LAU TUNG HOI KENT v. LAU TUNG KUEN

HCMP 1684/2020

[2022] HKCFI 1921

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1684 OF 2020

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BETWEEN

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JUDGMENT

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Introduction

1.  This is an action for the removal of an executor. The estate in question is that of Mr Lau Fat Choi (“the Deceased”). He died on 1 January 2018 leaving a will dated 13 March 2012 (“the Will”) appointing one of his sons, Mr Lau Tung Kuen (“the Defendant”), as the executor of his estate (“the Estate”). The Defendant obtained the grant of probate in Hong Kong on 28 March 2018. The Plaintiff, who seeks to remove the Defendant as executor, is a younger brother of the Defendant and a beneficiary of the Estate under the Will.

2.  These proceedings were commenced by way of an Originating Summons dated 8 October 2020 (“Originating Summons”) seeking the following principal orders: (i) the Defendant be removed as the executor of the Estate; (ii) the Plaintiff and/or other suitable person as the Court thinks fit and proper be appointed in place; and (iii) upon the appointment of the suitable executor, the Defendant do deliver up all the assets of the Estate to the substitute executor within 7 days.

3.  Both parties filed affirmation evidence, and the deponents attended the hearing for cross-examination. Although there was no order for pleadings to be filed in this action, for all intents and purposes, the substantive hearing of the Originating Summons was conducted as a trial.

4.  The principal question arising for determination is whether the removal of the Defendant as executor is required by reason of the due and proper administration of the Estate and the interests of the persons beneficially entitled in the Estate. Although the Originating Summons contemplated that the Plaintiff might replace the Defendant as executor, this position was no longer maintained at trial. Instead, it was suggested that the substitute executor should be an independent professional, namely, Mr David Lin, a solicitor at Messrs. CP Lin & Co.

5.  In essence, the Plaintiff’s main complaint is that there has been a complete lack of distribution of the assets of the Estate by the Defendant since his appointment on 28 March 2018. The Plaintiff also complains that the Defendant suffered from a conflict of interest, there was problematic administration and accounting, and that there was distrust and animosity which rendered the continuance of the executorship untenable. Ms Helen Au, counsel for the Defendant, submitted that although the Defendant’s administration of the Estate had not been perfect, this was not a sufficiently serious case to justify his removal. It was stressed that the Defendant remained ready and willing to responsibly discharge his duties as the executor, and emphasis was placed on the remedial steps which he has taken.

6.  Before turning to the specific issues to be considered in this case, it is necessary to set out the relevant factual background giving rise to this dispute.

The Factual Background

7.  As mentioned above, the Deceased died on 1 January 2018.

8.  The Deceased was married to Madam Tang Ming Tai (“Madam Tang”). She died in August 2008.[1] They had 6 children together, with 5 sons and 1 daughter. Mr Lau Tung Hoi Kent (“the Plaintiff”) is the youngest of these children.

9.  The 6 children, from eldest to youngest, are as follows:

(1) Mr Lau Che Kwong (“Kwong”)

(2) Mr Lau Fu Yuen (“Yuen”)

(3) Mr Lau Tung Kuen – the Defendant.

(4) Ms Lau Chun Yin (“Yin”)

(5) Mr Lau Tung Lok (“Lok”)

(6) Mr Lau Tung Hoi Kent – the Plaintiff.

10.  Kwong, the eldest son, died in December 2019. His surviving widow, Chan Chin Wan Queeny (“Queeny”), is the executor of his estate.

11.  The Will provides for an equal distribution of the Deceased’s real and personal property to each of his 5 sons, to the exclusion of his daughter, Yin.

12.  According to the Schedule of Assets and Liabilities filed in probate, the Estate of the Deceased comprises of bank balances with the Bank of China and Bank of Communications,[2] various items of personal jewelry and a Rolex watch placed in a safe deposit box, and interests in a number of real properties in Hong Kong.

13.  It is fair to say that the most valuable assets belonging to the Estate are the real properties. There are competing valuation reports which have been placed in evidence, though I do not consider (and the parties did not suggest) that this dispute turns on any question of disputed valuation. The details of the real properties are as follows:

(1) Lot No. 712 in DD 137.

(2) 1/3 share in Lot No. 1470 in DD 131 (G/F).

(3) 1/3 share in Lot No. 1470 in DD 131 (1/F).

(4) 1/3 share in Lot No. 1470 in DD 131 (2/F & Roof).

(5) 1/3 share in Lot No. 1468 in DD 131 (2/F & Roof).

(6) 1/2 share in Lot No. 163 in DD 134.

(7) 1/2 share in Lot No. 191 in DD 134.

(8) 1/2 share in Lot No. 194 in DD 134.

(9) 1/2 share in Lot No. 203 in DD 134.

14.  It is easier to describe the real properties by reference to their addresses. With reference to the sub-paragraphs immediately above:

(1) Property (1) is the ancestral home of the Lau family at 77-79, Pak Long, Tuen Mun (“Ancestral Home”);

(2) Properties (2)-(4) are a residential property at No. 109, Leung Tin Village, Tuen Mun (“No. 109”);

(3) Property (5) is the 2/F and Roof of a nearby residential property in Leung Tin Village, at No. 112 (“No. 112”); and

(4) Properties (6)-(9) are plots of agricultural land in DD 134.

