JONG YAT KIT as Sole Administrator of the Estate of Li Chung (Deceased) v. LEE MAN FOR also known as LEE MAN FOR DENNIS AND OTHERS

CACV 147/2017

[2018] HKCA 235

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 147 OF 2017

(ON APPEAL FROM HCMP 1104/2016)

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REASONS FOR JUDGMENT

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Hon Cheung CJHC:

1.  At the conclusion of the hearing, we dismissed with costs the 2^nd defendant’s appeal from the judgment of Deputy High Court Judge Lee dated 9 June 2017 granting a Beddoe order in favour of the plaintiff administrator against him. We now give our reasons.

Facts

2.  Since we are concerned with a Beddoe order and since as a result of our dismissing the appeal, an action will be commenced by the plaintiff against the 2^nd defendant for the recovery of the subject monies, I will be brief both as regards the facts and as regards the arguments.

3.  Li Chung, the deceased, was a successful businessman.  He ran many businesses both in Hong Kong and overseas.  He mixed his companies’ monies with his own monies.  He had seven children – the seven defendants (a daughter Nancy has passed away and her estate is represented by her husband as the 3^rd defendant).  The deceased passed away on 15 November 2006.  Less than one year before his demise, he opened an account with the Hang Seng Bank on 18 November 2005. The 2^nd defendant was added as an authorised signatory of the account on the same day.  Thereafter, there were many transactions involving monies deposited into and withdrawn from the bank account until the death of the deceased.  The relevant transactions were all authorised by the 2^nd defendant. It is not disputed that, among other transactions, the 2^nd defendant authorised the withdrawal of a total of $36.49 million from the bank account – $26.49 million to his own personal account, and $10 million to the personal account of his wife (Yip).  It is also not disputed that of the many deposits into the Hang Seng Bank account, there were deposits totalling around $26 million from the 2^nd defendant’s personal account into the Hang Seng Bank account.

4.  According to the evidence filed by the 2^nd defendant opposing the Beddoe application, he has been suffering from bipolar disorder for many years and his memory of the relevant events is poor; all the transactions with the Hang Seng Bank account were done in accordance with the instructions of the deceased and were for the family businesses; he did not keep any records of what he did for the deceased; and by a combination of his poor memory and the lack of records, he could not give any clear answers to where the relevant monies had gone.

5.  Importantly, the 2^nd defendant also stated on oath that:

“35. …

(1) I believe that the [Hang Seng Bank] Account is the custodian account the Plaintiff refers to repeatedly. I agree that it is Father’s account but, the description of me as a custodian far from accurate. To be precise, I was merely a personal assistant of Father in dealing with the account and acted in accordance with Father’s directions. As will be explained under Section F below, I do not lay and have any attempted to lay any claims to the sum in that account.

…

41.  In response, I wish to make clear at the outset that [the Hang Seng Bank] Account is indeed Father’s account.  I have never made any attempt to claim the amount in the same.  Since Father passed away, I have not dealt with the account myself.  The account is now under the control of the Plaintiff, being the Administrator of Father’s estate.”

(affidavit of the 2^nd defendant dated 13 January 2017)

6.  In relation to the transfers from the Hang Seng Bank account on 7 June 2006 totalling $20 million (forming part of the $36.49 million mentioned above), that is, a total of $10 million to the 2^nd defendant and another $10 million to Yip, according to Yip’s affirmation dated 10 May 2017, they were gifts from the deceased – “mainly for [the 2^nd defendant] to maintain his living in the future and as a token of appreciation for [Yip’s] effort in taking care of [the deceased, the 2^nd defendant] and the family throughout the past years” (para 50(2)).

7.  The plaintiff, representing the intestate estate of the deceased, originally sought a Beddoe order against the 2^nd defendant for an account.  After the filing of evidence, he asked for a Beddoe order to commence proceedings against the 2^nd defendant and Yip for the recovery of $36.49 million from them.

