the 31 October meeting, as was recorded in the file note. That is the only legitimate way to read section H. Standing in the position of the deceased, she had just told Mrs Lau in detail her intentions face to face on 31 October, and therefore she had every legitimate reason to believe that when Mrs Lau received her completed will appointment questionnaire, she would read section H accordingly. If she had wanted to make different provisions under the will and the trust respectively, one would have expected the deceased to be more explicit in her instructions than the contents of the will appointment questionnaire.
140. Another subsidiary argument against Mr Chan’s contention is that quite plainly, on the evidence, the deceased did not expect herself to die so soon. Indeed, by as late as 20 December, when the deceased’s condition had already deteriorated from that which she had been in when first admitted to the hospital, she still thought that she could wait until after Mrs Lau’s return from her Christmas vacation to execute documents to inject assets into the trust. That being the case, it simply flies in the face of the evidence to argue that when she made the will, she was contemplating death imminently so as to warrant making a more generous provision to the mother out of her estate.
141. In any event, as I said, there is no serious suggestion that on 1 December, the deceased’s mental condition was anything other than normal. In those circumstances, the deceased must be taken to have approved of whatever “subtle” changes in terms of provision under the will by agreeing to name the trust as the sole beneficiary. In terms of knowledge and approval, and leaving aside the question of her suffering from HE, Mr Chan’s contention on this front must fail.
142. For all these reasons, I reject Mr Chan’s separate argument based on knowledge and approval.
Testamentary capacity
– Dr Teo’s evidence –
143. Turning to testamentary capacity, the classic definition of testamentary capacity, in terms of having a sound disposing mind, has been given by Cockburn CJ in Banks v Goodfellow (1870) LR 5 QB 549, 565 - 566 :
“It is essential to the exercise of such a power that a testator shall understand the nature of the act and its effects; shall understand the extent of the property of which he is disposing; shall be able to comprehend and appreciate the claims to which he ought to give effect; and, with a view to the latter object, that no disorder of the mind shall poison his affections, pervert his sense of right, or prevent the exercise of his natural faculties – that no insane delusion shall influence his will in disposing of his property and bring about a disposal of it which, if the mind had been sound, would not have been made. ….. If therefore, though mental disease may exist, it presents itself in such a degree and form as not to interfere with the capacity to make a rational disposal of property, why, it may be asked, should it be held to take away the right? It cannot be the object of the legislator to aggravate an affliction in itself so great by the deprivation of a right the value of which is universally felt and acknowledged. If it be conceded, as we think it must be, that the only legitimate or rational ground for denying testamentary capacity to persons of unsound mind is the inability to take into account and give due effect to the considerations which ought to be present to the mind of a testator in making his will, and to influence his decision as to the disposal of his property, it follows that a degree or form of unsoundness which neither disturbs the exercise of the faculties necessary for such an act, nor is capable of influencing the result, ought not to take away the power of making a will, or place a person so circumstanced in a less advantageous position than others with regard to this right.”
144. As described, Dr Teo was the treating doctor of the deceased since July 2003 up to the very last moment. He also has vast experience in treating cancer patients. His observations and opinion are naturally of great importance.
145. Dr Teo was definite that the deceased was not suffering from any form of HE on 3 December 2003. The deceased was her normal self on that day. This he said from the observations that he had made from the many ward rounds that he had had both before and after 3 December. In particular, the CT scan results which painted a very bad picture about the deceased’s condition were out on 2 December. He had probably two or three detailed discussions with the deceased about the results in his ward rounds and according to his recollection, the deceased had very good interactions with him about her condition and prognosis.
146. In relation to the CT scan results, the deceased closely followed the explanations given by Dr Teo, had adequate responses and asked pertinent questions, including leading questions. She was concerned about her prognosis, her singing career, the possible treatment and the danger involved. She showed foresight and displayed intelligence. She was contemplating on life and her future. She remained talkative and was keen on learning more about her own condition. To Dr Teo, the mental capacity of the deceased at the relevant time was plain and obvious. She asked questions which showed insight into her problems. She specifically reiterated her request not to let her mother know about her condition at all until the very last moment so as to minimise the impact on her mother.
147. According to Dr Teo, the deceased was sociable, enjoyed talking with friends and those treating her. She was no different on 3 December.
148. Dr Teo first noticed that the deceased was “drowsy” in the sense that she was “dull” and “less bright” during the morning ward round on 4 December. By that, he meant that she was bed-bound, was responding passively to questions and in a slow and interrupted fashion. She was more than tired and looked sleepy. That was why he wrote down “drowsy” and “interrupted speech” in his notes. He emphasised that those symptoms were not present on 3 December.
149. Dr Teo took comfort in the fact that even his colleague, Dr Hui, a liver expert who took part in treating the deceased, did not notice any physical signs that prompted him to carry out any immediate investigation or treatment prior to his (Dr Teo’s) making the suspected diagnosis of hepatic pre-coma on 4 December. Dr Teo maintained that the ordering of blood test for ammonia level on the evening of 3 December was not caused by any specific clinical observations or suspicion of the condition of HE. Rather, it was only part of a wider data collection exercise as at that time the precise cause of the deceased’s liver problem still eluded her treating doctors.
150. As described, Dr Teo, with the benefit of hindsight, considered that his suspected diagnosis was indeed the correct one. He clarified in Court that the deceased was only suffering from stage 1 HE on 4 December (although “hepatic pre-coma” as a term can actually mean stage 1 or stage 2). Stage 1 is the lowest among four stages, leaving aside the so-called “sub-clinical” stage. He speculated that the ammonia level on 3 December was above 33 but below 99 – “nearer to 33 than 99”. He opined that despite the abnormal ammonia level on 3 December, the deceased was not suffering from HE at all on that day. He lost no time in evidence to point out that there is no necessary correlation between the level of ammonia in the blood and HE, and more importantly, there is no objective threshold of ammonia level in the blood for developing HE – it all depends on individuals.
151. Dr Teo accepted that the antihistamine (valium/diazepan) that the deceased had been having could aggravate the condition of HE, if she was suffering from it. However, Dr Teo pointed out that most probably the deceased had developed a significant tolerance to the drug and the fact that she woke up before 8:00 am on 3 December even though the last dosage was administered at 1:00 am the same day showed that her consciousness was not adversely affected by the drug at all. Dosage of the drug was reduced by half on the 4th after Dr Teo made the suspected diagnosis of hepatic pre-coma.
152. Dr Teo very fairly accepted in evidence that the best medical or scientific test for mental capacity is a full mental state examination, which among other things, includes a mini mental state examination. He admitted that no such formal examination was ever done. However, he maintained that his regular ward rounds, each lasting between 15 and 45 minutes depending on circumstances, in which, among other things, he applied his professional training and observation to gauge the deceased’s physical and mental condition, were as good as any mental state examination. In fact, he suggested that although one is no substitution for another, his long period of observation in the regular ward rounds should be the “gold standard” for measuring the deceased’s mental capacity. Dr Teo admitted in evidence that 3 December was the first time he was ever asked to certify the mental capacity of a patient to make a will. He admitted that he was not aware of the definition of testamentary capacity as set out in Banks v Goodfellow. However, he said that based on his common sense, a person must know what assets he has, the implications of making a will, who his beneficiaries are and why he is distributing the assets in the manner set out in the will. He maintained that in his view, the deceased was of full mental capacity on 3 December. She was just her normal self. Dr Teo explained that in all cases of liver function derangement, experienced doctors like himself and Dr Hui always watched out for signs and symptoms of possible HE. Quite plainly, neither he nor Dr Hui observed any such signs and symptoms prior to 4 December.
153. In the box, Dr Teo, basing himself on his first hand knowledge of the deceased’s condition at the time, went through and applied to the deceased’s case a number of standard factors pertinent to determining a testator’s mental capacity, namely, appearance and behaviour, speech, mood, thought, perception, cognition, memory, intelligence, orientation and insight, and concluded positively that the deceased’s mental condition was normal on 3 December (see Trial Bundle B, pp 243 - 44 to 243 - 45).
154. Dr Teo was confident that the deceased would have passed the mini mental state examination on 3 December if one had been done on that day. Dr Teo based his conclusion on the ward round he had that morning plus the 45-minute observation while he was present when Mrs Lau explained the documents to the deceased and when the latter executed the trust deed and the will.
155. Dr Teo also took into account the nurses’ notes and observations, but he maintained that as doctor, he made his own independent observation and judgment. However, he had, since the litigation arose, asked his colleagues who had taken part in treating the deceased at the time for their views on the matter. All of them were of the view, according to a very short statement jointly signed by these doctors, that the deceased was of normal mental capacity throughout her period of final admission.
156. Dr Teo admitted, however, that that was an over-simplification because as he had conceded in the box, he could not be sure whether the deceased was of sound mind during the period from 4 to 7/8 December. Moreover, as from Christmas Eve until she died, he could not be sure that the deceased possessed the requisite mental capacity (save that in the last 48 hours after the deceased had lapsed into a coma, she definitely did not possess it). None of the doctors has given evidence at trial and I place little weight on the short joint statement.
157. As regards his own aide memoire, Dr Teo frankly admitted that it was prepared sometime after the demise of the deceased, when there was a (possible) claim made or threatened to be made against the hospital and possibly himself about the treatment the deceased received at the hospital. He wrote the aide memoire without reference to the medical records kept at the hospital. He just prepared it out of his own recollection and he simply forgot the diagnosis of hepatic pre-coma. He maintained that what he stated in his aide memoire was otherwise true and correct.
– Lay witnesses’ observations –
158. I have already described the observations and views of Mrs Lau and Mrs Ho regarding the mental condition of the deceased. They found her to be her normal self on 3 December. They were absolutely positive that the deceased was mentally capable of executing the legal documents (according to their own understanding of what mental capacity is about).