15.  Having briefly described these properties, I will now give an account of what these properties were used for and which Lau family members were living in them. This is important to understand the overall factual context of this dispute.

16.  The Plaintiff resided at 2/F of No. 112 at least until December 2019. Thus, he continued to reside there even after the death of the Deceased and the appointment of the Defendant as executor. The Plaintiff’s evidence was that he then moved to a different property at 101 Pak Long Village after moving out from 2/F of No. 112 in December 2019. However, it is not disputed that the Plaintiff kept the keys to the property until they were given to the Defendant in June 2021.

17.  The Defendant resided at 1/F of No. 109. His evidence is that he moved out in September 2020. He had lived there for more than 30 years since 1990. According to him, it was due to a family arrangement that he continued to reside in those premises after he was appointed as the executor. I will turn to the details of this family arrangement later in this judgment.

18.  The Defendant’s son, Lau Sai Fu, resided at G/F of No. 109 from around 2013 to August 2020. The Defendant says that his son moved out due to harassment by Lok who banged on the door and made a scene. The Defendant’s father-in-law resided at 2/F of No. 109. He lived there since 1998 at a monthly rental of $5,000, with no rental increase over the years. According to the Defendant, his father-in-law left the premises in August 2020 after the Plaintiff and Lok made a scene and made certain verbal threats using aggressive language which resulted in the police being called.

19.  According to the Defendant, the Ancestral Home is fairly old and in need of repairs. His evidence is that the Deceased wished to have it repaired and maintained. On 12 October 2018, the Defendant obtained a quotation from a contractor to renovate the Ancestral Home. This quotation was for more than HK$1 million. This was part of the context against which he says that the family arrangement was agreed. It was not in dispute that it was unusual for people in the New Territories to sell their ancestral homes because they are the root of the family.

20.  With respect to the plots of agricultural land in DD134, these were co-owned and were leased out at a reasonable rent. The Defendant’s case is that Kwong had assisted in the collection of rental payment up to his death, and cheques would be deposited into Kwong’s personal bank account, and later deposited into a joint account opened by Kwong and the Defendant for the purpose of handling family income and outgoings. After Kwong died, that bank account was frozen, and another joint account was opened under the names of the Defendant and Queeny.

21.  The Defendant says that, for a time, the responsibility of collecting rental payment for the plots of agricultural land fell with him, and the tenant would deposit the monthly rental into his personal bank account which would later be collected and eventually paid into his joint account with Queeny. According to the Defendant, this lasted only a few months because since April 2020 the tenant refused to continue paying rent due to a request from the Plaintiff.

22.  The Defendant’s case is that, in or about March 2020, the Plaintiff began to insist on the real properties being sold. There is a letter dated 23 March 2020 to this effect sent on behalf of the Plaintiff. In response to this request, the Defendant instructed a firm of surveyors to prepare valuation reports for the real properties.

23.  By a letter dated 11 June 2020, the Plaintiff’s former solicitors requested a distribution of assets. The Plaintiff requested an in specie distribution for the Ancestral House and the agricultural lots, and requested that No. 109 and No. 112 be sold with the proceeds distributed to the beneficiaries. The Defendant’s solicitors replied on 26 June 2020 stating that he agreed to assign the Ancestral House and agricultural lots to the beneficiaries in equal shares. For the other properties, the view was taken that it would be better to assign the properties as well. A draft assent was attached to this letter. The Plaintiff’s former solicitors replied on 30 June 2020 saying that they would revert on the form of the proposed assent, and invited the Defendant to consider selling No. 109 and No. 112 to save time and costs because the Plaintiff’s intention to sell these properties was clear.

24.  On 17 July 2020, the Plaintiff’s solicitors enclosed an assent which was signed by the Plaintiff and Lok, who were the assignees in the assent. The signed assent provided that the assignees would receive a total of 2/5 share of the Ancestral Home and the agricultural lots. After this letter, the Defendant’s solicitors replied on 28 July 2020 that the Defendant wished to sell all of the real properties, including the Ancestral Home and the agricultural lots. The assent was therefore not executed by the Defendant. There was also a minor discrepancy in Lok’s HKID card number stated in the assent. The Plaintiff’s solicitors pressed for the return of the executed Assent on 31 July 2020, and considered there was no real doubt over the identity of Lok. On 5 August 2020, the Defendant’s solicitors returned the assent and re-iterated its stance that it intended to sell all the real properties.

25.  By an agency agreement dated 22 August 2020, 金輝地產 (“Kam Fai”) was appointed as estate agent for the Estate to sell No. 109 and 2/F of No. 112.

26.  On 4 January 2021, a complaint was made by the Defendant against Kam Fai to the Estate Agents Authority who later responded that the matter would be investigated. The allegation was that Kam Fai had, in breach of its duty of confidentiality, disclosed information regarding potential buyers to the Plaintiff who was not privy to the agency agreement. The Defendant alleges that the Plaintiff had a close relationship with Kam Fai, and suspects that the information was divulged as a result of that relationship. I should mention that these are allegations only, and Kam Fai has not been given the opportunity to be heard.

