Department of Law, University of Hong Kong

LLB Equity & Trusts 2020-2021

QUESTION

Tom was a trustee of two trusts, Cheung’s Trust and Kong’s Trust. Each trust consisted of
$5,000,000 in cash. The trust monies were kept in separate bank accounts at Kowloon Bank.
Tom also had a personal account at Kowloon Bank in which he held $20,000,000. The
following events took place in the following order:

1. Tom withdrew all the monies from the Cheung’s Trust account and placed them in his
own personal bank account.

2. Tom withdrew all the monies from the Kong’s Trust account and placed them in his own
personal bank account.

3. Tom withdrew $5,000,000 from his own account and used it to purchase an antique
Ming vase.

4. Tom withdrew $4,000,000 from his account and used the monies to pay off the
remainder of the Beijing Bank mortgage on his apartment. (The mortgage loan was
granted to Tom a year ago for $5,00,000 and the property was then worth $6,000,000.)

5. Tom withdrew $1,000,000 from his account and spent the entire sum on a luxury world
cruise. He withdraw another $1,000,000 and gave it to his girlfriend, Maisy, as a gift

Tom has now been declared bankrupt. The Ming vase is now worth $10,000,000. The
apartment is now three times its value at the time when Tom repaid the mortgage.

Advise the beneficiaries of the Cheung Trust and Kong Trust as to their rights and
remedies, if any. Would it make any difference to your answer if the money in (4) above
was used to discharge an unsecured loan which Tom obtained a year ago to purchase a
painting?