Hong Kong – High Court High Court of the Hong Kong Special Administrative Region – Court of First Instance, Hon Tang J.A., 4 marzo 2005 [Eric Edward Hotung v Ho Yuen Ki and Others] 1. The plaintiff, Mr Eric Edward Hotung, has eight children by his wife Patricia Ann Shea (“Mrs Hotung”). Their names and dates of birth appear below: … “Michael” … “Robert'” … “Eric” … “Sean” … “Anthony” … “Mara” … “Gabrielle” … “Sheridan” 2. Anthony, Sean, Sheridan and Gabrielle are the 2(nd), 3(rd), 5(th) and 6(th) defendants respectively. 3. The 6(th) defendant has withdrawn her defence. So only three of the children are now involved in these proceedings. 4. The 1(st) defendant, Ho Yuen Ki, is the trustee of the so-called Ho Trusts. The beneficiaries of the Ho Trusts are the plaintiff's third, fourth and fifth sons, namely Eric, Sean and Anthony (“the three sons”). The 1(st) defendant is a cousin of the plaintiff. The plaintiff is the father of two of her children. 5. The 4(th) defendant, Hillhead Limited (“Hillhead”), is the trustee of the so-called Hillhead Trusts. Hillhead was a service company used by Arthur Young & Co. As a result of various mergers, Arthur Young & Co. has become part of Ernst & Young. The beneficiaries of the Hillhead Trusts are his three daughters, Mara, Gabrielle, and Sheridan (“the daughters”). 6. I shall refer to the Ho and Hillhead Trusts collectively as the Trusts. THE TRUSTS 7. The assets of the Trusts are shares in Hotung Enterprises Limited (“HEL”) and Hotung Investment (China) Limited (“HICL”). In particular, 20,004 shares in HEL and six shares in HICL. The 1(st) defendant and Hillhead each made two declarations of trusts. 8. The first dated 29 November 1979 in respect of 10,002 shares in HEL by which the 1(st) defendant declared that she held those shares upon trust for the three sons equally. Hillhead made a declaration of trust also dated 29 November 1979 in favour of the daughters in respect of 10,002 shares in HEL equally. 9. The Hillhead declarations of trusts were witnessed by Peter Mark, a well-known solicitor and director of some of the plaintiff's companies. Both the Ho and Hillhead declarations of trust were prepared by his firm. 10. There were also a declaration of trust made by the 1(st) defendant in respect of the three shares in HICL in favour of the three sons equally and a declaration of trust made by Hillhead in respect of the three shares in HICL in favour of the daughters equally. They were both dated 6 February 1980. The declaration of trust executed by the 1(st) defendant was witnessed by Peter Mark. It is not known who prepared these declarations of trusts. DEVOLUTION OF SHARES HEL 11. Prior to 17 September 1979, the authorised share capital of HEL was $ 2 million divided into 20,000 shares of $ 100 each. The 20,000 shares in HEL were held as to 19,999 thereof by the plaintiff, the remaining share was held by the 1(st) defendant. Although there was no declaration of trust, I am satisfied that the 1(st) defendant held her one share in trust for the plaintiff. By a resolution dated 17 September 1979, the authorised share capital of HEL was increased by the creation of a further 10 shares of $ 100 each. 12. By a resolution of the board of HEL held on 17 September 1979 chaired by Peter Mark, it was resolved that the transfer of 10,002 shares by the plaintiff to Hillhead as well as the transfer of 9,997 shares by the plaintiff to the 1(st) defendant be approved and that: “the relative new share certificates be sealed and issued in connection therewith”. New share certificates were indeed issued to the 1(st) defendant and Hillhead dated 17 October 1979. 13. At the same meeting, it was recorded that four shares of $ 100 each allotted to the 1(st) defendant had been fully paid up for cash. HICL 14. Prior to 28 September 1979, it had only two paid up shares. The board minutes of a meeting held on 28 September 1979 resolved that the transfer by Malcolm Anthony Barnett to the 1(st) defendant of one share and the transfer by Brian Henry Tisdall to the 1(st) defendant of one share in HICL be approved. Barnett and Tisdall held those shares for the plaintiff. 15. It was also resolved that four shares of $ 50 each be allotted as fully paid up for cash and that three of these shares be allotted to Hillhead and one share to the 1(st) defendant. 