27.  On 18 March 2021, the Defendant appointed Centaline and Midland Realty as estate agents to sell No. 109 and 2/F of No. 112 on behalf of the Estate. On 30 April 2021, the agency agreement with Kam Fai was terminated. As at the date of the trial, neither property had been sold, although it is the Defendant’s case that there have been several potential buyers who have inquired about the properties.

28.  The Defendant also says that he visited the Probate Registry in order to take certain necessary steps to enable a sale and purchase agreement to be signed as executor on behalf of the Estate, including seeking to amend the grant of probate to add an alias of the Deceased. The alias is Lau Fat Tsoi as opposed to Lau Fat Choi. In February 2021, the Probate Registry informed the Defendant that the application to amend could not be made until the conclusion of these proceedings. The Defendant made a number of further visits to the Probate Registry after receipt of this letter.

29.  On 30 April 2021, Borrelli Walsh prepared a Statement of Accounts with respect to the Estate for the period between 1 January 2018 to 31 March 2021 (“the Borrelli Walsh Statement”). Borrelli Walsh was retained after these proceedings were commenced for the purposes of assisting the Defendant to prepare a proper set of estate accounts and to assist distribution among beneficiaries.

Relevant Legal Principles

30.  Section 33(3) of the Probate and Administration Ordinance (Cap 10) (“PAO”) provides:

“The court may, if satisfied that the due and proper administration of the estate and the interests of the persons beneficially entitled thereto so require, suspend or remove an executor or administrator (other than the Official Administrator) and provide for the succession of another person in place of such executor or administrator and for the vesting in that other person of any property belonging to the estate.”

31.  The statutory criteria governing the removal of an executor is whether it is required having regard to the due and proper administration of the estate, and the interests of persons beneficially entitled in the estate. This involves an assessment by the court having regard to all the relevant circumstances with this touchstone in mind. Each case must be decided on its own facts and the assessment involves a value judgment on the part of the first instance judge. Although there are cases referring to the importance of choice by the testator, and that the power to remove an executor should be exercised cautiously and sparingly, it would go too far to regard these statements as setting out legal principles which supplant the statutory criteria: Tsang Wing Kwai v Tsang Wing Fai (No 2) [2019] 1 HKLRD 1300 at §27 per Lam VP (as he then was).

32.  In Law Wai Hay v Law Po Chong Priscilla [2021] HKCFI 3017, Wilson Chan J explained at §28 the principles governing the discretion under section 33(3). Although the observations below were made in relation to a case involving the removal of an administrator, in my view, they apply equally to an executor.

“The court has a discretion under section 33(3) of the PAO to remove an administratrix:

(1) The discretion to remove an administratrix under section 33 of the PAO involves an assessment and a value judgment in all the relevant circumstances of whether removal is required for the due and proper administration of the estate and the interests of the beneficiaries.

(2) Not every mistake or neglect of duty, or inaccuracy of conduct of trustees will induce the court to remove the administratrix.

(3) The acts or omissions must be such as to endanger the trust property or to show a want of honesty, or want of proper capacity to execute the duties, or a want of reasonable fidelity.

(4) Hostility between the administratrix and the beneficiary is not a ground for removal, unless the breakdown of the relations between them is such as to lead to the administration coming to a standstill, or makes it difficult or impossible for the administration to be completed by an existing personal representative.”

33.  A court is entitled to take into account the choice of executor by the testator. The testator is taken to have chosen the executor with personal knowledge of family dynamics and relationships. The testator’s choice also necessarily implies that the executor was trusted and believed to be suitable by the testator to perform the duties required of an executor. Equally, there is a limit to the weight to be attached to this factor, especially where the removal is based on conduct or circumstances after the death of the testator or arises from a situation which the testator could not have reasonably foreseen at the time when the executor was chosen.

34.  This is explained in Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (21^st ed., 2018) at §57-20 as follows:

“The fact that the testator has chosen the executors in question is capable of being relevant, for no other reasons that he may be expected to have had knowledge of the characters, attitudes and relationships involved, although if circumstances have changed radically since the appointment, that would be a countervailing consideration”.

35.  Under section 71 of the PAO, a personal representative is not bound to distribute the estate of the deceased before the expiration of one year from the death. Yet if there is delay of more than the “executor’s year”, the onus is on the executor to show some valid reason for the delay: Chan Yeuk Nam v Chan Yeuk Shan Isabella [2021] HKCFI 3649 at §29 per Wilson Chan J.

36.  It is the duty of an executor to keep clear and accurate accounts, and to be always ready to render such accounts when called upon to do so. In order to provide a true and perfect account, the executor must provide details of the whereabouts of all properties, including cash, which he is bound to administer: Re Estate of Lee Da Kor [2010] 1 HKLRD 415 at §17 per Poon J (as he then was); Chan Yeuk Nam at §§20-23. It is not an answer to say that the executor is inexperienced in keeping accounts as in such cases it would be their duty to employ a competent accountant to keep them. To discharge the duty to account properly, there must be production of the relevant supporting documents and receipts, as well as breakdown of items: Chan Yu Hong v Chan Kam Hong (HCMP 888/2013, 19 July 2017) at §81 per Hon Bebe Chu J.