– Dr Edwin Yu’s opinion –
159. Turning to the experts’ evidence, the 3rd defendant has called Dr Edwin Yu, a renowned psychiatrist, to give evidence on its behalf. Dr Edwin Yu, like Dr Edmund Woo retained for the plaintiff, has never taken part in treating the deceased. He based his opinion on the available records and documents. He had also listened to the oral evidence given by Dr Teo in Court.
160. Dr Edwin Yu was very firm in his agreement with Dr Teo that the deceased did not suffer from any form of HE on 3 December. Dr Yu was fully aware of the test of mental capacity laid down in Banks v Goodfellow. He took the view that on 3 December, the deceased had the requisite mental capacity to make the will.
161. However, in relation to whether the deceased was suffering from any form of HE, Dr Edwin Yu took a more ambitious position than Dr Teo. Dr Yu opined that there was insufficient evidence to show that the deceased was suffering from any form of HE even on the 4th or on the following days, despite Dr Teo’s suspected diagnosis of hepatic pre-coma at the time and Dr Teo’s subsequent opinion, formed with the benefit of hindsight, that his suspected diagnosis was indeed the correct one.
162. Dr Yu took the view that if a mini mental state examination had been done on 3 December, the deceased would have scored marks within the normal range. He pointed out that unlike the view generally held 20 years ago, a high level of ammonia in the blood does not necessarily mean that the person has or will suffer from HE. There is no necessary correlation between the two.
163. As for the clinical observations made by Dr Teo on the 4th, Dr Yu pointed out that HE is a clinical diagnosis. Leaving aside the high level of ammonia, which has no necessary correlation with HE, the observations of drowsiness and interrupted speech were simply insufficient for one to conclude that the deceased was suffering from any form of HE. Rather, one should look for clinical observations of lethargy and confusion, particularly those that were persistent and consistent.
164. Dr Yu pointed out that although on admission, the deceased was suffering from gastrointestinal bleeding, the position was improved soon after admission so much so that she was allowed home leave on 2 December (from midnight to the afternoon). Dr Yu pointed out that no responsible doctor would have allowed the deceased any period of home leave if her physical or mental condition was not at a reasonable level.
165. Dr Yu accepted that antihistamine could aggravate the condition of HE, if one was suffering from it. However, Dr Yu maintained that the deceased was not suffering from any form of HE; moreover, she had developed a significant degree of tolerance towards the drug due to previous use.
166. Dr Yu held a very high opinion of the nurses’ records which consistently rated the deceased as being conscious (清醒). Dr Yu pointed out that in the standard forms filled out by the nurses, they could have circled “譫妄” (delirious) rather than “清醒” (conscious), but they never did. Delirious would have suggested that the deceased might be suffering from some form of HE, Dr Yu explained.
167. Dr Yu was very definite on his view that the deceased was not suffering from any form of HE. There was no changed consciousness. There was no deterioration in cognitive or intellectual functions. No rambling, incoherent speech, or irrelevant speech was observed during the ward rounds.
168. Dr Yu accepted that physicians who were not specially trained in psychiatry could miss the diagnosis of stage 1 HE. However, on the available records, with particular reference to the deceased’s consciousness/intelligence, mood and will function (“志、情、意”), Dr Yu took the view that the deceased was not suffering from any form of HE even from 4 to 7/8 December, contrary to Dr Teo’s view. In any event, Dr Yu pointed out that even if one were suffering from an early stage of HE, it would not mean that one did not have the necessary mental capacity to make a will. One could be affected “minimally”. That also explains why the early stage of HE could be missed sometimes by physicians not trained in psychiatry.
169. According to Oxford Textbook of Medicine (4th ed), vol 2, 743, stage 1 HE would involve mild confusion, euphoria or depression, decreased attention, slowing of ability to perform mental task, untidiness, slurred speech, irritability, reversal of sleep rhythm; whereas stage 2 HE would imply drowsiness, lethargy, gross deficit in ability to perform mental task, obvious personality changes, inappropriate behaviour, intermittent disorientation (usually for time) and lack of sphincter control. Thus Dr Yu maintained, despite vigorous cross-examination, that there were simply insufficient symptoms to justify making a clinical diagnosis of HE of whatever form in the case of the deceased even from 4 December onwards. A fortiori, the deceased did not suffer from any form of HE on the 3rd.
– Dr Edmund Woo’s opinion –
170. Dr Edmund Woo has not treated the deceased either. He based his opinion on the available records, as well as the oral evidence of Dr Teo which he heard and the relevant part of the transcript of Mrs Lau’s evidence in Court which he read.
171. Whilst Dr Yu agreed with Dr Teo that the deceased had no HE on 3December but disagreed with Dr Teo that she had some form of HE on the following days, Dr Woo agreed with Dr Teo that the deceased was suffering from HE on 4 December and the days following, but he disagreed with Dr Teo that she had no HE on the previous day (3 December).
172. Essentially, Dr Woo took the view that not only was the deceased suffering from some form of HE on 4 December, which he rated at stage 1 to stage 2, probably stage 2 or, as he put it, “1.5”, he also maintained that there was a 50-50 chance of the deceased suffering from HE (probably stage 1) on 3 December.
173. Dr Woo emphasised the importance of having a mental state examination to determine the deceased’s mental capacity. In his view, there was no better substitution. He emphasised that even if a mini mental state examination had been done, that would not have been conclusive in determining the mental capacity of the deceased.
174. Dr Woo explained that the gastrointestinal bleeding (GI bleeding) that the deceased was suffering from at the time of final submission was never completely treated. It set the scene for a high ammonia level in the blood because continuous and substantial bleeding provided the bacteria in the abdomen with an abundant supply of nourishment for consumption, in which process a large quantity of ammonia was discharged into the blood circulation.
175. Secondly, the liver function failure, whatever its cause might be, meant that the liver was slow in metabolising toxic substances in the blood, resulting in accumulation of ammonia in the circulation.
176. Furthermore, the taking of antihistamine also aggravated the situation in that it worsened the condition of HE (if it existed) in terms of drowsiness and that the mal-functioning liver took a longer time to metabolise the drug, the effect of which would therefore remain longer in the body than usual. However, Dr Woo admitted that one had to take into account a patient’s level of tolerance to the drug.
177. While accepting that there is no necessary correlation between the level of ammonia and the condition of HE, Dr Woo nonetheless insisted that ammonia level is a good “marker” of HE.
178. Based on the available data, Dr Woo worked backward and concluded that given an ammonia level of 99 from a blood sample taken at 7:20 am on 4 December, the deceased’s ammonia level on the morning of the 3rd should be somewhere lower than 99, say 80 to 99, whereas the level on 2 December should be around 60 to 80. More importantly, at that level on 3 December, the deceased was, on a 50-50 basis, suffering from stage 1 HE.
179. Dr Woo accepted that a high level of ammonia does not necessarily mean any stage of HE, and he further accepted that some form of HE does not necessarily mean the lack of mental capacity. In the present case, Dr Woo took it as a significant fact that the team of treating doctors ordered the testing of ammonia level on the evening of 3 December; he suspected that the treating doctors must have noticed something which alerted them to ordering the test in the first place.
180. In any event, Dr Woo explained in evidence that HE is a gradual and metabolic disease, a disease that builds up gradually. If, as he opined, the deceased was having stage 2 HE on 4 December, then on 3 December, there was a 50-50 chance of her suffering from some form of HE.
181. Dr Woo also commented on the nurses’ entries and emphasised that a doctor’s own assessment and observations were more important. As regards Dr Teo’s notes, Dr Woo commented that they were quite “cursory”. Dr Woo referred to drowsiness as meaning “clinically drowsy”, rather than Dr Teo’s understanding of the patient being “dull” or “less bright” only. As regards “interrupted speech”, Dr Woo explained that it did not mean that the mind had been affected, rather it meant the motor skill had been affected.
182. Dr Woo went so far as to say that on 2 December, it was possible that the deceased was suffering from some form of “sub-clinical” HE which could not be detected by clinical observation. A detailed mental state examination had to be done to determine the position.
183. Having read the relevant part of the transcript of Mrs Lau’s evidence relating to what happened in the private ward on 3 December and Mrs Lau’s own observations on the deceased’s behaviour that day, Dr Woo expressed some concerns over the deceased’s questions and responses. Those concerns were in terms of whether the deceased was attending adequately, concentrating adequately, maintaining goal-directed attention throughout, whether she was able to retrieve past information, to analyse all the information given to her at the same time and to come to a conclusion or decision, and whether she could maintain a working memory, execute her reasoning, express her reasoning, judgment and decision. He was concerned whether the deceased was able to follow the answers given in response to her questions and to ask pertinent follow-up questions.
184. Dr Woo emphasised that the ability to engage in social intercourse and the presence of social graces do not necessarily mean that the person has the requisite mental capacity to make a will. He also pointed out that on many occasions, although clinical doctors found their patients to be mentally competent, yet when a mental state examination was done, many of the patients were found not to be so competent. He said the problem with relying on ward round observation and so forth without a formal mental state examination was that many of the questions asked during the ward rounds were not “standardised questions”.
185. In short, Dr Woo took the view that the probability of the deceased suffering from HE on 3 December and the probability of her lacking mental capacity on that day to execute a will were both 50-50.
– Medical literature –
186. Both experts, as well as Dr Teo, referred to some literature during their evidence in Court (and in the expert reports) to support their respective views. They were also cross-examined in some detail on these materials. I have summarised their views here, and it is quite unnecessary to refer to the literature separately, save to say that it has been fully taken into account in making my findings of fact. For the purposes of the record, the literature includes British Medical Association, Assessment of Mental Capacity: Guidance for Doctors and Lawyers (1995 ed and 2nd ed); Weissenborn, Neurologic Manifestations of Liver Disease;Jain, Hepatic Encephalopathy (Medlink); Oxford Textbook of Medicine (4th ed), Vol 2; an article taken from Canadian Journal of Emergency Medicine (Nov 2006) produced by Dr Edwin Yu (Exhibit D5); and another article entitled “Hepatic Encephalopathy – Definition, Nomenclature, Diagnosis and Quantification” which was the Final Report of the Working Party at the 11th World Congresses of Gastroenterology, Vienna, 1998.
