HO SUEN CHANG v. HO HIN CHEUNG in his capacity as the sole executor of HO HARK KUN, deceased

HCMP 1669 & 1670/2015

[2021] HKCFI 1132

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1669 OF 2015

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AND

MISCELLANEOUS PROCEEDINGS NO 1670 OF 2015

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D E C I S I O N

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A. THE APPLICATION

1.  The Plaintiff and Defendant are brothers.  In this decision, I shall use the word Executor to describe the Defendant in his capacity as executor to his father’s estate; and the word Defendant to describe his personal capacity.  As the dispute involves a number of properties, I shall adopt the abbreviations for those properties in the pleadings.

2.  By a Summons dated 1.12.2017, the Executor makes 2 applications:

(1)  Striking out application:

(a)  to strike out part of the Reply and Defence to Counterclaim and Counterclaim to Counterclaim (“RDCCC”) which requires the Executor to account for proceeds of sale and rental income of 2 specified properties for more than 6 years before filing of the RDCCC (ie 1.9.2010, “the Relevant Date”);

(b)  to strike out prayer (d), except in the case of prayers (d)(i), (ii) and (iv), to the extent that they relate to any monies allegedly received by the Defendant in the period from the Relevant Date to the date of death of Father (“Account Counterclaim”).

(2)  Order 14A application: to determine the question of whether the Plaintiff is entitled to seek an account from the Defendant in respect of any monies allegedly received by the Defendant prior to the Relevant Date.

3.  Paragraph 3 of the Summons is not pursued as it has been overtaken by events. 

B.    BACKGROUND

4.  Father passed away on 9.12.2012 at the age of 91.  Under his will dated 10.1.1998, the parties are the only 2 beneficiaries entitled in equal shares.  Probate for Father’s estate was granted on 29.7.2013 to the Defendant as Executor.

5.  In 2015, the Plaintiff commenced 2 actions:

(1)  HCMP 1669/2015 dated 9.7.2015 against the Executor, in which the Plaintiff sought orders, amongst others, to require the Executor to render an account of the estate and to distribute the assets of the estate; and

(2)  HCMP 1670/2015 dated 9.7.2015 against the Defendant in his personal capacity in which the Plaintiff sought an order for sale of Po Wah Property registered in their names as tenants in common.

6.  These two actions were subsequently consolidated, with directions for the filing of pleadings.

7.  As disclosed in the pleadings, there is no dispute that Father had, during his lifetime, purchased the following properties with his own funds:

(1)  FWS Property purchased in 1965 and sold to a third party on 12.9.2005; 

(2)  430A Property purchased in 1972 and sold to a third party on 23.5.2005;

(3)  TNS Property purchased in 1977, which was registered in the name of the Plaintiff since 1986 and was sold by the Plaintiff in 2014 at the price of HK$17 million;

(4)  Po Wah Property purchased in 2004, which is still held in the joint names of the Plaintiff and the Defendant; and

(5)  Lap Kee Property registered in the name of Mother.

8.  In the Defence and Counterclaim, the Executor pleads that TNS Property and Po Wah Property formed part of the estate, despite the state of registration of title.  He counterclaims for TNS Proceeds of sale and TNS Rents which had been collected by the Plaintiff for 6 months prior to the death of Father.

9.  In the RDCCC, the Plaintiff, for the first time, pleads that:

(1)  In respect of the properties purchased by Father and registered in the names of other family members, there was a Property Arrangement to the effect that Father could instruct the registered owners to sell the properties as decided by Father in his absolute discretion.  The net sale proceeds and any rental income generated from those properties would be held on trust for Father and disposed of according to Father’s instructions. 

(2)  However, the family members would become the legal and beneficial owners of the property respectively registered in their names if those properties had not been sold during Father’s lifetime.

10.  Under the umbrella of the Property Arrangement, the Plaintiff brought in issue the FWS Property and 430A Property.  Those 2 properties had been leased out to third parties in the lifetime of Father.  As pleaded by the Plaintiff, those 2 propertieshad been sold on the instructions of Father more than 7 years prior to his death, and before he had a stroke in 2006.  These 2 properties form the subject matter of the strike-out application.

