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Hsbc Trustee (Hong Kong) Ltd v Alexander Laufer And Others

Judgment Cited authorities 11 Cited in Precedent Map Related
Vincent
Judgment Date27 September 2016
Subject MatterMiscellaneous Proceedings
Judgement NumberHCMP2967/2015
CourtHigh Court (Hong Kong)
HCMP2967/2015 HSBC TRUSTEE (HONG KONG) LTD v. ALEXANDER LAUFER AND OTHERS

HCMP 2967/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2967 OF 2015

________________________

IN THE MATTER of EDGAR MARTIN LAUFER, Deceased
and
IN THE MATTER of Order 85 of the Rules of the High Court (Cap 4A)
________________________

BETWEEN

HSBC TRUSTEE (HONG KONG) LIMITED Plaintiff
and
ALEXANDER LAUFER 1st Defendant
ANTONY SELLERS 2nd Defendant
PETER SELLERS 3rd Defendant
JONATHAN SELLERS 4th Defendant
CANCER RESEARCH UK
(formerly called CANCER RESEARCH FUND)		 5th Defendant
MACMILLAN CANCER SUPPORT (formerly called THE CANCER RELIEF MACMILLAN FUND) 6th Defendant
THE SALVATION ARMY 7th Defendant
THE COMMUNITY CHEST OF HONG KONG 8th Defendant
BRITISH RED CROSS 9th Defendant

________________________

Before: Recorder Lisa K Y Wong SC in Chambers
Date of Hearing: 6 September 2016
Date of Decision: 27 September 2016

_______________

DECISION

_______________

THE APPLICATION

1. These proceedings are taken by HSBC Trustee (Hong Kong) Limited (“Executor”) as the executor and trustee of the estate (“Estate”) of the late Edgar Martin Laufer (“Deceased”) pursuant to Order 85 of the Rules of the High Court (Cap 4A), in particular, rule 2(2)(a) and (3)(c) thereof, for the court’s directions in the administration of the Estate.

CIRCUMSTANCES GIVING RISE TO NEED FOR DIRECTIONS

2. The Deceased died on 19 April 2010, leaving a will dated 10 March 2004[1] (“Will”).

3. Insofar as it is material, Clauses 3 and 4 of the Will read as follows:

“3. I DECLARE that I am domiciled in Hong Kong and this Will shall be construed according to the laws of Hong Kong.

4. I GIVE devise bequeath and appoint all my estate both real and personal whatsoever and wheresoever situate not by this Will nor any Codicil to it otherwise disposed of … to my Trustee UPON TRUST:

(a) to sell call in and convert the same into money … ;

(b) from the net proceeds of sale and conversion and ready money to pay all debts funeral and testamentary expenses and estate duty; and

(c) to hold the balance then remaining together with all parts of my estate for the time being unsold (hereinafter called “my Residuary Estate”) (as to both capital and income thereof) to divide the same into 20 parts to hold the same upon the following trusts:

(i) as to 7 such parts for my nephew ALEXANDER LAUFER absolutely PROVIDED THAT if my said nephew shall die before me then upon the same trusts as set out in clause 4(c)(iv) hereof proportionately;

(ii) as to 6 such parts for my brother‑in‑law RAYMOND ARTHUR SELLERS absolutely PROVIDED THAT if my said brother‑in‑law shall die before me then for such of ANTONY SELLERS (“Antony”), PETER SELLERS (“Peter”) and JONATHAN SELLERS (“Jonathan”) as shall survive me in equal shares absolutely PROVIDED THAT if any of the said Antony, Peter and Jonathan shall predecease me leaving a wife surviving me then such wife shall take the share which her husband would otherwise have taken had he so survived me and PROVIDED FURTHERTHAT in the event that none of Antony, Peter, Jonathan or their respective wives shall so survive me then the 6 parts to be held upon the same trustsassetoutinclause 4(c)(iv)hereofproportionately ;

(iii) as to 1 such part for my sister‑in‑law PAMELA SELLERS absolutely PROVIDED THAT if my said sister‑in‑law shall die before me then upon the same trustsassetoutinclause 4(c)(iv)hereofproportionately ;

(iv) as to the remainder as follows:–

(1) as to 43% (forty three per cent) thereof for CANCER RESEARCH FUND … absolutely;

(2) as to 17% (seventeen per cent) thereof for THE CANCER RELIEF MACMILLAN FUND … absolutely;

(3) as to 10% (ten per cent) thereof for THE SALVATION ARMY … absolutely;

(4) as to 20% (twenty three per cent) thereof for THE COMMUNITY CHEST OF HONH KONG … absolutely; and

(5) as to the remaining 10% (ten per cent) thereof for BRITISH RED CROSS … absolutely” (emphases added)

4. The Deceased made one Codicil dated 12 November 2007 (“Codicil”) which, insofar as it is material, substituted Clause 4(c)(iii) of the Will with the following:

“as to 1 such part for my sister‑in‑law PAMELA SELLERS absolutely PROVIDED THAT if my said sister‑in‑law shall die before me then to divide the same into 13 parts as to 7 such parts upon the same trusts as set out in clause 4(c)(i) hereof; AND as to 6 such parts upon the same trusts as set out in clause 4(c)(ii) hereof PROVIDED FURTHER THAT if any trust relating to any of the said 1 part herein fails to take effect then any such failed parts shall be held upon the same trusts as set out in clause 4(c)(iv) hereof proportionately.”