– Dr Lai’s opinion –
187. Dr Lai Siang Hui is a pathologist from Singapore. He was also called by the plaintiff to give evidence at trial. He supported the views and opinion of Dr Woo. He accepted that his specialty is not in psychiatry or neurology. He was not in a position to assist the Court beyond what Dr Woo had already told the Court. In short, his evidence does not take the plaintiff’s case any further than what Dr Woo has done.
– Discussion –
188. In some cases, despite the observations made by laypersons, the views of medical experts remain of great importance, even though those experts have never treated or seen the patient in question (eg Sharp v Adam [2005] EWHC 1806). In others, the observations and opinion of those who have had regular or even daily contact with the patient are of the highest significance in determining the true condition of the patient. It all depends on the circumstances. In this regard, Mr Yau, Mr Poon with him, for the 3rd defendant, has referred the Court to a passage in the judgment of Laidlaw JA in Re Price [1946] 2 DLR 592, 595-596, which I find apposite to the subject:
“The quality of a person’s mind manifests itself by conduct and expressions of thought. The conclusions to be reached from such evidence do not depend for their correctness upon the possession or exercise of special skill or knowledge. A judgment may be formed by a person of sound mind and reason exercising powers of observation and deduction without the use of any scientific learning whatever. It is practical question which may be answered by a layman of good sense with as much authority as a doctor. The weight to be properly given to the evidence touching the question depends in part upon the extent of the observations made by a witness. In the case presently under consideration, witnesses who testified on behalf of the respondent, were, in my opinion, much better qualified to state the symptoms displayed by the testatrix at the time she executed the document in question and from which the state of her mind must be determined than were the doctors. They had more intimate knowledge of her behaviour both before and after the onset of illness. They saw her for longer periods of time and at more frequent intervals. They knew and described her activities with the advantage of their long experience and association with her. They were persons of education and possessing powers of accurate observation and deduction. I have no hesitation whatever under the particular circumstances, in saying that the testimony given by them and the views they expressed are of much greater weight than that of the doctors.”
189. In the present case, one must not lose sight of the focus of the inquiry, namely, the deceased’s testamentary capacity. Although it is helpful to determine whether the deceased was suffering from any form of HE on 3 December, that is not the ultimate question. The ultimate question is : irrespective of whether she was suffering from any form of HE that day, whether she had the requisite mental capacity, in terms of the test laid down in Banks v Goodfellow, to execute the will (and the trust documents).
190. Delusion in the present case is ruled out by all experts. The focus here is on the deceased’s consciousness, appearance and behaviour, speech and thought, mood, intelligence and cognition, attention and concentration, memory and recollection, reasoning, judgment and decision-making ability, and so forth. In terms of these matters, I take the view that the observations made by Dr Teo as well as that by Mrs Lau and Mrs Ho are highly significant and relevant.
191. Dr Teo, as I said, is a highly experienced medical doctor in treating cancer patients. He was the treating doctor of the deceased for almost half a year. The deceased was no stranger to him. Particularly in terms of her final admission, he was in daily contact with the deceased. During his daily ward rounds, he had very good opportunities to observe the deceased and was in a very good position to notice any change in terms of the deceased’s consciousness, cognitive functions, behaviour etc. Moreover, given that the deceased was known to be suffering from liver function derangement, he and his team of doctors were, according to the evidence, constantly on the watch out for signs and symptoms indicating HE. Indeed, to his credit, Dr Teo was the first doctor to diagnose (provisionally) hepatic pre-coma on 4 December by noticing drowsiness and interrupted speech. That was reinforced by the high level of ammonia found in the blood sample of the deceased that morning. In my view, Dr Teo was a most observant doctor, and his view was entitled to the highest regard.
192. Dr Teo was in a particular good position to say that the deceased’s mental condition was normal on 3 December because apart from being present for 45 minutes when Mrs Lau explained the contents of the documents to the deceased and when the deceased executed the trust deed and the will, he had also spent a substantial amount of time with the deceased during the morning ward round that day. As he said in Court, very probably discussion during the ward round that morning was, like the previous ward round, dominated by the latest CT scan results of the deceased, which greatly concerned the deceased. All this gave Dr Teo a unique and advantageous opportunity to observe the deceased’s mental condition, so much so that he was able to tell Mrs Lau with confidence that the deceased was perfectly normal to undergo the document explanation/execution process.
193. Dr Teo was, of course, aware of the service that a psychiatrist could provide, but he was so certain that the deceased had the requisite mental capacity that he did not feel it necessary at all to call in the service of a psychiatrist to formally assess the deceased’s mental condition on 3 December. To him, the deceased was simply her normal self that morning.
194. Credibility-wise, I have no hesitation whatsoever in accepting Dr Teo’s evidence. I have no doubt that the aide memoire contained over-statements for reasons explained by Dr Teo. I have no doubt that the correctness of its contents (as rectified by Dr Teo in Court) was not at all affected by the fact that it was written at a time when there was a threatened claim against the hospital and possibly the treating doctors. I also accept without reservation Dr Teo’s evidence that the ordering of testing of ammonia level on the late afternoon of 3 December was nothing other than part of a normal exercise to collect more data in order to determine the cause of the deceased’s liver trouble. In fact, a host of tests were ordered at the same time. Indeed, leaving that aside, nothing unusual or abnormal was noticed during the evening ward round on 3 December. I am aware from the court record that the plaintiff (and her eldest son) have been suing Dr Teo (together with the hospital and Mrs Lau) in another action (HCA 1671/2007) – the claim against Dr Teo and the hospital has been struck out by a master and an appeal from the master’s decision has just been dismissed but it is not clear whether the plaintiff and her son will take the matter further. In any event, I have given careful thought to the matter and have come to the firm conclusion that it has not affected at all the credibility and reliability of Dr Teo’s evidence in Court. Mr Chan has not, it should be noted, cross-examined Dr Teo on this other action at all.
195. Mrs Lau and Mrs Ho shared Dr Teo’s view on the deceased’s mental condition on 3 December. Although 3 December was only the second occasion when Mrs Lau saw the deceased, her observations and view cannot be lightly discarded. First, it was she who insisted that the deceased’s mental condition should be certified by a doctor in the first place. She was well aware of the importance of the deceased’s mental condition to the explanation and execution of the documents. She spent over an hour to explain the necessary documents to the deceased (including the time after Dr Teo had left). She vividly recalled the questions, responses and answers as well as the body languages of the deceased during that period of time. She could not recall any moment of time when the deceased seemed to have lost her concentration, or was not following her explanation. No non-sensical or irrelevant question was asked. All responses by the deceased were appropriate. The deceased was capable of engaging in social interaction as well as participating in the more serious business of listening to the explanation of the legal documents and executing the same afterwards. The deceased was as smart as ever regarding dollars and cents and in fact the condition of the deceased was better than what Mrs Lau had imagined before coming to hospital to see her. I have summarised the twenty odd questions or responses made by the deceased, as Mrs Lau related to the Court in her evidence. Having considered the contents of the questions and responses, I do not share Dr Woo’s concerns about those responses or the supposed lack of follow- up questions. In my view, those responses, when read in light of the context of Mrs Lau’s evidence and what was happening on that day, showed quite clearly that the deceased was paying attention throughout, had no difficulty in following the explanation, asked very intelligent questions at every stage of the process, never lost interest in the matter, and in short, knew exactly what she was doing. At one stage, as described already, the deceased put forward questions in the alternative to Mrs Lau, and that simply illustrated her understanding and intelligence.
196. It must be remembered that Mrs Lau is a very experienced professional, and she must have met numerous clients in her long professional life. She is obviously well educated and highly intelligent, and I do not believe that if the deceased’s mental capacity were anything other than normal on the day in question, Mrs Lau would have failed to notice it.
197. Mrs Ho, in my view, was also a very valuable witness in determining the deceased’s mental condition. The deceased was very close to her and she treated the deceased as her daughter. She was by her side and with her throughout her illness. She visited and stayed with the deceased at the hospital every day. She helped the deceased relay her instructions to Mrs Lau for the preparation of the legal documents, which she did faithfully. She was in close and daily contact with the deceased. If there was any abnormality in the deceased in terms of her intelligence, mental condition or behaviour, she would have been the first one to notice. Yet according to her, the deceased was her normal self on the day in question. Mrs Ho, who is obviously a person with experience in life, was adamant that the deceased was of sound mind and capacity at the time. Her opinion is entitled to great weight as well.
198. It has been said that the contents of the various legal documents are complex and it would require a lot of concentration and understanding on the part of the deceased to follow and comprehend the explanation. That may be so superficially. But despite the complicated languages used in the documents, the theme of the legal documents remained the same. It never varied from what the deceased told Mrs Lau she wanted to have done in their first meeting on 31 October. I do not believe that the deceased failed to follow or understand the main theme of the legal documents or the provisions that she was making under these documents. Indeed she asked intelligent questions, including whether she could change her wishes, add or remove beneficiaries and so forth. She was concerned about HSBC’s charges and even asked where HSBC was going to place the cash belonging to the trust fund. She was also justifiably alarmed by the sweeping indemnity given to HSBC under the documents. She could tell which provisions in the will were important and which provisions were unlikely to be of significance, when she remarked that many of the provisions in the will relating to the powers of the executor/trustee under the will would be quite inapplicable given that the entire estate was to be given to the trust as sole beneficiary.
199. She was particularly impressive when she asked Mrs Lau whether the fact that she had appointed nominee directors to the boards in some of the companies to be injected into the trust would affect the (tax) position.