37.  Although friction or hostility between representative and beneficiary is not of itself a reason for removal, it should not be disregarded where the hostility is grounded on the mode in which the estate is being administered: Williams, Mortimer and Sunnucks at §57-20. Hostility may be a ground for removal where the breakdown in relations is such as to lead to the administration coming to a standstill, or makes it difficult or impossible for the administration to be completed by an existing personal representative: Law Wai Hay at §28(4).

The Witnesses

38.  At trial, there were a total of 5 witnesses. The Plaintiff testified on his own behalf, together with Lok. For the Defendant’s side, the Defendant, Yuen and Queeny testified.

39.  As to Plaintiff, although there were certain limited parts of his testimony where he was evasive, I regarded his evidence as being generally satisfactory and reliable particularly as it pertained to the family gatherings in October 2018. I cautioned myself against placing too much reliance on demeanour as an accurate guide of reliability, as the Plaintiff’s testimony was, at times, blunt and aggressive. As for Lok, he largely gave an account which corroborated that of the Plaintiff. Having heard his testimony, I formed the view that he was a less reliable witness than the Plaintiff when it came to recounting the important events in October 2018. To the extent that it was not already covered by the Plaintiff, I did not find Lok’s evidence to be helpful in resolving the present dispute.

40.  Turning to the Defendant, having heard his oral testimony, I do not believe that the Defendant was a witness who was deliberately misleading or dishonest. However, it is fair to say that his recollection of events was fairly poor on certain important aspects of his evidence, in particular, when the family arrangement was first agreed. In view of his shaky recollection, I found it difficult to place reliance on his oral testimony, especially where it was not supported by the documents.

41.  Yuen was an unsatisfactory witness with a poor recollection of the relevant events. I am unable to place much reliance on his evidence. His vague and equivocal evidence in relation to the family gatherings fortified my finding that the family arrangement alleged by the Defendant did not exist. Queeny was a straightforward and honest witness, though her evidence was less directly relevant to the matters at hand.

Family Arrangement

42.  According to the Defendant’s affirmation evidence, after Yuen returned to Hong Kong on 16 October 2018, there were two family gatherings which all 5 sons (all beneficiaries of the Estate) of the Deceased attended during which discussions took place regarding the Estate.

43.  The first gathering took place at Jasmine Restaurant at VCity in Tuen Mun (“Jasmine Restaurant”), and a few days later, there was another at the clubhouse of Century Gateway (“Century Gateway”). The Defendant says that the following explicit agreement (“Family Arrangement”) was reached:

“On this occasion, we all explicitly agreed that the assets of the estate of the Deceased stay put – not to impose changes to the pre-existing conditions, not to realise the assets, not to vest the landed properties to the beneficiaries, and not to distribute cash and/or other assets. It was also explicitly agreed to by all 5 of us that the properties which had been leased out do continue with the pre-existing leases, and then having the surplus of the net rental income (after the payment of the deficit and any expenses for administration of the 2^nd Deceased’s estate) for the following 3 years after the passing away of the Deceased shall be reserved for the repair, maintenance, and/or rebuilding of ancestral house … In the family arrangement made in the presence of all 5 beneficiaries as aforesaid, it was also explicitly agreed that there be no need to vest the landed properties”.[3]

44.  In essence, the assets of the Estate would “stay put” in the sense that the assets would not be realised, the real properties would not be vested to the beneficiaries and cash and other assets would also not be distributed. For rental income, any surplus received in the next 3 years would be used for the Ancestral House. In the meantime, the Defendant would continue to be the sole executor of the Estate.

45.  The Defendant also says that on 29 October 2018 there was a dinner gathering at Dragon Inn Seafood Restaurant in Castle Peak Bay with all sons of the Deceased and their spouses attending, except for Lok. He says during that dinner, the Plaintiff’s wife, Ho Wai Ling, suggested the Defendant could sell the real properties and realise the assets, instead of vesting the properties onto the beneficiaries.[4]

46.  According to the Defendant’s case, the reason why there were no distributions from the Estate for a long period of time was because of the Family Arrangement. If proven, the Family Arrangement would provide an explanation for the lack of distributions by the Defendant because it would demonstrate that there was a consensus reached among all the beneficiaries as to how the administration of the Estate should be handled, namely, to maintain the status quo without the distribution of assets. The Defendant says that it was only after the eldest son, Kwong, died in December 2019 that he started to receive objections to the Family Arrangement, and the Plaintiff started to insist on selling the real properties and obtaining a distribution of assets. The Defendant suggested this amounted to conduct which was inconsistent with the Family Arrangement. For the reasons below, I reject the Defendant’s factual case that the Family Arrangement was concluded. I have taken into account the points urged upon me by both parties, but I will confine myself in this judgment to the important matters leading to my conclusion on this factual issue.

47.  First, the version of events which the Defendant said gave rise to the alleged Family Arrangement in oral testimony was fundamentally different from his affirmation evidence. In oral testimony, the Defendant mentioned for the first time that there was a prior gathering on 22 January 2018 at a Thai seafood restaurant where all parties agreed that “everything should remain unchanged”. However, this gathering was not even mentioned in the Defendant’s affirmation evidence, as it was alleged there that it was only at later gatherings at the Jasmine Restaurant and Century Gateway in October 2018 that the Family Arrangement was reached. This is an important discrepancy which goes to the heart of the matter, especially as it is alleged that the Family Arrangement was concluded by oral discussions. In my mind, this casts serious doubts over the reliability of the Defendant’s version of events.