Judgment below

8.  After hearing, the deputy judge granted the Beddoe order, but only in relation to the proposed claim against the 2^nd defendant.  He took the view that the proposed claim against Yip would be time‑barred.  Given the nature of the dispute before him, the deputy judge only gave very brief reasons for his decision.

Arguments on appeal

9.  From the deputy judge’s judgment, the 2^nd defendant appealed.  Mr Anson Wong SC (Mr Ross Li with him) took three points.  First, there was no evidence of any breach of fiduciary duties by the 2^nd defendant (as an authorised signatory of the Hang Seng Bank account authorising the subject transfers).  Secondly, the claim for the recovery of the $10 million paid into Yip’s account was not only time‑barred as against Yip, but also time‑barred as against the 2^nd defendant, as the 2^nd defendant was not in possession of the money, and had never received the money or converted it to his own use.  Thirdly, there was a resulting trust of $26 million (that is, the monies paid from the 2^nd defendant’s personal account into the Hang Seng Bank account) in favour of the 2^nd defendant, which should be set off against the estate’s claim against him.

Applicable principles

10.  There is no dispute regarding the applicable principles to Beddoe applications.  They have been set out by this court (differently constituted) in Re Mong Man Wai, Deceased [2013] 4 HKC 179, paras 42 to 47.  So far as they are relevant to the present appeal, a plaintiff need only show a reasonably arguable case on merits. Moreover, as was pointed out by this court (para 42):

“the Beddoe court should be slow to receive submissions from the Defendant Beneficiary on the merits of the Main Action unless it can be readily demonstrated that, as a simple knock‑out point, the Trustee’s proposed course is wholly devoid of merits.”

11.  This is important.  A Beddoe court is not a trial court.  Although an intended defendant is heard in a Beddoe application, the focus of the Beddoe court is the protection of the trust/estate’s interest such that a worthwhile claim should not be left unpursued for want of indemnity from the trust/estate against the trustee/personal representative’s potential exposure to costs, just as good money belonging to the trust/estate should not be thrown after a bad claim that is not reasonably arguable.  It is in this context, and from this perspective, that the court should approach the intended defendant’s input in a Beddoe application.

12.  Insofar as an appeal from the grant (or refusal) of a Beddoe order turns on the exercise of discretion by the Beddoe court, the usual appellate restraint regarding an appeal against an exercise of discretion is likewise applicable.

Breach of fiduciary duties?

13.  Turning first to Mr Wong’s argument that there was no evidence of any breach of fiduciary duties on the part of the 2^nd defendant, as the 2^nd defendant accepted in his own affidavit, he had no interest in the Hang Seng Bank account, he made no claim to the monies in the account, and he merely acted as his father’s assistant in becoming and acting as an authorised signatory of the account.  It is not disputed that a total of $36.49 million was paid out from the Hang Seng Bank account – with him signing as the authorised signatory – in favour of himself and his wife.  They were monies which he accepted he had no claim to. He could not offer any specific explanations for the withdrawals – he referred to his own illness and the lack of records as an explanation.  His wife, on the other hand, said that of the $36.49 million, a total of $20 million ($10 million to herself and $10 million in total to the 2^nd defendant) were gifts made by the deceased to the two of them (and their children).

14.  As an authorised signatory of the Hang Seng Bank account in the circumstances under consideration, it is reasonably arguable that the 2^nd defendant was a fiduciary of the monies held in the account, and as such owed a duty to account for all withdrawals authorised by him as such from the account, including those in favour of himself or his wife.  In particular, it is for the 2^nd defendant as fiduciary to explain all these withdrawals in his favour or in his wife’s favour in such a way that the deceased or his estate no longer has any beneficial interest in the monies concerned, in order to defeata claim for their return.  Whether he can successfully do so is a matter for trial, depending on the facts and evidence.