200. It was the deceased who asked Mrs Ho to take $1,000 cash from her wallet inside her handbag to give it to Mrs Lau to set up the Karen Trust. It was the deceased who noticed that Eddie Lau’s name did not appear in the third schedule of the trust deed, and when she was told by Mrs Lau that Eddie Lau’s interest would be taken care of in the trustee memorandum to be explained later on (in the absence of Dr Teo), the deceased felt relieved visibly.
201. The deceased repeatedly asked questions regarding whether she could add or remove beneficiaries afterwards. It suggests that she was quite aware of the competing claims to her bounty to which she ought to give effect.
202. The nurses’ records may be subject to various interpretations, but it should be noted that none of the nurses who took part in filling out the records circled those standard descriptions that would suggest the deceased was suffering from obvious symptoms of HE, other than noting that she was tired or sleepy on some occasions.
203. As I have repeatedly said, despite his enthusiasm for the plaintiff’s case, Dr Woo never went beyond suggesting that there was a 50-50 chance of the deceased suffering from some form of HE on 3 December 2003 and that there was a similar probability of her mental capacity being affected to such an extent that she did not have the requisite mental condition to execute the will and legal documents. Beyond that, he could not and did not go. As somebody who has not met or treated the deceased, I think Dr Woo’s view, from his own perspective, is fair enough.
204. However, I am not convinced that his view is sufficient to cast doubt on the collective observations made by Dr Teo and the relevant witnesses about the deceased’s condition at the time.
205. In particular, Dr Woo’s opinion seems to have been coloured by his suspicion that the reason why the team of treating doctors ordered the testing of ammonia on the evening of 3 December was because they noticed something wrong with the deceased. In this regard, I have no difficulty in accepting Dr Teo’s evidence that it was nothing other than part of a normal data collection exercise. Rather, I take into account Dr Teo’s point that even Dr Hui, the liver expert, did not notice any symptoms of HE or order any specific investigation in that regard. Indeed, Dr Lai actually commended Dr Teo for being sufficiently alert to make the provisional diagnosis of hepatic pre-coma on 4 December. He observed that if he had been the treating doctor, he might well have missed the diagnosis.
206. On the other hand, I think Dr Yu has been too ambitious in disagreeing with Dr Teo’s diagnosis of hepatic pre-coma from 4 December onwards. Dr Yu’s opinion was, in my view, to some extent affected by his dissatisfaction with the records kept by the doctors. He found, in short, there were insufficient symptoms recorded in the notes to justify such a diagnosis. That may well be a valid criticism had it not been the case that we do have Dr Teo give evidence at trial. For the explanations given by Dr Teo in Court which I have described, I believe Dr Teo has made the correct diagnosis of hepatic pre-coma on 4 December.
207. I also believe that at that time, the deceased was suffering from stage 1 HE, ie a very preliminary stage. According to the textbooks, stage 1 is not easy to diagnose and very often the diagnosis is made with the benefit of hindsight. That is exactly what has happened here. It was only with the benefit of the subsequent development of the deceased’s condition after Dr Teo administered provisional treatment of HE that he managed to confirm his suspected diagnosis to be correct.
208. In terms of symptoms, it must be pointed out that leaving aside the ammonia level, which does not constitute a clinical observation by itself, the only observations here are drowsiness and interrupted speech. In relation to drowsiness, I have no doubt that Dr Teo used the term in the sense meant by him – “dull” and “less bright”, rather than lethargy or confusion. And when one compares these two observations with the symptoms set out in, for instance, the Oxford text, one does not find mild confusion, euphoria or depression, decreased attention, untidiness, slurred speech, irritability or reversal of sleep rhythm. There were no lethargy, gross deficits in ability to perform mental task or obvious personality changes. There was no inappropriate behaviour or intermittent disorientation or lack of sphincter control.
209. As I say, I can well understand why Dr Yu therefore thought that even on 4 October, there were insufficient symptoms to make a diagnosis of HE. But given the subsequent history of the matter, particularly the improvement of the deceased’s condition after receiving treatment to lower her blood ammonia level, I take the view, on the balance of probabilities, that the deceased was indeed suffering from stage 1 HE on 4 December, and the condition was related to a high ammonia level in the blood.
210. So far as her condition on the 3rd is concerned, on the above basis, I do not think the deceased was suffering from any form of HE. On the evidence, she simply did not have the symptoms for HE on 3 December. But that is not crucial. Even if, for the sake of argument, she were indeed suffering from some form of “sub-clinical” HE on 3 December, it does not mean that she had no mental capacity to make the will and to execute documents on that day. Far from it. And indeed, by definition, a sub-clinical stage is a stage which does not manifest itself with too many symptoms that can be observed. I do not think, in those circumstances, the patient should be described as lacking in mental capacity. In coming to this view, I am comforted by the observations made by the lay witnesses as well as that by Dr Teo during the long process of explanation/execution. The deceased never lost her focus, attention or concentration etc. Even if she were suffering from some form of sub-clinical HE, her condition did not affect her to such an extent that she lacked mental capacity to execute the will or legal documents.
211. I do not believe the antihistamine taken by the deceased had a significant effect on the deceased’s condition. I believe Dr Teo’s assessment that the deceased had developed a very substantial tolerance to the drug was correct. 212. I agree that the GI bleeding that the deceased was suffering from provided the setting for a high ammonia level in the blood. On the other hand, the treating doctors were obviously of the view that the deceased was fit enough for home leave which they gave her between midnight and the afternoon on 2 December. It is not fruitful to debate about the exact ammonia level in the blood of the deceased on 3 December. It is everybody’s guess. The important fact is that medically speaking, there is no ammonia concentration in the blood above which a person must suffer from HE, or more importantly, HE of such severity that the patient lacks mental capacity to make a will.
213. It must be emphasised that the combined effect of the will and the trust documents was nothing new or strange to the deceased, leaving aside Mr Chan’s separate argument on knowledge and approval which I have already rejected. The combined effect was precisely what the deceased wanted. From her perspective, it was an entirely rational and reasonable arrangement, which was consistent with her previously expressed wishes when her mental condition was not in doubt. That, in my view, is also an important objective indicator that the deceased possessed the requisite mental capacity on 3 December, when she executed legal documents that were fully consistent in effect with her previously expressed wishes and instructions. (In this regard, I need not rely on the principle enunciated in Parker v Felgate (1883) 8 PD 171 – see also Batton Singh v Amirchand [1948] AC 161.)
214. On the evidence (which I accept), the deceased’s condition (in terms of HE) improved after 7 or 8 December and she had further dealings and communications with HSBC, including the signing of the enduring power of attorney on 20 December. She never took any steps to review the Karen Trust set up on 3 December or the will executed on that day. Instead, she told Mrs Doris Lau on 20 December that she would prefer to await Mrs Lau’s return from her Christmas vacation before signing documents to inject assets into the Karen Trust that had already been set up and named as the sole beneficiary under her will. Not only was she thinking that she would live long enough to see Mrs Lau’s return, obviously she felt no reason to revisit any of the documents that she had signed or the arrangement she had put in place by those documents.
215. In making the relevant findings, I have fully borne in mind that the burden is squarely on the propounder (the 3rd defendant) to satisfy the Court, on the balance of probabilities, that the deceased had the requisite mental capacity. On the facts as found by me, and based on the test in Banks v Goodfellow, I am satisfied that the 3rd defendant has discharged the burden.
216. It is true that Dr Teo was not aware of the test in Banks v Goodfellow. Nor did Mrs Lau or Mrs Ho. However, it is the primary observations made by them on the more basic matters that are of value to this Court, namely, observations on the deceased’s behaviour, mood, reaction, responses, body languages, attention, concentration, focus, ability to ask questions and give appropriate responses etc. From these observations, the Court can come to its own conclusion on the various matters referred to in Banks v Goodfellow.
217. It is true that the deceased, according to Mrs Lau, did not have a very clear idea about the total value of her assets or how much she used to spend in a month, despite that she was meticulous on money matters. All this came out in their first meeting. But that by itself cannot mean that the deceased does not have the requisite mental capacity as per the test in Banks v Goodfellow. The deceased’s lack of precise knowledge about the total value of her assets was a fact that existed even at the time when her mental capacity was not in doubt at all. The more important thing, in my mind, is that the thrust of the will/trust arrangement made on 3 December was perfectly in accordance with that dictated by the deceased herself in her first meeting with Mrs Lau. There was no material change in the arrangement in terms of the provisions to the beneficiaries. The deceased had long assessed the competing claims between the possible beneficiaries of her estate and made up her mind on the matter. That she never wavered on her decision is plain from the evidence. On 3 December, she was obviously more concerned with whether she could make changes later on if she should come to a different view after a review of the circumstances or if the circumstances should change. This did not indicate any lack of mental capacity. Rather, it indicated a great degree of foresight and insight on her part.
– Conclusion –
218. I have no difficulty in concluding that the 3rd defendant as propounder of the will has overcome the burden on testamentary capacity. Likewise, the deceased’s mental capacity to make the trust arrangement has been duly established. (For the same reasons, I also find that the deceased knew and approved of the contents of the will and trust arrangement.)
Rule against delegation of testamentary power
– Mr Chan’s argument –
219. I now move on to deal with various legal arguments directed at the trust/will arrangement.
220. The Karen Trust is a “discretionary trust”. It gives the trustee very wide discretionary powers in terms of administration of the trust. In particular, clauses 3(a) and 5(c) of the trust deed give HSBC the power to add or remove beneficiaries, provided that a person in the excluded class (ie the deceased as settlor and HSBC as trustee) cannot become a beneficiary. Under clause 29, the trustee can add any person, even a named beneficiary, to the excluded class.
221. Mr Chan therefore mounts the argument that the trust/will arrangement, when taken together, contravenes the common law rule against delegation of testamentary power, and is therefore invalid and of no effect. A testator cannot delegate his testamentary power, counsel contends. He must not leave it to others to decide for him how to distribute his estate. If he does not make the decision, the intestacy legislation will step in and decide it for him.