48.  Second, the existence of the Family Arrangement is not supported by contemporaneous documentation. Although I accept that in the family context, parties are less likely than commercial persons to reduce or evidence their agreements in writing, in the current age of technology the use of communications with a digital imprint is not uncommon between even family members. Having reviewed the documentary evidence in this case, including the instant messages produced before the court, I am unable to see any clear indications which support the existence of the Family Arrangement in the terms alleged by the Defendant.

49.  Third, I also take into account that Yuen’s evidence was highly equivocal on the issue of whether the Family Arrangement was concluded. Yuen was present at both the Jasmine Restaurant and Century Gateway gatherings, and if there was a unanimous agreement reached between the family members, Yuen would be expected to have knowledge of this. However, his answers both in cross-examination and in direct response to questions raised by the court were evasive and unclear as to what was actually discussed and agreed at those gatherings. Further, as mentioned above, I have serious reservations over the Defendant’s own recollection of events leading up to the Family Arrangement as well.

50.  Fourth, in my view, the existence of the Family Arrangement is inconsistent with the views taken by family members soon after it was allegedly concluded. For instance, it is not disputed that the Plaintiff’s wife mentioned on 29 October 2018 at a family gathering at Dragon Inn Seafood Restaurant that the real properties should be sold, instead of vested, to save legal expenses. The Defendant was present at this gathering. This is obviously inconsistent with the notion that the Estate was to “stay put” with no assets to be realised. The evidence was that she was allowed to speak and there was no objection against her recommendation. The fact that the Plaintiff’s wife made this suggestion without objection by anyone else soon after the Family Arrangement was allegedly concluded tends to suggest that there was no consensus, and that there were still active discussions as to how the Estate should be administered. In the same vein, the Plaintiff’s wife also sent a WhatsApp message on 20 November 2018 to Yin and Yuen suggesting that some of the real properties should be sold. The message included various calculation breakdowns, and she asked both of them to follow up with the Defendant. These messages do not sit well with the notion that there was already a concluded Family Arrangement.

51.  Fifth, in my evaluation, I have taken into account that the Plaintiff continued to live in 2/F of No. 112 during 2019. There is a dispute as to whether the Plaintiff continued to live there after 2019, but I do not think that anything substantial turns on this purpose of ascertaining whether the Family Arrangement existed or not. The Defendant relies on this fact as indicative of the Family Arrangement because no steps were taken to realise that property. In my overall assessment of the evidence, I did not find this fact to be so compelling to outweigh the other points mentioned above; it certainly does not make the Family Arrangement an irresistible inference. This is not sufficient in itself to prove the Family Arrangement. As a matter of fact, I find that the Plaintiff continued to live in 2/F of No. 112 not because he was adhering to the Family Arrangement suggested by the Defendant.

52.  Overall, having regard to all the circumstances, I accept the Plaintiff’s evidence that although there may have been discussions regarding the repairs of the Ancestral Home at the family gatherings in October 2018, there was no concluded Family Arrangement reached in the terms alleged by the Defendant. I consider that this is the more inherently probable situation, and the one that is more consistent with the other surrounding evidence before the court.

The Failure to Distribute Assets

53.  The Plaintiff’s case is that there has been a complete lack of distribution of assets since the Defendant was appointed as executor on 28 March 2018. This is said to be contrary to the executor’s duty to faithfully administer the Estate in accordance with the Will which provides for an equal share in the Estate to each of the 5 beneficiaries. In my evaluation, in the absence of a satisfactory reason, the lack of distributions of assets of the Estate is obviously a matter which is contrary to the interests of the beneficiaries who are entitled to share in the Estate as provided for in the Will.

54.  I should mention, however, that under section 71 of the PAO the Defendant was under no obligation to distribute until the expiration of 1 year after the death of the Deceased. In this case, the “executor’s year” expired on 1 January 2019. Since there is no dispute that there has been no distribution since then, the burden rests on the Defendant to provide a satisfactory explanation for the delay.

55.  Ms Helen Au, for the Defendant, agreed that the true importance of whether the Family Arrangement existed related to whether there was a satisfactory explanation for the non-distribution of assets up to March 2020 when the Plaintiff started to insist upon the distributions. I have explained why I reject the suggestion that there was a concluded Family Arrangement between all beneficiaries in October 2018, or for that matter since January 2018 at the Thai seafood restaurant as mentioned by the Defendant for the first time in oral testimony. I do not accept the evidence of the Defendant and Yuen in this regard. I reject the submission that the lack of distributions from the Estate can be justified by reference to a consensual family understanding between all beneficiaries that the assets of the Estate would remain in place and without the need to sell the real properties. The fact that the Plaintiff did not voice his concerns strongly until March 2020 does not, in my judgment, exonerate the Defendant from his obligation to distribute.

56.  The starting point must be, therefore, that the Defendant was required to take steps to realise and/or distribute the assets of the Estate, and there is no dispute that there were no distributions as at the date of the trial. The question then becomes whether there is any valid explanation for this. It is necessary to look at the main categories of assets in the Estate separately to see whether there is any valid explanation.