11.  The Plaintiff asserted that the Defendant collected the following on trust for Father and had not paid them over to Father or according to Father’s instructions:

(1)  10 years’ FWS Rents from 29.11.1995 (the date when FWS Property was assigned to the Plaintiff) to 12.9.2005 (the date of its sale); and the FWS Proceeds; and

(2)  18 years’ 430A Rents from 1.1.1987 (the date when 430A Property was assigned to the Defendant as one of 2 tenants in common) to 23.5.2005 (the date of its sale); and the 430A Proceeds.

The Plaintiff counterclaims upon counterclaim against the Defendant that the latter should account to Father for these.

12.  The Plaintiff further counterclaims upon counterclaim for an order to compel the Executor to seek an account from the Defendant in the course of his administration of the estate the following:

(1)  FWS Rents and Proceeds and 430A Rents and Proceeds;

(2)  TNS Rents during the period from 1.1.1987 to 1.6.2012;

(3)  Po Wah Rents during the period from 6.4.2004 to the date of death of Father; and

(4)  Lap Kee Rents during the period from 19.6.1992 to 9.12.2012.

13.  The Executor/Defendant’s case is that the Plaintiff is not entitled to the above reliefs at all.  However, for present purposes, the Executor/Defendant only seeks to strike out those parts of the RDCCC that relate to events that happened before the Relevant Date.  Specifically, he wants to strike out:

(1)  the account of TNS Rents and Proceeds, and Po Wah Rents and Proceeds, up to the Relevant Date;

(2)  the Plaintiff’s claims in relation to Lap Kee Property, as the Plaintiff accepts that it belonged to Mother after the death of Father; and

(3)  the claim for account of FWS Rents and Proceeds, and 430A Rents and Proceeds, as both properties were sold more than 13 years ago.

C.    LEGAL PRINCIPLES ON STRIKING OUT

14.  Under O18 r19 of the Rules of the High Court, the Court may at any stage of the proceedings order to be struck out any part of the pleading on the ground that:

(a)  It discloses no reasonable cause of action or defence; or

(b)  It is scandalous, frivolous or vexatious; or

(c)  It may prejudice, embarrass or delay the fair trial of the action; or

(d)  It is otherwise an abuse of the process of the court.

These power can be exercised upon application of a party or on the Court’s own motion.

15.  The relevant legal principles in a striking out application are as follows:

(a)  The power to strike out any part of the pleadings is exercised only in plain and obvious cases.

(b)  There should be no trial upon affidavit.

(c)  Disputed facts are to be taken in favour of the party sought to be struck out.

(d)  The claim must be obviously unsustainable, the pleadings unarguably bad and it must be impossible, not just improbable, for the case to succeed.

(e)  The question is whether the allegations pleaded disclose a cause of action/defence, or raise some question that ought to be tried. 

(f)  In evaluating this, the Court will not embark on an assessment of the strength or weakness of the case.  The mere fact that the case is weak, and is not likely to succeed, is not a ground to strike it out for want of reasonable cause of action/defence.

(g)  Deficiencies of averment may justify striking out but not deficiencies in particulars which can be cured by amendments.

(h)  The formulation of a party’s cause of actions should be clearly and cogently made in the pleadings, and should not be left to an exercise of drawing inference: Pido v Compass Technology Co Ltd [2010] 2 HKLRD 537 at §25, Kwan JA (as she then was).

(i)  A party should know his case and be in a position to identify the relevant evidence when he starts a claim. It is an abuse of process to start a case without a solid foundation hoping that something will turn up in the course of the proceedings, for example at the stage of discovery or on cross-examination, or to stop time from running: The New China Hong Kong Group Ltd (in Creditors’ Voluntary Liquidation) v Ng Kwai Kai, Kenneth, unreported, HCA 519/2010, 11 February 2011 at §70, Fok JA (as he then was).