15.  Mr Wong argued that it is for the plaintiff to show a reasonably arguable case, and his client has gone on oath to say that all withdrawals were done with the instructions of the deceased.  For the reasons explained in the preceding paragraph, that does not go far enough. Whether the 2^nd defendant will eventually agree with or rely on the wife’s explanation for the $20 million paid into their respective accounts is a matter for the future litigation.  At this Beddoe stage, it is neither appropriate nor necessary to comment on the same save to say that it is a matter of evidence.  In any event, that would only cover the $20 million but not the rest of the $36.49 million.  Mr Wong prayed in aid the presumption of advancement.  But again that is, on final analysis, a matter of evidence and drawing of inference, and from the point of view of a Beddoe application, that cannot be the “knock‑out” point that Mr Wong needs to demonstrate.

16.  At the end of the day, the Beddoe court has to make up its mind as to whether on the material before the court (including the material placed before the court by the trustee/personal representative to which the intended defendant is not privy), a reasonably arguable case has been shown.  In the present case, the deputy judge concluded that question in the affirmative.  I am not prepared to differ from, and still less, disturb his assessment.

Time limitation

17.  As regards Mr Wong’s second argument relating to the $10 million paid into Yip’s account, it turns on whether the $10 million was ever “in the possession of the trustee, or previously received by the trustee and converted to his use”: section 20(1)(b) of the Limitation Ordinance (Cap 347), creating an exception to the time limitation for claims for the recovery of trust property.  Mr Dawes SC (Mr Martin Ho with him), for the plaintiff, has made various legal submissions as to why the plaintiff’s proposed claim against the 2^nd defendant would fall within the exception provided in section 20(1)(b).  However, bearing in mind the nature of the order in issue, I think the shortest and quickest answer, in terms of a reasonably arguable case, is that according to Yip’s evidence, the $10 million paid to her account was meant to be (according to her) a gift by the deceased to her family (that is, the 2^nd defendant, Yip and their children) as a unit.  In any event, given the husband‑wife relationship, and the fact that the withdrawal of the $10 million in favour of Yip was authorised by the husband, it must be a question of evidence as to whether the 2^nd defendant had any “possession” over the money, as “possession” in the context of section 20(1)(b) includes the situation where the trustee, although not in physical possession, would have control over the property or could readily obtain physical possession: Liu Wai Keung v Liu Wai Man [2015] 1 HKLRD 490, para 18.

18.  In my view, the plaintiff has crossed the threshold of a reasonably arguable case on this point.

Set off

19.  Thirdly, Mr Wong argued that one must take into account by way of set off the $26 million paid into the Hang Seng Bank account by the 2^nd defendant from his personal account, which, Mr Wong argued, was held by the deceased on resulting trust for him, when considering the plaintiff’s proposed claim for the $36.49 million. The short answer is that the 2^nd defendant has specifically said on oath he makes no claim to the monies in the Hang Seng Bank account.  That was said against the background that in his affidavit, he made no claim that the various sums of money that had gone in and out of his personal account belonged to him beneficially, nor did he disclose the ultimate source of these monies.  When litigation is eventually commenced, the 2^nd defendant may or may not want to qualify or change his stand.  But that is what he has said, or not said, on oath.  And all this is on top of the wife’s assertion that the deceased made gifts of $20 million to their family for their future living, which does not sit comfortably well with the suggestion that the deceased was holding $26 million in the Hang Seng Bank account on resulting trust for the 2^nd defendant.

20.  On the material before the deputy judge, he could not be faulted for concluding there was a reasonably arguable case for the recovery of the $36.49 million from the 2^nd defendant, the argument of set off notwithstanding.  I can see no reason for disturbing his conclusion.

Disposition

21.  For these reasons, the appeal was dismissed.  As for the costs of this appeal, I do not see any benefit to the estate for the 2^nd defendant’s bringing this appeal.  A “knock‑out” point is sorely missing.  Whilst the 2^nd defendant may have had reasons of his own to lodge the appeal, they do not coincide with the interests of the estate.  Costs should follow the event and we have so ordered, together with a certificate for two counsel.

Hon McWalters JA:

22.  I agree with the judgment of Cheung CJHC.

Hon G Lam J:

23.  I agree.