222. Mr Chan essentially relies on the decision of the High Court of Australia in Tatham v Huxtable [1950] 81 CLR 639 in support of his submission. In particular, he relies on the judgment of Fullagar J (at p 649):
“With great respect to the learned judges who decided those cases, I would think that the real question was not whether the power which was given was a valid power as such, but whether it amounted to a true testamentary disposition of property, or, in other words, whether it complied with the well-established rule stated by Lord Haldane in Houston v. Burns (1918) AC 337 at pp 342-343 and by Lord Simonds in the Diplock Case (Chichester Diocesan Fund v. Simpson (1944) AC 341 at p 371). It is to be remembered that the ultimate basis of the rule lies in the Wills Act, which provides that every person may dispose of all his property by will but that no will shall be valid unless it is in writing and executed by the testator in a particular manner. It is inherent in the very nature of the power so given that it cannot be delegated or exercised by an agent for the testator, and it seems to me necessarily to follow that some powers of appointment, which would be perfectly good in any instrument other than a will, are ineffective in a will for the simple reason that they do not amount to a testamentary “disposition” of property, or indeed to any “disposition” of property at all. It seems quite consistent with legal principle to say that the creation by will of a general power of appointment (which has been said to confer the equivalent of ownership) is a testamentary disposition of property. It also seems consistent with legal principle to say the same of the creation of a special power of appointment among a class, where the class is described with certainty and (as in the normal case) there is, unless and until the power is exercised, a trust for the class or for persons who are to take in default of appointment. Where there is, as a matter of construction, no such trust, there does seem to be a departure from principle if we say that the creation by will of a special power to appoint among a class is a testamentary disposition of property, but to say so represents a natural enough “latitude” of view, which is perhaps characteristic of a system which has never regarded strict logic as its sole inspiration. Unless, however, there is a class designated with certainty, to say that the creation of a power to select beneficiaries amounts to a testamentary disposition of property is not merely to relax the principle to meet an exceptional case but to deny the principle absolutely.”
See other Australian authorities, such as Lutheran Church of Australia South Australia District Inc v Farmers’ Co-op Executors and Trustees Ltd (1970) 121 CLR 628; Gregory v Hudson (1997) 41 NSWLR 573 (Young J) and (1998) 45 NSWLR 300 (CA); Horan v James [1982] 2 NSWLR 376; Halsbury’s Laws of Australia, vol 24, para 395-4555 et seq; Riordan, The Laws of Australia, para 55 et seq.
223. Before I describe Mr Chan’s argument further, it is helpful to remind ourselves that there are various types of powers of appointment. Riordan,supra, at para 55 contains a very useful summary:
“Powers of appointment can be divided into general powers of appointment (the holder of the power may appoint anyone in the world including himself or herself); special powers of appointment (the holder may appoint amongst a group); and hybrid or intermediate powers of appointment (the holder may appoint to anyone except some group or individual). All these powers involve delegation of the donor’s ability to choose beneficiaries to some extent. Powers can be further divided into mere or bare powers and trust powers. A bare power is a power to select without any obligation at all to exercise the power. It is usually accompanied by an express “gift in default of appointment”, persons designated as the recipients of the property in the event that the power of selection is not exercised. A trust power includes a duty to select although there is discretion amongst the range of objects. The existence of a gift in default of appointment is inconsistent with a trust power.
Trustees holding trust property on behalf of others may also be given discretion in the exercise of their trusts, so that there may be an overlap in trusts and powers. A trustee of property may have either a bare power or trust power in relation to the distribution of the property which is subject to the trust. Where a trustee has a bare power, however, the position is a special one because of the fiduciary duty involved in relation to the trust. Trust powers are unlikely to be given to a donee apart from a trust of the property. The term discretionary trust is used to describe a trustee who has either a bare or a trust power.”
224. Mr Chan submits that in the present case, the deceased, in essence, delegated, via the will, to the trustee of the Karen Trust, the power to name beneficiaries for her for the purposes of disposition of her estate. The Karen Trust, in this regard, gives the trustee a very wide and undefined power to select beneficiaries from, practically, everyone on earth, save and except those within the excluded class. Mr Chan submits that this is neither a general power nor a special power, but something akin to a “hybrid power”. Whereas a general power (a power to select the whole world including the donee of the power) may be regarded as a gift to the donee himself so that there is in fact a definite disposition (in favour of the donee), and a specific power to choose beneficiaries from amongst a precisely defined class of persons is tolerated within the “latitude” of the law so long as membership of the class is certain and restricted, a hybrid power falls between two stools. The potential beneficiaries under such a power are uncertain, and more importantly, the delegation of such a power of appointment to the trustee to make disposition for the testator infringes the formal requirements under the wills legislation.
– Does the rule exist in Hong Kong? –
225. It would seem, however, that Australia is the only common law jurisdiction that adopts such an independent rule against delegation of testamentary power.
226. Jurisdictions like England, Canada and New Zealand all take the position that so long as the class of potential beneficiaries is not so uncertain as to render the trust void for uncertainty of objects, there is no separate or independent rule against delegation of testamentary power as such. In this regard, the first instance judgment of Young J in Gregory v Hudson, supra, provides a highly illuminating and comprehensive review of the relevant authorities not only in Australia but also in other common law jurisdictions. For the position in England, see Re Beatty [1990] 1 WLR 1503, a first instance judgment of Hoffmann J (as he then was). For the positions in Canada and New Zealand, see respectively Re Nicholls (1987) 34 DLR (4th) 321 (Ontario Court of Appeal) and Re McEwen [1955] NZLR 575, although both cases were concerned with a general power rather than a hybrid one.
227. Mr Chan accepts all that but urges the Court to adopt the Australian position in Hong Kong, as none of the Commonwealth authorities are binding on this Court and this appears to be the first Hong Kong case to deal with the point.
228. I do not accept Mr Chan’s submission. In Re Beatty, supra, Hoffmann J was concerned with a will, clauses 3 and 4 of which gave the testatrix’s personal chattels and a sum of ￡1.5 million to her trustees, who were to distribute the same within two years following her death among such persons as they should think fit; any remaining chattels and money were to fall into and become part of her residuary estate. The testatrix also requested the trustees to give effect to her non- binding wishes set out in her memorandum to the trustees. Hoffmann J construed the powers so given to the trustees as “intermediate or hybrid powers” rather than general or specific powers. His Lordship then went on to discuss whether there was a rule in common law against delegation of testamentary power, which would render ineffective the arrangement the testatrix wished to put into effect by virtue of her will. After reviewing the English authorities – including those relied on by Fullagar J in Tatham v Huxtable – Hoffmann J came to the conclusion that no such rule existed at English common law. Having explained previous cases which seemed to suggest that there existed such an independent rule as being cases turning on the requirement of certainty under trust law, the judge concluded as follows (at p 1509A/B to G):
“It seems to me, however, that a common law rule against testamentary delegation, in the sense of a restriction on the scope of testamentary powers, is a chimera, a shadow cast by the rule of certainty, having no independent existence….
The one jurisdiction in which the House of Lords dicta have apparently succeeded in generating an independent rule against testamentary delegation is in the High Court of Australia, where it received the support of Fullagar J. in his judgment in Tatham v. Huxtable (1950) 81 C.L.R. 639. The judge there decided unequivocally that whether or not the power in question might have been valid if conferred by deed, it was invalid because it amounted to a testamentary delegation. On the other two judges who constituted the court, Kitto J. decided that the power failed the certainty test and Latham C.J. dissented, holding that it was valid as a general power.
Tatham v. Huxtable has given rise to a good deal of discussion, most of it critical, in Australian and Canadian legal literature and it was followed with some reluctance by the Court of Appeal of New South Wales in Horan v. James [1982] 2 N.S.W.L.R. 376. I respectfully think that in Tatham v. Huxtable, 81 C.L.R. 639 Fullagar J. found more in the House of Lords cases than was actually there. More recently, in In re Nicholls (1987) 34 D.L.R. (4th) 321, the Ontario Court of Appeal rejected the existence of any rule against delegation which would preclude the use of general powers in wills.
The result of this survey of the authorities, for which I am greatly indebted to counsel, is that once it is conceded that clauses 3 and 4 [creating the hybrid powers] qualify as powers which would be valid if created by deed, there is in my judgment no rule of law to invalidate them because they happen to be in a will.”
See also Re Park [1933] 1 Ch 580, Re Jones [1945] 1 Ch 105 and Re Abrahams’ Will Trust [1969] 1 Ch 463, where hybrid powers created under wills were all held to be valid.
229. Young J in Gregory v Hudson, supra, also criticised the juridical basis for the Australian rule as being unsatisfactory: see pp 579D/E to 580F/G, even though Young J recognised that he was bound by the Australian position in his case.
230. In Hong Kong, we are not so bound. For the reasons explained by Hoffmann J in Re Beatty and the criticisms against the Australian position made tactfully by Young J in Gregory v Hudson, I am not convinced that the Australian position is the one to be preferred in Hong Kong.
231. In particular, so far as certainty is concerned, I do not see any reason why a distinction should be drawn between an inter vivos trust and a testamentary trust whereby the trustee is given a hybrid power. For an inter vivos trust, the modern test of certainty is now to be found in Re Gulbenkian’s Settlements [1970] AC 508 (bare powers) and McPhail v Doulton [1971] AC 424 (trust powers), namely, that the court must be able to say of any given person that the person is or is not a member of the designated class (the “in and out” test). The former “list certainty” test in the case of a trust power which requires the ability to draw up a complete list of beneficiaries, is no longer the correct test to apply.
232. Insofar as certainty is employed as the juridical basis for the supposed rule against delegation of testamentary power, I fail to see any jurisprudential or other justification for adopting a more stringent test of certainty in the case of a testamentary trust created under a will whereby the trustee is given a hybrid power.