D.   LEGAL PRINCIPLES ON LIMITATION PERIOD

16.  Under section 4(2) of the Limitation Ordinance, Cap 347 (“LO”), “an action for an account shall not be brought in respect of any matter which arose more than 6 years before the commencement of the action.”

17.  Section 4(7) LO provides that section 4(2) shall not apply to a claim for “other equitable relief, except in so far as any provision thereof may be applied by the court by analogy in like manner as the corresponding enactment contained in the Limitation Act 1980 (1980 c.58 UK) is applied in the English Court.”

18.  In summary, the position on limitation period is as follows:

(1)  Pure equitable claim (eg claim by a beneficiary against a trustee for account) – no limitation period;

(2)  Claim based on legal rights alone (eg account by virtue of contract) – 6 years as analogy provision applies; and

(3)  Claim based on concurrent legal and equitable rights – 6 years, as analogy provision applies.

See Liu Hsiao Cheng v Wong Shu Wai [2018] 1 HKLRD 1087, at §17, Lam VP.

19.  The rationale is that the possession of the trustee is not by virtue of any right of his own but is treated as possession for and on behalf of the beneficiaries.  He must discharge himself by accounting to his beneficiaries for all money and property without regard to the lapse of time.  See Liu Hsiao Cheng, at §§19-21.

E.    STRIKING OUT APPLICATION

E1.  Under Order 18, r 19 of the Rules of the High Court

20.  The Plaintiff submits that it was not a formal appointment of trusteeship but only the Defendant would be able to account how much had been collected, how much was spent throughout the years for family expenses and/or medical expenses of Father and how much was left.  The Defendant as sole executor of the estate is obliged to collect and preserve the assets of the estate.

21.  As executor, the Executor’s duty to account is limited to the assets that the testator possessed or was entitled to at the time of his death (but not before) and which have, at any time since his death, come to the hands and knowledge of the Executor: Tristram & Coote’s Probate Practice, 32^nd ed, §19.11, Form 57.

22.  As trustee, the Defendant’s duty was owed to the Father (not the Plaintiff).  Taking the Plaintiff’s case at its highest, the cause of action vests in the Executor and not the Plaintiff.  The Executor does not see fit to sue himself.  Unless and until the Plaintiff succeeds in removing the Executor, the Plaintiff has no locus to compel the Executor to sue himself as Defendant.  

23.  In my view, for lack of locus, the Account Counterclaim ought to be struck out.

24.  Further, it is the Plaintiff’s case that disposal of the rental income and proceeds of sale under the Property Arrangement was decided by Father in his absolute discretion.  And yet in his pleaded case:

(1)  The Plaintiff has failed to plead the basis on which he alleges that the Defendant had not paid over to the Father the rental income/sale proceeds.

(2)  The Plaintiff has not even pleaded what the alleged instructions of Father were, that had not been complied with. 

(3)  There is not even an allegation that Father himself complained in his lifetime about the way the Defendant handled the rental income or proceeds of sale.

(4)  The Plaintiff seeks to justify his assertion that the Defendant had failed to pay over proceeds of sale by deposing to the fact that the FWS Proceeds were not deposited into the Father’s only Hang Seng Bank account.  However, assuming that the Father had only one bank account, it was not even alleged that the Father had instructed the Defendant to deposit those proceeds into that bank account.

(5)  The Plaintiff also fails to plead particulars of the rental income/sale proceeds not paid over.  In particular, in respect of the 430A Property, the Plaintiff alleges that “from 28.9.1972 to the date of the sale of the 430A Property on May 2005, some of the rental income thereof was collected and disposed of by the Deceased and the remaining balance of such income was collected and kept by the Defendant as trustee on behalf of the Deceased” (underline added).  This is an embarrassing plea as a reader would not know which part of the rental income for those 33 years was collected and disposed of by the Deceased, and which part was kept by the Defendant as trustee.

25.  This is a half-baked case of breach of trust which bears all the indicia of “fishing” without solid foundation hoping that something might turn up in discovery or on cross-examination: New China v Ng Kwai Kai Kenneth.  The failure to give particulars is egregious, given that some of the alleged failure to pay over Rents/Proceeds occurred in 1987, over 25 years before Father’s death and there was a long period before Father suffered a stroke in 2006.