16. It was also resolved that relative share certificates be sealed and issued in connection with both the transfer and the allotment. New certificates were duly issued dated 6 February 1980. HILLHEAD MINUTES 17. To complete the corporate documents: there were minutes of (i) a meeting of the board of Hillhead on 17 October 1979, where it was resolved: “a trust deed in the attached form was tabled before the meeting and it was resolved that Mr Alan Hann (“Alan Hann”) and Mr C.P. James be authorised to sign on the document under the common sealed of the company”, (ii) a similar board minutes of a meeting held on 6 February 1980 in relation to a trust deed in respect of the three shares in HICL. 18. The trust deeds were the declarations of trusts referred to in paragraphs 8 and 10 above. PLAINTIFF'S CASE 19. It is the plaintiff's case that the trusts that he intended to set up in favour of his children were subject to conditions. These conditions as pleaded in the plaintiff's Re-re-amended Statement of Claim in relation to the Ho Trusts were: a. that the trusts would be subject to a power of revocation exercisable by the plaintiff during his lifetime and that the trustee would only be entitled to distribute the shares to the sons in equal shares after the death of the plaintiff; b. that during the lifetime of the plaintiff, the trustee was to hold and to deal with any income that may be derived from the shares, in the trustee's absolute discretion, by distributing the same to the plaintiff, his wife and the sons including his other two sons Robert and Eric (or any of them), or to accumulate the same; and c. that the trustee was not to be concerned with and would be relieved of all duties regarding the management of the company to which the shares related. 20. It is the plaintiff's case that similar conditions were imposed in relation to the Hillhead Trusts save that the distribution of income was confined to the plaintiff, his wife and the daughters or any of them. PLAINTIFF'S CLAIM 21. The plaintiff's claim for relief has been put on several bases in the Re-re-amended Statement of Claim: rectification, paragraph 18; mistake, paragraph 18A; and because the deeds did not accord with his intentions they ought to be set aside, paragraphs 17 and 18. 22. But the heart of the matter is: whether or not the plaintiff intended when the Trusts were established that they should be subject to all or some of these conditions, in particular, that they should be revocable. If so, whether, insofar as the declaration of trusts did not give effect to his intention, they ought to be set aside or rectified. LARCO (CAP. 23) 23. In relation to these conditions, it did not matter exactly when or how the trusts were established. However by an amendment made on 26 November 2004, the plaintiff relied on section 6(1)(c) of the Law Amendment and Reform (Consolidation) Ordinance, Cap. 23 (“LARCO”). Section 6(1)(c) was in force in 1979/1980 although it has been since been repealed by Ordinance 62 of 1984. Section 6(1)(c) provided as follows: “a disposition of an equitable interest or trust subsisting at the time of the disposition, shall be in writing signed by the person disposing of the same, or by his agent thereunto lawfully authorized in writing or by will”. Section 6(1)(c) was based on section 53(1)(c) of the Law of Property Act, 1925. 24. The LARCO point depended on whether at or immediately after the time of the transfer or allotment of shares to the 1(st) defendant and Hillhead, they held the shares on resulting trusts for the plaintiff. If they or either of them did then the declarations of trusts would have amounted to a disposition of an equitable interest within the meaning of section (6)(1)(c). Since neither the 1(st) defendant nor Hillhead who signed the trust deeds had been authorised in writing by the plaintiff to do so, the depositions were invalid. I will deal with this point separately later. REVOCATION 25. By two deeds of revocation both dated 14 January 2004, the Trusts were revoked by the plaintiff. The recital of the two deeds of revocation are in substance the same. For convenience sake, I shall refer to the recitals in the deed of revocation in relation to the Ho Trusts. “(A) By oral declaration made in or about 1979, the Settlor constituted Ho Yuen Ki (“the Trustee”) trustee of certain property and directed the Trustee to hold the same upon certain trusts then specified for the benefit of three of his sons namely Michael Eric Hotung, Sea Eric Mclean Hotung and Anthony Eric Ryan Hotung but orally reserved to himself the power to revoke the trusts in whole or in part should he so think fit.