233. To the extent that the statutory formal requirements are used as a juridical basis for the existence of such a separate rule, I take the view that those requirements are nothing more than “formal” requirements. If a will creating a testamentary trust with a hybrid power of appointment, or, a will giving any part of the estate to an inter vivos trust containing such a power, complies with the formal requirements under the relevant legislation, it is difficult to see how one can construe the legislation in such a way as to implicitly require, additionally, that the testator must not dispose of his assets in a particular way. By definition, the formal requirements do not dictate the substance of the disposition.
234. And as Young J has put it in Gregory v Hudson, at pp 579G to 580C:
“[The New South Wales wills legislation] really only deals with the form of the disposition, not the contents or designation of the beneficial ownership of the testator’s property. Again, if as is suggested in some of the judgments, the next-of-kin have a statutory right to be let property unless there is a proper disposition by will, that right would come under [legislation dealing with intestate distribution], not [the statutory provisions on formalities] … the rule [against delegation of testamentary power] does not seem to be against random distribution of a person’s property, it is against the act of delegating the power to dispose. It is difficult to see how the formalities of the [wills legislation] come into play though that is one basis for the decision of Tatham v Huxtable.”
235. In any event, at least in Hong Kong, formality has never been of the greatest concern. Leaving aside the special case of privileged wills, prior to the 1995 amendments to the Wills Ordinance (Cap 30), a signed will made by a Chinese testator and written in the Chinese language was valid even though it did not comply with the formal requirements in section 5(1): section 5(2). After the 1995 amendments (Ordinance 56 of 1995, section 3), the exception to the formality requirements in section 5(2) is expanded to cover all testamentary documents which do not comply with the formality requirements, provided that the court is satisfied that there can be no reasonable doubt that the document in question embodies the testamentary intentions of the deceased person.
236. Furthermore, after 1997, the right of individuals to the disposal and inheritance of property is constitutionally guaranteed under article 105 of the Basic Law. Basing the supposed rule against delegation of testamentary power on the formality requirements in the Wills Ordinance thus loses much of its attraction.
237. In any event, there are good policy reasons for not adopting such a rule in Hong Kong. In the Ontario Court of Appeal case of Re Nicholls, supra, the court was faced with a general power (not a hybrid power). But the decision of the court turned on policy considerations which would apply equally to the case of a hybrid power. Krever JA (giving the judgment of the court) gave the following reasons for the court’s decision against upholding such a rule in Ontario (at pp 329-330):
“I conclude from the preceding discussion that the authorities, in which term I include the decisions, dicta and scholarly commentaries, are in such a state of uncertainty that this appeal should be decided on the basis of principle or policy. Would any contemporary societal interest be prejudiced by permitting a general power of appointment created by will to be treated by the law in the same way as a general power of appointment created by an inter vivos instrument? I am unable to see how that question can be answered in the affirmative. I do not rest my answer on the general principle that prefers a construction that will avoid an intestacy. More appropriate, and a better guide, is the principle expressed correctly and succinctly in the “Report of the Ontario Law Reform Commission on The Proposed Adoption in Ontario of the Uniform Wills Act, 1968,” at p. 9: “The right of an individual to own and dispose of his assets is basic to our law. Any effort to restrict or circumscribe that right should only be permitted where the necessity for restriction clearly justifies interference with the basic freedom of the individual to dispose of his property”. I am not persuaded that the formal requirements of Part I of the Succession Law Reform Act, formerly the Wills Act, are a sufficient justification. Indeed, the amendment in 1977, by c. 40, s. 6, making holograph wills valid is evidence of the existence of a less formalistic attitude towards testamentary disposition of property.”
238. Likewise, in Re Beatty, Hoffmann J took into account policy and practical considerations for rejecting the rule in England (at pp 1509G/H to 1510B):
“Nor can I think of any good reason why such a distinction [between powers created by deed and those created in a will] should exist. The solemn nature of a will, the interests of the next of kin in default and the provisions of the Wills Act 1837, seem to me insufficient grounds for introducing one. Of course, there are many distinctions between wills and settlements. But, like the Ontario court in In re Nicholls, I can see no reason why these should dictate a special restriction on the breadth of powers which can be created by will.
Furthermore, the invalidation of wide testamentary powers of appointment would involve considerable injustice to the beneficiaries of testators who, relying on cases like In re Park [1932] 1 Ch. 580 which have stood without adverse criticism for nearly 60 years, have conferred such powers on their trustees. For example, as Mr. Parker, for the trustees in this case, pointed out, Williams on Wills, 6th ed. (1987), vol. 2, p. 1474 contains a precedent in the widest possible terms for a testamentary power to take advantage of the inheritance tax relief obtainable under section 144 of the Inheritance Tax Act 1984 on a rearrangement of the beneficial interests within two years of the death. There is no warning in the book that such a power might be invalid and, in my judgment, no reason why there should have been.”
239. In my view, the same or similar policy and practical considerations apply in the present case. In a modern and sophisticated society like Hong Kong, the use of discretionary trusts for inter vivos as well as testamentary purposes are so prevalent that adoption of the suggested rule against testamentary disposition is, in my view, quite unwarranted and counter-productive. For my part, I see no or insufficient justification for importing the rule into the jurisprudence of Hong Kong.
240. In this regard, I am comforted to learn that even in Australia, many states have by legislation abrogated or modified the rule: see (ACT) Wills Act 1968, section 14A; (NT) Wills Act 2000, section 43; (QLD) Succession Act 1981, section 33R; (VIC) Wills Act 1997, section 48 and (NSW) Succession Act 2006 No 80, section 44.
241. In conclusion, I do not accept that there is a common law rule in Hong Kong against delegation of testamentary power as such.
– Special power –
242. In any event, even if the supposed rule against delegation of testamentary power is applicable in Hong Kong, the rule is subject to a number of exceptions or apparent exceptions. They have been summarised in Halsbury’s Laws of Australia, para 395-4560 as follows:
“Included in [the exceptions] are the exercise of a general power of appointment, a power of encroachment, secret and half-secret trusts, a power to select between charitable objects and a gift of property to a valid pre-existing discretionary trust. Further, if a testator designates with sufficient precision a class of persons or objects to be benefitted, he or she may delegate to his or her trustees the selection of the individual person or object within the defined class.”
243. I will focus on some of these exceptions. First, the last-mentioned exception – the exception of a special power. Mr Yau for the 3rd defendant argues that the power of the trustee to add new beneficiaries is not unrestricted. It is limited by clause 19 of the trust deed as well as by common law. (The power of the trustees to remove named beneficiaries from the third schedule need not be considered here – that power would only make the class of potential beneficiaries more specific.)
244. Having considered the terms of clause 19, particularly clause 19(b), which gives the trustee power to alter, revoke or add to any of the provisions of the deed, provided that insofar as the rights of the named beneficiaries are altered, such alteration “must in the opinion of the trustee be for the benefit of all or any one or more of the beneficiaries”, I am not sure if clause 19 has the effect contended for. First, I am not sure if clause 19 applies to the situation where the trustee adds new beneficiaries to the list of beneficiaries set out in the third schedule. I am not entirely convinced that that constitutes a situation of altering the provisions of the deed, although Mr Yau argues that by adding new beneficiaries, the provisions in the third schedule are altered.
245. Secondly, as Mr Chan has submitted, if adding new beneficiaries should fall within clause 19(b), so that adding any new beneficiaries must be “for the benefit of all or any one or more of the beneficiaries”, it is quite impossible to add somebody like Eddie Lau as an additional beneficiary, something that is obviously intended to be done by the deceased in the trustee memorandum. For it is difficult to conceive any benefit to the existing named beneficiaries (namely, the plaintiff and the nieces and nephews) by adding Eddie Lau, a stranger to the Mui family, as an additional beneficiary.
246. However, I do accept Mr Yau’s further argument that at common law, the trustee’s power to add beneficiaries is not unrestrained. In McPhail v Doulton, supra, at p 449A to D, Lord Wilberforce described the duty and practice of a reasonable and competent trustee to exercise or consider exercising a mere power as follows:
“It does not seem satisfactory that the entire validity of a disposition should depend on such delicate shading. And if one considers how in practice reasonable and competent trustees would act, and ought to act, in the two cases, surely a matter very relevant to the question of validity, the distinction appears even less significant. To say that there is no obligation to exercise a mere power and that no court will intervene to compel it, whereas a trust is mandatory and its execution may be compelled, may be legally correct enough but the proposition does not contain an exhaustive comparison of the duties of persons who are trustees in the two cases. A trustee of an employees’ benefit fund, whether given a power or a trust power, is still a trustee and he would surely consider in either case that he has a fiduciary duty: he is most likely to have been selected as a suitable person to administer it from his knowledge and experience, and would consider he has a responsibility to do so according to its purpose. It would be a complete misdescription of his position to say that, if what he has is a power unaccompanied by an imperative trust to distribute, he cannot be controlled by the court unless he exercised it capriciously, or outside the field permitted by the trust (cf. Farwell on Powers, 3rd ed., p. 524). Any trustee would surely make it his duty to know what is the permissible area of selection and then consider responsibly, in individual cases, whether a contemplated beneficiary was within the power and whether, in relation to other possible claimants, a particular grant was appropriate.”
247. In my view, this is particularly so in the present case in light of clauses like clause 19(b). Even assuming that clause 19(b) does not directly limit the trustee’s power in adding new beneficiaries, the common law, viewed in light of clause 19(b), would certainly require HSBC as trustee to make it its duty to know what is the permissible area of selection and then consider responsibly, in individual cases, whether a contemplated beneficiary is within the power and whether, in relation to other possible beneficiaries, a particular exercise of power is appropriate. In doing so, the named beneficiaries, their relationships to the settlor, the settlor’s wishes as expressed in the trustee memorandum, the general purposes of setting up the trust in the first place, the sources of the trust assets (namely, the settlor’s settlement and the testamentary disposition) are, amongst other things, relevant considerations to take into account and, in practice, matters that limit the apparently wide discretion of the trustee in adding beneficiaries.
