To absent friends

Saturday, 01 February 2014
Richard Norridge reviews recent developments in Hong Kong probate disputes.

Significant disputes concerning private trusts are a rarity in Hong Kong, with private trust deeds often governed by the law of one of the well-known offshore jurisdictions. By contrast, there has been a rapid increase in high-value and high-profile estates disputes, such as the disagreement among the members of the Fok family.

Wealth does not pass three generations - Chinese proverb

The legal principles that arise may be familiar to common-law lawyers, but the frequency of the disputes and the tenacity with which they are fought can take some by surprise. Although Hong Kong introduced Civil Justice Reforms in 2009, the way litigation is fought has not changed as dramatically as some might expect, particularly given the considerable changes England and Wales experienced after the Woolf reforms. In particular, costs sanctions have not been enforced in Hong Kong in the same way as they are in London. Thus tactical and delaying points can be easy to take. When one allies that with the fact that much litigation is sparked by a deep sense of moral and cultural entitlement, the result can be long attritional battles played out in various sets of related proceedings.

One of the major causes of the increase in number of such battles is well known: an ageing wealthy population. Hong Kong has a number of tycoons who started highly successful businesses in the 1950s and 1960s, some of whom have passed away, while others are now entering their twilight years with the potential mental deterioration that can sadly bring. Disputes often arise in both situations: during their lifetime the appointment of mental health committees (commonly well-regarded accountants) can lead to investigations into suspicious asset transfers, whereas death has often prompted will challenges on the grounds of mental incapacity. A further complicating factor can be the presence of a number of wives or concubines.1

A final point is that a will in Hong Kong is a more flexible concept than, for example, in England. Even if the formal requirements have not been complied with, a will can still be valid if there ‘can be no reasonable doubt that the document embodies the testamentary intentions of the deceased person’ (s5(2) of the Wills Ordinance). Self-drafted wills are no rarity, even for the ultra-wealthy, so this provision can be of great significance.

Two recent cases give a flavour of common disputes.

Irrational actions

In Chiu Man Fu v Chiu Chung Kwan Ying [2013] HKEC 937, the Court of Appeal determined that a seemingly bizarre act of the taxi-mogul testator at the time his last will was made did not alone call into question his testamentary capacity. He made a new will months before death, leaving no assets to his 16 children, but bequeathing his entire estate to his mistress. Rejecting the claim of incapacity, the Court noted the judge’s findings that the testator was ‘chauvinistic, temperamental and irritable’ and ‘could easily become biased and prejudiced and would vent his spleen against someone completely innocent’. The decision to disinherit his children was not evidence of an unsound mind, but consistent with his peculiar personality.

Although not strictly necessary, given that finding, the Court held that medical evidence of the testator’s capacity should be disregarded, since the doctor who examined the testator at the time he made the will: (i) had not taken any notes of his examination, and (ii) had not been told of the disinheritance, so he was deprived of the relevant context on which to base his questions.

Construction of the will

In its ruling of February 2013,2  the Hong Kong High Court determined that the HKD83 billion bequest of Nina Wang (the ultimate shareholder in Chinachem) to the Chinachem Charitable Foundation Limited was to be held on trust for the foundation’s charitable purposes, rather than being an absolute gift. Acknowledging that a bequest to a charity is usually as a gift rather than on trust, it nevertheless identified the testator’s intention for a trust in the circumstances. In particular, the language of the bequest implied a clear intention that the property be used in a specific way (as opposed to offering mere guidance). The will also set out specific charitable goals to be achieved and provided for the foundation to be supervised by a managing organisation, rather than giving the foundation free reign. The uncertainties in the will may well be attributable to the fact it was drafted by Ms Wang, without the involvement of any legal advisors. Such an occurrence is remarkable given the amounts involved but by no means uncommon in Hong Kong.

Conclusion

There are no signs of any let-up in disputes of the kind described above. When aligned with equally common family company disputes, they present a conundrum for the private wealth practitioner seeking to put in place structures that will avoid future disputes. Given the tendency of patriarchs in particular to overestimate the ability and inclination of their offspring to work together effectively, there is an increasingly vocal school of thought that advocates an early split of family empires to save battles later on. This may help overcome the concerns encapsulated in the Chinese proverb, but King Lear teaches us that this is still not a path free of difficulty.

  • 1Unions of concubinage entered into before 1971 are valid. See the Intestates’ Estates Ordinance
  • 2Secretary for Justice v Joseph Lo King Ching [2013] HKEC 256
Author block
Right
Richard Norridge

Richard Norridge TEP is Head of Private Wealth – Asia at Herbert Smith Freehills

The content displayed here is subject to our disclaimer. Read more