57.  First, there is the Ancestral Home and the agricultural lots. Although the Defendant originally agreed on 26 June 2020 to an in specie distribution of these properties, it is not disputed that the Defendant has not assigned the relevant shares in these properties to the beneficiaries. The Defendant’s original stance was reversed by his solicitor’s letter dated 28 July 2020 stating the executor’s desire to sell all the properties (including the Ancestral Home and the agricultural lots) rather than to assign them to the beneficiaries. However, this was a conclusion which was reached without providing a satisfactory explanation, and the Defendant declined to execute the Assent which was signed by the Plaintiff and Lok. Further, I reject the Defendant’s explanation in oral testimony regarding Lok’s HKID card discrepancy as being a mere excuse not to proceed with the distribution to the Plaintiff and Lok. To the extent that there were any minor technical difficulties regarding the Assent, both parties were legally represented and with a degree of sensible co-operation this could have been sorted out. Further, there is no clear evidence to suggest that the Ancestral Home and agricultural lots will be sold or realised in the near future. In my judgment, this is unsatisfactory and I do not see any real progress in making the distribution of these properties to the beneficiaries.

58.  Second, there are the other real properties, namely, No. 109 and 2/F of No. 112. The Defendant appointed Kam Fai as estate agents to sell the properties in August 2020, who were then replaced by Midland and Centaline in March 2021.

59.  The burden is on the Defendant to demonstrate a satisfactory explanation for the delay in realizing and/or distributing these real properties after the expiry of the executor’s year on 1 January 2019. Since I have rejected the argument based on the Family Arrangement, I do not consider that there was a consensual understanding that these properties were to “stay put”. The reality is that the Defendant only appointed Kam Fai as estate agents to sell the properties in August 2020, who were then replaced by Midland and Centaline in March 2021. Bearing in mind that the Defendant was appointed as executor in March 2018, there was, on any view, significant delay in appointing estate agents to sell these properties.

60.  There was mention in evidence about an offer received by Kam Fai for No. 119 in February 2021 for HK$16 million. The Defendant was suspicious about this offer not being a genuine one, and it did not lead to any sale and purchase agreement being signed. I am prepared to give the Defendant the benefit of the doubt with respect to this offer and also with respect to the period when Kam Fai was appointed as estate agent particularly since the period involved was only between August 2020 and March 2021. The Defendant confirmed in his oral evidence that if there was a genuine offer as at the date of trial of at least HK$16 million that the Defendant would sell No. 119. However, there was still limited evidence as to the number of potential purchasers who viewed the properties via Midland and Centaline. In oral testimony, the Defendant mentioned that there were two potential buyers, but this was not referred to in his affirmation evidence.

61.  In my overall evaluation, while I accept that steps have now been taken by the Defendant to market the properties with reputable estate agencies, the fact of the matter is that estate agents were only initially appointed in August 2020. I am not satisfied that there is a wholly satisfactory reason for the overall delay in question, especially bearing in mind that the Defendant and his family members continued to reside in No. 109 up to that point.

62.  Third, there are the personal chattels and other assets of the Deceased. As at the date of trial, there is no dispute that there has been no distribution with respect to these assets. At trial, I was informed that certain gold ornaments belonging to the Estate were sold on 4 December 2021. This was several days before the trial commenced. The Defendant admitted that this was due to the pressure of these proceedings, and I do not understand why this was not done earlier. Irrespective of the motivation of the sale, and whether it was prompted by a desire of the Defendant to deflect criticism of dereliction of duty, it cannot be disputed that there was serious delay before the sale of the gold ornaments. I am unable to place significant weight on this factor in my overall evaluation, especially as this was late and the gold ornaments were not the only personal chattels belonging to the Deceased. I do not see any satisfactory explanation for the delay in distribution with respect to the personal chattels.

63.  In all the circumstances, for the reasons explained above, I do not consider that the Defendant has demonstrated a satisfactory reason to justify not distributing the assets of the Estate to the beneficiaries to date.

The Accounting Records & Mixing of Funds

64.  It is fair to say that the state of the accounting records kept by the Defendant on behalf of the Estate is confusing, and it is unfortunate that professional accountants were only instructed after these proceedings were commenced. Borrelli Walsh was only instructed by an engagement letter dated 4 November 2020, and one can infer that this was done in response to these proceedings.

65.  At the same time, I should mention that the Plaintiff has not alleged that the Defendant is guilty of misappropriating funds from the Estate, or that there has been any dishonesty in his handling of the funds. That being said, as an executor, the Defendant is under an obligation to maintain clear and accurate accounts, and to be always ready to render them when called upon to do so. This obligation entails, where appropriate, providing breakdowns and supporting documents in support of receipts and expenses. Even in the absence of dishonesty or conduct causing loss to the Estate, a failure to keep proper accounts can provide a basis to remove an executor.

66.  As I have mentioned, the Borrelli Walsh Statement covered the period between 1 January 2018 to 31 March 2021. It was only on 10 May 2021 that the Defendant opened a new bank account in his capacity as executor of the Estate. Prior to this, the Defendant opened a joint bank account with Kwong with the Bank of Communications in January 2018. After Kwong died, this account was closed and the balance was transferred to a new joint bank account held by the Defendant and Queeny. Both of these accounts are said to hold funds on behalf of the Estate, and I must confess that I do not understand why a separate bank account was not opened by the Defendant in his capacity as an executor of the Estate earlier on. This would have facilitated clear banking entries, and would have been far less confusing.