5. The Will contained no specific legacy or bequest so that the entire Estate was disposed of under the above gifts of residue.

6. Both Raymond Arthur Sellers and Pamela Sellers predeceased the Deceased with the consequence that the gifts to them respectively pass to other of the beneficiaries as provided for in the Will and the Codicil. The 20 parts into which the Estate (after deduction of all debts, funeral and testamentary expenses and estate duty) is divided are now being held upon trust for the defendants (“Beneficiaries” collectively) as follows (expressed in percentages):

Beneficiary
Country of Residence
Share in Estate
1st defendant
USA
37.69%
2nd defendant
Republic of Ireland
10.77%
3rd defendant
Republic of Ireland
10.77%
4th defendant
Republic of Ireland
10.77%
5th defendant
UK
12.90%
6th defendant
UK
5.10%
7th defendant
UK
3.00%
8th defendant
HK
6.00%
9th defendant
UK
3.00%

I shall refer to the 2nd to 4th defendants who are and have at all material times been resident in Ireland as “the Irish Beneficiaries” collectively and the 5th, 6th, 7th and 9th defendants which are all charities based in the UK as the “UK Charities” collectively.

7. The net estate left by the Deceased had an aggregate value of £8,307,203 as at the date of his death and was located as follows:

Location
Value as at 19 April 2010
UK (“UK Estate”)
£1,047,907.78
Jersey
£431,157.66
HK
HK$74,049,496.90
USA
US$941,165.07

8. The Executor has obtained probate of the Will and the Codicil from the High Court of Hong Kong (“Hong Kong Grant”) and the Royal Court of Jersey on 7 January and 5 April 2011 respectively. No grant of representation has yet been obtained in the UK or the USA. The Executor does not intend to obtain any grant of representation in respect of the assets in the USA as it is possible to deal with them without a grant. As for the UK Estate, the Executor cannot have the Hong Kong Grant resealed in the UK or otherwise taken out a grant in the UK without first settling the UK inheritance tax (“UK IHT”) that is the subject matter of these proceedings.

9. In this regard, although the Deceased declared his domicile in Hong Kong in Clause 3 of the Will, he had spent not less than 17 of the 20 years preceding his death resident in the UK. ‌As a result, the Deceased was treated under s 267 of the UK Inheritance Tax Act 1984 (“IHTA”) as being domiciled in the UK at the time of this death, with the consequence that his world‑wide estate above the tax free allowance of £650,000 (except the 24% gifted to the UK Charities which are exempt under s 23 of the IHTA) [2] is chargeable with the UK IHT under the IHTA at 40%.

10. Despite its name, the UK IHT is not a tax on the inheritors of an estate. Rather, it is an estate duty chargeable on the estate due, in this case, solely to the deemed UK IHT domicile status of the Deceased under English law. It is to be distinguished from taxes imposed as a result of the domicile, nationality or place of residence of the beneficiaries, or of specific legacies made to specific beneficiaries.

11. According to the UK solicitors for the Executor, the effect of section 204(1) and (3) of the IHTA taken together is that while a personal representative is liable for the full amount of the tax to the extent of the assets which he has received, or might have received but for his own neglect or default, a beneficiary would not be liable for the tax except to the extent of the property vested in him or to which he is beneficially entitled.

12. Under the IHTA, depending on how the exemptions for the UK Charities are to be treated, the full amount of the UK IHT that is chargeable on the Estate is approximately either £2,395,390 (if the tax is not apportioned to the UK Charities) or £2,649,767 (if the tax is paid as part of the testamentary expenses before distributing the residuary Estate in the proportions set out in the Will and the Codicil so that all the Beneficiaries effectively share the same proportionately).

13. Negotiations have taken place between the UK revenue authorities, HM Revenue & Customs (“HMRC”), and the Executor’s solicitors in the UK. HMRC, acknowledging the potential difficulties in enforcement and being realistic, has indicated its agreement in principle to accept a lesser sum, £1,615,000 (together with interest thereon at the statutory rate), in full satisfaction of the Estate’s liability for the UK IHT. The following breakdown of £1,615,000 was provided by the Executor’s UK solicitors to HMRC by letters dated 3 December 2013 and 20 January 2015 :

Amount
Remarks
£514,090
 Said to be the 1st defendant’s proportionate share of the UK Estate
£1,018,266
 Said to be the Irish
...

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