26.  If breach of trust is relied on, it is not enough for the plaintiff to allege that the defendant has committed breaches of trust, he must give particulars of the alleged breaches of trust and wilful default, or the allegation will be struck out. (Hong Kong Civil Procedure 2021, §18/12/45)

27.  Ms Liu, counsel for the Executor/Defendant, submits further that the Plaintiff’s allegations of breach of trust fly in the face of common sense and are contradicted by the Plaintiff’s own pleaded case on TNS Property:

(1)  TNS Property was purchased entirely by Father’s own funds and was beneficially owned by Father.  And yet the Plaintiff had pocketed the TNS Rents for 6 months and the TNS Proceeds of $17 million without accounting to Father or the estate.

(2)  The Plaintiff asserted for the first time in the RDCCC that those 6 months’ TNS Rents were used for maintenance of TNS Property, and the TNS Rents collected by him after the death of Father was for his own use and benefit.

28.  With respect to Ms Liu, such contentions would only show the Plaintiff’s case as to rental income under the Property Arrangement to be self-contradictory and weak, but they were not sufficient to justify a strike out.  The Plaintiff’s conduct after the death of Father appeared to be consistent with the alleged Property Arrangement.

29.  In summary, for the reasons given in paragraphs 21 to 26 above, those parts of the RDCCC relating to the FWS Rent and Proceeds, and 430A Rent and Proceeds should be struck out.

E2.  Limitation

30.  The prayers for relief are simply for the Defendant to account to the Executor (not the Plaintiff).  There are no related reliefs sought, such as damages for breach of trust, tracing or restitution.

31.  The question of the Plaintiff’s locus aside, it appears at first sight that this is a pure equitable claim for account, to which no limitation period applies.

32.  However, in §7 of the written submission of King & Co, it is conceded that the Account Counterclaim is not based on assertion of legal rights alone, but concurrent legal and equitable rights.  This concession must have been based on the breach of duty of the Defendant as trustee in failing to pay over monies according to Father’s instructions.  Accordingly, the limitation period of 6 years applies by analogy. 

33.  By virtue of section 35(1)(b) and section 35(2) of the LO, the Counterclaim to Counterclaim shall be deemed to have been commenced on the same date as the original action, that is 9.7.2015, the date when HCMP 1670/2015 was commenced.  Applying the 6-year limitation period, the Plaintiff shall be barred from relying on a cause of action that arose before 9.7.2009. Accordingly, the Relevant Date should be adjusted to 9.7.2009 (instead of 1.9.2010) (“Adjusted Relevant Date”).

34.  The Account Counterclaim relates to transactions dating back as early as in 1987, 1992 or 2004.  Those parts of the RDCCC for account earlier than the Adjusted Relevant Date should be struck out.

F.    O14A APPLICATION

35.  Since the court holds that the Striking Out Application should be granted, there is no need to deal with the O14A Application.  In any case, the question posed should be answered in the negative for the reasons given under the section of “Limitation”.

G.   CONCLUSION AND COSTS

36.  I make an order in terms of paragraph 1 of the Summons save that the date of 1.9.2010 shall be changed to 9.7.2009. 

37.  In respect of the Lap Kee Property, although it was not mentioned in the Summons, the Plaintiff has conceded that it belonged to Mother and not Father. Upon such concession and in exercise of the Court’s power on its own volition under Order 18, rule 19 of RHC, I also order that the following paragraphs should be struck out:

(1)  paragraphs 60-65 of RDCCC;

(2)  the reference to Lap Kee Property in paragraph 127(a) of RDCCC;

(3)  the alternative counterclaim in paragraph 129 of RDCCC which refers to the Lap Kee Property; and

(4)  prayer (e) of RDCCC.

38.  Costs should follow the event and be to the Defendant.  The Defendant’s own costs should be borne out of the estate on trustee basis.

39.  I thank Ms Liu and King & Co for their assistance.