67.  Apart from not having a proper and separate estate bank account, it is clear there were funds that did not belong to the Estate that had been deposited into the bank accounts said to hold funds on behalf of the Estate, consisting of multiple rental payments deposited arising from various properties not owned by the Estate: §17 of the Borrelli Walsh Statement. I have no doubt that this mixing of funds contributed to the confusing state of the accounting records.

68.  According to the evidence, there was a transfer of HK$355,060 in May 2018 from the Deceased’s bank account with the Bank of China to a bank account with Hang Seng Bank under Madam Tang’s estate. These funds obviously belonged to the Estate because they were funds held in the Deceased’s own bank account. Borrelli Walsh were advised that this payment represented a repayment of funeral and medical expenses which were previously paid by Tang’s estate. However, there was no breakdown of the relevant expenses made available to Borrelli Walsh: §22 of the Borrelli Walsh Statement. Even on the assumption that the Defendant’s explanation is true, this is still problematic because there is no breakdown of the expenses.

69.  Further, from the Borrelli Walsh Statement, it appears that there is still a sum of HK$13,951 which should be held by the Defendant for the Estate which is not accounted for: §26 of the Borrelli Walsh Statement. Although there is no allegation of dishonesty involved, this does illustrate the unsatisfactory state of the accounting records, and even with the benefit of professional assistance, there is still uncertainty as to the whereabouts of those funds.

70.  In cross-examination, the Defendant was questioned about certain entries in the bank passbook of the joint bank account held by him and Kwong. These included (i) withdrawals totaling HK$80,000 on 13 and 23 October 2018; and (ii) withdrawals totaling HK$127,760 between 10 January and 9 February 2019. While the Defendant was originally unable to directly answer these questions in cross-examination, he was able to give some explanations after being permitted by the court to refresh his memory from a ledger not produced in evidence. However, the point remains that the Plaintiff did call for an account, and the explanation for these withdrawals were only mentioned at a very late stage.

71.  Although the Defendant’s engagement of Borrelli Walsh has been of significant assistance to the court, it is clear to me that even with help of professional accountants, that the Defendant has been unable to comply with his obligation as an executor to maintain a true and accurate account of the Estate’s income and expenses, and to provide relevant supporting documentation and breakdown.

72.  Overall, I agree with the Plaintiff’s submission that the Defendant had mixed monies and kept confusing records of accounts. The Defendant’s response to these points in closing submissions was fairly generic, and did not condescend on particulars. Although I do not make any finding of dishonesty against the Defendant, it is apparent that the task exceeded his capabilities and it is unfortunate that he did not enlist professional accounting assistance at an earlier stage. My conclusion is that the Defendant has failed to discharge his duties in keeping clear and accurate accounts as the executor of the Estate.

The Allegation of Conflict of Interest

73.  The Plaintiff alleges that the Defendant was in a position where his own interests, or those of his immediate family members, conflicted with the proper performance of his duties as an executor because the Defendant continued to live at 1/F of No. 109 without paying rent. Moreover, the Plaintiff also relies on the fact that the Defendant allowed his father-in-law to continue to reside on 2/F of No. 109 until August 2020 at a monthly rental of HK$5,000, which was below market rate.

74.  There was a dispute of fact regarding the period in which the Defendant resided at 1/F of No. 109. The Defendant testified in cross-examination that he moved out in September 2020, while the Plaintiff maintained that the Defendant occupied the property until November 2021. The Defendant did not mention that he moved out in September 2020 in his affirmation evidence, and Mr Au, counsel for the Plaintiff contended that this was inconsistent with the Defendant’s continued use of that address as stated in his third affirmation dated 3 November 2021.

75.  Overall, there is limited evidence on this issue, and I am prepared to accept the Defendant’s evidence in this regard. I find that it is inherently improbable that the Defendant would fabricate the date when he moved out. Further, I do not think the Plaintiff is entitled to make too much mileage out of the Defendant’s use of the address in his third affirmation when the Plaintiff himself did exactly the same thing in the Small Claims Tribunal case.

76.  The fact remains, however, that even on the Defendant’s own case he did continue to live in 1/F of No. 109 until September 2020. Given that I have rejected the Defendant’s case on the Family Arrangement, and in the absence of any other agreement on the part of the beneficiaries, I accept that the Defendant was placed in a position where his personal interest in continuing to reside in the property was in potential conflict with his duty to realise the assets of the Estate, including to sell his residence. Although it may be said that the Plaintiff himself also continued to reside in a property which belonged to the Estate rent-free, I do not think that this is a complete answer to the complaint of conflict of interest against the Defendant. At best, it may well be said that both of them may be required to account to the Estate in the future for the period of rent-free occupation of the respective properties. That is not a question which is before this court on this occasion.

77.  In my evaluation of whether the Defendant should be removed as executor, I consider that I am entitled to take into account the past existence of a potential conflict of interest. At the same time, the reality is that the Defendant has placed the property on the market for sale and he has testified that he has moved out. Thus viewed, this is not a situation of a serious ongoing conflict of interest and I do not consider that this would, in itself, be sufficient to justify the removal.