248. In short, I am of the view that the power in the present case to add beneficiaries is a limited one so that what we have here is more akin to a special power (the power to choose from amongst a class) rather than a hybrid power (the power to choose from the whole world less certain individuals).
249. In conclusion, even if one were to assume that the rule against delegation of testamentary power is applicable in Hong Kong, it is not infringed in the present case, because what is involved is a special power, which is something tolerated by the rule as a matter of “latitude”.
– Gift to a pre-existing discretionary trust –
250. Secondly, the exception of making a gift of property to a valid pre-existing discretionary trust. This exception is confirmed by Gregory v Hudson, where Young J held that the rule does not apply at all (at pp 584B and 586F). The decision of the learned judge was affirmed on appeal: supra.
251. In the present case, the deceased gave her entire residuary estate to the Karen Trust as sole beneficiary. The Karen Trust was established prior to the execution of the will. It was established with the sum of $1,000 cash given by the deceased to Mrs Lau. Although the amount of initial settlement was small, it was nonetheless a valid settlement. No formality was required because it was a trust of money only. Mrs Lau was there to represent HSBC to accept the establishment of the trust. No specific formality was required. It was established there and then. The will was then executed. In those circumstances, the present case is a case where the will makes a gift of the estate to a pre-existing trust. It thus falls within therecognised exception in relation to inter vivos trusts.
252. Mr Chan argues that one must look at the picture globally and regard the establishment of the trust and execution of the will as part and parcel of one global transaction or arrangement. That may be so, yet it does not prevent, but actually requires, the trust to be established before the execution of the will. In fact, whether speaking strictly, technically or factually, the trust had to and did in fact come into existence before the will. It was in fact the intention of the parties – as Mrs Lau testified clearly in Court. She was therefore very careful in ensuring that the trust came into being before the will, and thus the sequence of explanation and execution of the respective documents.
253. So for this reason also, if the rule against delegation of testamentary power is applicable in Hong Kong, I find that the rule is not infringed by reason of this exception relating to pre-existing trusts.
Half-secret trust
254. I now move on to deal with the question of half-secret trust. It arises for two reasons. First, Mr Chan argues that the “suggestions” of the deceased, as set out in the trustee memorandum, are more than suggestions; they are in fact binding instructions on HSBC. Since the binding instructions are set out in the trustee memorandum, which is not referred to in the will, and they are binding on the trustee the exercise of its apparently wide powers given under the trust deed to appoint beneficiaries, this is a situation of half-secret trust. Most importantly, Mr Chan goes on to argue that the half-secret trust so created is void because the instructions of the deceased are not meant only to be contained in antecedent or contemporaneous communications between the deceased and HSBC, but they are to include also post-execution communications between the two. That being the case, it infringes against the rule that all such secret communications must be antecedent or contemporaneous communications in order for the half-secret trust to be valid. Thus Lewin on Trusts (18th ed) para 3-78 explains the situation as follows:
“Where, on the face of the will, the primary donee takes beneficially and the trust is not disclosed, it is called a “fully secret” trust. Where the will mentions the existence of the secret trust it is called a “half-secret” or “semi-secret” trust. The primary donee will be subjected to a fully secret trust for the secondary donee where the secondary donee or his personal representative proves:
(1) an intention on the part of the testator to subject the primary donee to an obligation in favour of the secondary donee;
(2) communication of that intention to the primary donee during the testator’s lifetime; and
(3) acceptance of that obligation by the primary donee, either expressly or by implication.
In the case of a half-secret trust the same conditions must also be proven, except that the communication to the primary donee must also:
(1) be made no later than the time when the will is executed; and
(2) be made in strict compliance with the requirements of the will.”
See also Underhill & Hayton, Law relating to Trusts and Trustees (17th ed) paras 12.81 to 12.84.
255. Of course, if the will itself referred to an outside trust document, then the doctrine of incorporation would apply to incorporate the terms of trust set out in that external document into the will itself. Strictly speaking, that would not be the situation of a half-secret trust at all: Underhill & Hayton at para 12.81; Re Edwards’ Will Trust [1947] 2 All ER 521 (doctrine of incorporation).
256. In the present case, the deceased not only intended her so-called suggestions in the trustee memorandum to be followed by HSBC as a matter of course, counsel argues, she also contemplated the possibility of giving further instructions to HSBC after the execution of the will/trust in future to change her “suggestions” or “wishes”. Mr Chan accepts that if the deceased had only wanted her “suggestions” as set out in the trustee memorandum to be binding on the trustee, that would have been a case of antecedent or contemporaneous communication, and the half-secret trust would have been valid: Blackwell v Blackwell [1929] AC 318. However, as the deceased quite plainly on the evidence, counsel argues, intended to reserve to herself the right to give further instructions to the trustee in future in case she should wish to change her “wishes”, the whole arrangement was one which catered for future communications, on top of the antecedent or contemporaneous communications. That would render the half-secret trust invalid: Re Jones [1942] Ch 328; see also Johnson v Ball 5De G & Sm 85.
257. The second reason why the half-secret trust issue arises is this. As described, a half-secret trust is a supposed exception to the rule against delegation of testamentary power. So in the present case, suppose the rule is applicable in Hong Kong, one way to get around the rule is to argue that what has been created is a valid half-secret trust. Thus, on the face of the will, the trustee may be given a hybrid power of appointment, which infringes the rule. However, if one can establish that the trustee in fact holds the power of appointment subject to a half-secret trust, which restricts his power of appointment to named beneficiaries or a specific and defined class of potential beneficiaries, the rule against delegation of testamentary power is not infringed at all. In other words, so long as the secret trust is otherwise valid, the rule is not infringed and the trust is valid. This is, strictly speaking, not a true exception to the rule. Rather, when the half-secret trust is included as part of the context, the rule is not engaged in the first place.
258. In any event, that is how the issue of half-secret trust has also arisen in the present case.
259. I can be very brief with this issue which can be disposed of on the facts. On the facts and evidence, I wholly reject the notion that the deceased’s wishes were anything more than wishes. This matter has been directly dealt with on various occasions during Mrs Doris Lau’s evidence. She was adamant, and I fully accept her evidence, that everyone involved – HSBC, the deceased as well as Mrs Sheila Ho – knew, understood and agreed completely that the powers given to HSBC to appoint beneficiaries were wide discretionary powers. The deceased’s suggestions set out in the trustee memorandum or any wishes to be communicated by her to HSBC in future were nothing more than suggestions and wishes, which HSBC would no doubt bear in mind and seriously consider. But what is important is that HSBC did not bind itself to complying with those suggestions and wishes without independent consideration and judgment. That applies to the suggestions set out in the trustee memorandum; that also applies to whatever wishes that the deceased might have wanted to communicate to the trust manager after the setting up of the Karen Trust (which, of course, never happened).
260. That the parties fully contemplated that under normal circumstances, the trustee would, after due consideration, act in accordance with the suggestions and wishes of the settlor is one matter. To elevate such suggestions and wishes to legally binding instructions by the settlor to the trustee so that the trustee has no discretion nor need exercise any independent judgment, but must follow those instructions from the settlor, is quite another matter. I am certain that in the present case, the situation is just the former, not the latter.
261. This being my findings, Mr Chan’s argument does not even make it to first base.
262. Mr Yau, on the other hand, has never sought to run an argument based on half-secret trust so as to escape from the supposed rule against delegation of testamentary power (by way of the half- secret trust exception). That was never his case.
263. That being the case, I need not express any final view on whether I agree with the requirement that all communications between the testator/settlor and the trustee must be antecedent or contemporaneous, rather than future, ones. All I need note is that the requirement has been commented on critically by academics: Parker & Mellows, The Modern Law of Trusts (8th ed) 127; Theobald on Wills (16th ed) para 11-04 et seq; Pettit, Equity and the Law of Trusts (10th ed) 133- 134.
Sham arrangement
264. Given my findings of fact, it is only necessary to mention Mr Chan’s further argument that the will/trust arrangement is a sham for the purpose of rejecting it. Mr Chan argues that in fact the “wishes” were binding instructions on the trustee. He also says that after the intended injection of assets into the trust, the deceased was to continue enjoy the assets, despite that she belonged to the excluded class. Counsel argues that the whole arrangement is a sham and should not be given effect to.
265. There are more reasons than one to reject the argument. The simplest reason is that on the facts, I find that the wishes of the deceased were nothing more than wishes and not binding on the trustee as such. The trust/will arrangement was not a sham.
266. Furthermore, the intended injection of assets into the Karen Trust was to be in consideration for a promissory note of real value. The deceased’s continued “enjoyment” of benefits after injection was to be on the strength of the promissory note, rather than on the basis of the trust. It was not to be a sham transaction. I reject the argument. Mistake
267. Mr Chan argues in the alternative that the deceased has mistakenly thought that her wishes communicated to HSBC would be binding on HSBC, and therefore insofar as those wishes are not so binding, the deceased was mistaken. Again, the argument falls at first hurdle. As a matter of finding of facts, I reject the notion that the deceased has made any mistake. She had no misconception about the legal status of the suggestions she expressed in the trustee memorandum. On the facts, I reject the argument based on mistake.
Timing
268. Then in paragraph 167 of Mr Chan’s written final submission, he raises the point that the trust deed was, as a matter of fact, executed by HSBC after the meeting at the hospital on 3 December. It was only signed and sealed at the office of HSBC after the meeting. It came into existence after the will was executed and the testamentary disposition to the (non-existent) trust is therefore invalid.
269. I wholly reject this argument. First, it is never pleaded. And Mr Chan has never applied for leave to amend the pleadings. In any event, any such attempt would have been futile because I would not have allowed the amendment for the simple reason that if the point had been pleaded and raised properly at trial, evidence could have been led from Mrs Lau and HSBC to the effect, for instance, that the documents were all executed in escrow.