78.  Lastly, I do not think that there is much in the complaint regarding the Defendant’s father-in-law. He had been living in 2/F of No. 109 since 1998 and paying the same rent of HK$5,000 since then. He simply continued to live there on the same terms as he had for many years previously, and in any event, he moved out in August 2020. I did not place any reliance on this complaint in my decision.

Animosity & Breakdown of Relationship

79.  Having heard the evidence from all witnesses, I find that as a matter of fact there has been an irretrievable breakdown in the relationship between the Defendant on the one hand, and the Plaintiff and Lok on the other hand. There is clearly deeply rooted mistrust on both sides, and their relationship is highly acrimonious. I do not consider that it is a useful exercise to attribute blame for the situation, but in broad terms, neither camp can be said to be totally without fault.

80.  Based on my overall evaluation of the dispute, and taking into account their testimony, in my judgment it is more likely than not that if the Defendant were not removed as an executor, the antagonism and disputes would continue to escalate, and this would hardly be in the best interests of the due and proper administration of the Estate and those who are interested in it. Although hostility is not in itself sufficient to justify the removal of an executor, in my judgment, this is a case where the breakdown in relationship between the personal representative and beneficiaries is sufficiently serious to render the continued administration of the Estate untenable. This is my overall assessment having reviewed the documentary evidence in this case and heard the oral testimony from the 5 witnesses. This can be properly addressed through the appointment of an independent professional as a new executor. This is likely to reduce the friction between all concerned, and most importantly, lead to a prompt and effective administration of the Estate.

81.  In reaching this conclusion, I have not lost sight of the fact that the Deceased, as testator, chose the Defendant to be his executor under the Will. The weight to be attached to this consideration will vary from case to case depending on the specific facts. In the particular circumstances of the present case, I am unable to attach significant weight to this factor bearing in mind the nature and extent of the disputes which have arisen after the death of the testator. Without disrespect to his wishes, these were matters outside the reasonable contemplation of the Deceased.

82.  It is clear, in my judgment, that the due and proper administration of the Estate requires that the Defendant be removed as executor. I am satisfied that Mr David Lin is an appropriate candidate as a new executor, and sensibly, no objection has been taken by the Defendant as to his expertise, capability or independence.

Overall Evaluation

83.  There has been no distribution from the Estate despite the fact that the executor’s year expired on 1 January 2019. I have found, as a matter of fact, that the Family Arrangement said by the Defendant to have been concluded in October 2018 between all beneficiaries to essentially keep all assets “in place” did not exist. Therefore, I do not accept that the Family Arrangement is a valid explanation for the failure to distribute the assets of the Estate after 1 January 2019. Although I accept that the Defendant has made some efforts towards realising the assets of the Estate since then, the reality is that there has been significant delay which has not resulted in any actual distributions. The evidence of concrete progress in this regard is fairly limited, and I am not confident that allowing the Defendant to continue as the executor would yield prompt and real progress on this front.

84.  In addition, I find that the Defendant has not kept proper accounting records of the Estate, the Defendant was previously in a position where his personal interest was in potential conflict with that of his duties as an executor, and that there has been an irretrievable breakdown in the relationship between some of the beneficiaries and the Defendant. There will only be escalated mistrust and antagonism if the Defendant continued to act, and I consider that this would seriously prejudice the proper administration of the Estate. I do not consider that the late sale of the gold ornaments is sufficient to tip the scales the other way.

85.  Conscious that I am required to make a value judgment in the light of all the circumstances, I consider that the due and proper administration of the Estate and the interests of the beneficiaries require the removal of the Defendant as executor. In the absence of any objection from the Defendant as to the identity of the replacement, I am satisfied that Mr David Lin of CP Lin & Co is a suitable and appropriate replacement for the Defendant.

Conclusion

86.  For all the above reasons, I am satisfied that this is an appropriate case to order that the Defendant be removed as the Executor of the Estate.

87.  I have received draft orders from both sides with respect to the potential orders to be made if I accepted the Plaintiff’s application. Having considered them, I make the following orders:

(1) The Defendant be removed as the executor of the estate of Mr Lau Fat Choi (劉佛財), and Mr David Lin of Messrs. CP Lin & Co be appointed as the new independent administrator of the Estate;

(2) Mr Lin’s fees in the administration of the Estate shall not exceed HK$6,950 per hour, and be borne by the Estate, unless otherwise further ordered by the court, or with the written consent of all beneficiaries of the Estate; and

(3) The Defendant do deliver up all the assets of the Estate to Mr Lin as the new administrator of the Estate within 28 days.

88.  In the draft order submitted by the Plaintiff, an order was sought requiring the Defendant to furnish an inventory and account. However, as rightly pointed out by Ms Au for the Defendant, this was not part of the relief sought by the Plaintiff in the Originating Summons and no submissions were made by either party as to whether such relief should be granted. I refuse to make any order in this regard.

89.  As to costs, the parties agreed that this should be dealt with after judgment. I direct the Plaintiff to file written submissions as to costs within 14 days, and the Defendant to file written submissions within 14 days thereafter. No submissions should exceed 5 pages. Unless otherwise directed, there will be no further submissions, and I will determine the matter by paper disposal. For the sake of good order, I direct that the reserved costs of the Defendant’s application dated 3 November 2021 for leave to adduce his third affirmation to be in the cause of this action.