270. Secondly and in any event, whereas the trust deed may have come to formal existence only at the office of HSBC after the meeting at the hospital, the trust itself, which was a mere trust of a sum of $1,000, required no formality to establish. And Mrs Lau certainly had the actual or apparent authority of HSBC to accept the settlement of $1,000 by the deceased at the hospital. As a matter of fact and evidence, as described, I find that the trust has been established at the hospital prior to the execution of the will, in accordance with both the intention of the deceased and that of Mrs Lau (on behalf of HSBC).
271. As regards the explanation of the trustee memorandum being done after the establishment of the trust or execution of the will, it is only relevant to the arguments on half-secret trust and contemporaneous communication. For reasons explained above, those arguments are rejected against the plaintiff. In any event, the trustee memorandum had been explained to the deceased over the telephone via Mrs Sheila Ho, and the deceased had confirmed her agreement to the contents through Mrs Ho with Mrs Lau over the telephone. So if one wishes to be pedantic: the contents of the trustee memorandum had long been communicated to the trustee prior to the execution of the will and creation of the (hypothetical) half-secret trust.
272. In any event, in Hong Kong, given section 5(2) of the Wills Ordinance, and given the fact that the objection to post-execution communication is simply that any such communication would fall foul of the formality requirements for making a will, it is highly arguable that such objection does not necessarily apply in Hong Kong – insofar as one can satisfy the court that one’s case falls within section 5(2) of the Wills Ordinance. But again, given my conclusion on the facts, I need not give a definite answer on this interesting point.
Second rule in Barry v Butlin
273. Although HSBC was substantially involved in and instrumental to the preparation and execution of the will, and in a sense it benefited from the provisions of the will in that it was named as the executor and trustee thereunder and furthermore, the will gave everything to the Karen Trust of which it is the trustee, the second rule in Barry v Butlin (1838) 2 Moo PC 480, which I discussed in some detail and applied in Ip Wai-hung v Ip Man Chiu HCAP 15/2004 (19 December 2007), has little application in the present case, given that the interest of HSBC in the will/trust is relatively small and can be readily explained. Although the point was slightly touched on during opening by Mr Yau, Mr Chan never took up the point and it was never run in final submission. In any event, having applied a degree of vigilance and jealousy that is commensurate with HSBC’s involvement and interest in the will/trust in examining the entire evidence, I am satisfied, for the reasons explained above, that knowledge and approval has been duly established.
Uncertainty
274. That leaves me with two final legal arguments. First, uncertainty. It has been argued, at least in pleadings, that the Karen Trust, by reason of the wide discretionary powers given to HSBC, is void for uncertainty. I do not agree. Given the modern test on certainty as described above, HSBC does not have any difficulty in saying of any given person that the person is or is not a member of the designated class. There is no question of the trust being void for uncertainty of objects.
Administrative workability
275. That leaves the administrative workability of the Karen Trust.
276. Even if, Mr Chan submits, a hybrid power does not infringe the rule against delegation of testamentary power because the rule does not apply in Hong Kong or the present case falls within an exception to the rule, and the hybrid power given to HSBC is sufficiently certain to pass the modern test of certainty under the law of trusts, the Karen Trust is nonetheless objectionable in terms of administrative workability.
277. The question of administrative workability of a (hybrid) trust power has been left open by Lord Wilberforce in McPhail v Doulton, supra, at p 457C/D to F:
“Two final points: first, as to the question of certainty. I desire to emphasise the distinction clearly made and explained by Lord Upjohn ([1970] A.C. 508, 524) between linguistic or semantic uncertainty which, if unresolved by the court, renders the gift void, and the difficulty of ascertaining the existence or whereabouts of members of the class, a matter with which the court can appropriately deal on an application for directions. There may be a third case where the meaning of the words used is clear but the definition of beneficiaries is so hopelessly wide as not to form “anything like a class” so that the trust is administratively unworkable or in Lord Eldon’s words one that cannot be executed (Morice v. Bishop of Durham, 10 Ves. Jr, 522, 527). I hesitate to give examples for they may prejudice future cases, but perhaps “all the residents of Greater London” will serve. I do not think that a discretionary trust for “relatives” even of a living person falls within this category.”
278. In other words, whilst a trustee may be able to say of any given person whether he is or is not within a designated class, if the class is so wide as not to form anything like a class, the trustee may well find the performance of his task administratively impossible, given that he must exercise his trust power in a reasonable and competent manner, as has been described by Lord Wilberforce in another passage (already extracted above) in McPhail v Doulton.
279. There has been much academic writing on this interesting subject, including the various subtle and fine distinctions involved. See for instance, the lengthy discussion in Underhill & Hayton, supra, para 8.77 et seq, commenting on cases like Blausten v IRC [1972] Ch 256, Re Manisty’s Settlement [1974] Ch 17 and Re Hay’s Settlement Trusts [1982] 1 WLR 202, amongst others. Thus a distinction between a trust power and a mere power is drawn – in the former case, administrative workability is essential whereas in the latter, because the trustee is not duty-bound to make any appointment, failing which the default provision will apply, administrative workability is not required. A further distinction under mere power is whether the power of appointment is given to the trustee himself or to a private individual who is not a trustee – in the former case, administrative workability is required because the trustee has to consider, in a fiduciary manner, how to exercise the mere power, whereas in the latter, the mere individual, not being a trustee, is under no duty to consider exercising the power, failing which the default provision will apply. Examples of a mere power being conferred on a private individual, who is not a trustee, can be found in Re Park and Re Jones, supra.
280. In my view, the present case need not be decided on such subtle distinctions. I have already explained that in the instant case, one is not concerned with a wide hybrid power of the type postulated by Lord Wilberforce in McPhail v Doulton, supra. The deceased in the present case was not asking HSBC to consider distributing her estate to all residents in Hong Kong, save those named in the excluded class. Far from it – she has named several individuals in the third schedule as beneficiaries. She has told the trustee her wishes in the trustee memorandum. There is clause 19(2), the spirit and intent of which, at least, gives the trustee guidance on what additional beneficiaries, if any, may be added to the class of selected few already set out in the third schedule of the trust deed. There is also the common law already discussed above which guides the trustee on how to exercise its wide discretion.
281. Again, on the facts, I do not find that HSBC is faced with a trust which is administratively unworkable.
282. In any event, if one needs to decide the case in terms of the fine distinctions I have outlined above, I would say that one is concerned with a mere power here as opposed to a trust power, given the fact that one has the 3rd defendant as the final repository – by definition, HSBC as trustee is not duty-bound to make any appointment during the perpetuity period at all, and if it does not, the trust funds will be given to the 3rd defendant as final repository upon expiry of the perpetuity period.
283. As regards the further (suggested) distinction under a mere power, ie the distinction between a power given to a trustee and a power given to a private individual who is not a trustee, I doubt very much whether the distinction exists at all.
284. In this regard, I note that Templeman J (as he then was) took the view in Re Manisty’s Settlement, supra, that administrative workability is only essential to a trust power but not to a mere power (so long as it is not a “capricious” one), regardless of whether the mere power is given to a trustee or to a private individual, a view which has been heavily criticised by Underhill & Hayton (at para 8.81). In Re Hay’s Settlement Trusts, supra, Megarry V-C endorsed Templeman J’s view, observing that “dispositions ought, if possible, to be upheld and the court ought not to be astute to find grounds on which a power can be invalidated” (at p 213). These two cases were followed in IRC v Schroder [1983] STC 480. In Schmidt v Rosewood Trust Ltd [2003] 2 AC 709, a case concerning disclosure of trust documents, neither counsel nor the Privy Council queried the mere powers given to trustees under two settlements in that case as being administratively unworkable.
285. For my part, if necessary, I would be prepared to reject this further distinction under mere power and simply conclude that in the present case since what is involved is a mere (hybrid) power, there is no question of applying the requirement of administrative workability. If the trustee does not or does not feel able to exercise the mere power of appointment, the default provision will apply and the estate will go to the final repository. There is nothing unworkable in that arrangement, when viewed as a whole.
286. As I say, I need not express a final view on the matter.
Outcome
287. For all these reasons, I reject all arguments of the plaintiff, whether they are based on facts or on law. In other words, I am satisfied that the 3rd defendant, as propounder of the will, has discharged all relevant burdens. The Court therefore pronounces for the force and validity of the will dated 3 December 2003, and order that probate be granted to HSBC, the executor named in the will. I also make a declaration that the Karen Trust is and was at all material times a valid trust.
288. I do not think I need grant any relief in terms of paragraphs 1, 2 and 4 of the prayer for relief set out in the 3rd defendant’s re-amended defence and counterclaim. Nor is it necessary to grant any formal relief on the 4th defendant’s counterclaim.
289. The plaintiff’s claim is dismissed.
290. As regards costs, I would make an order nisi as follows: The costs of HSBC (as the 1st and 2nd defendants), as well as the costs of the 3rd and 4th defendantsrespectively, be borne by and paid out of the estate of the deceased, to be taxed, if not agreed, on a common fund basis. Save as aforesaid, there be no order as to costs for or against the plaintiff.
291. My provisional view is that the plaintiff’s case falls within the second exception to the general rule that costs generally follow the event where opposition to a will is unsuccessful, a matter which has been discussed in great detail by Ribeiro PJ in Nina Kung v Wang Din Shin (No 2) (2006) 9 HKCFAR 800, in which event the proper order is no order as to costs.
292. Lastly, I would like to thank counsel and their supporting teams for the assistance they have rendered to the Court in this lengthy trial.
(Andrew Cheung) Judge of the Court of First Instance High Court
Mr Chan Chi Hung SC and Mr Jerome Liu, instructed by Chiu, Szeto & Cheng, for the plaintiff
The 1st and 2nd defendants, represented by JSM, excused from attendance
Mr Albert Yau and Mr HM Poon, instructed by Wong, Shum & Co, for the 3rd defendant
Mr Richard Leung, instructed by PC Woo & Co, for the 4th defendant