CHANG WING KA JOHN v. CHANG WING DEE AND ANOTHER

HCMP 1790/2016
and    
HCMP 1791/2016

[2021] HKCFI 47

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1790 OF 2016

________________________

________________________

________________________

MISCELLANEOUS PROCEEDINGS NO. 1791 OF 2016

________________________

________________________

________________________

________________________

J U D G M E N T

________________________

INTRODUCTION

Introduction

1.  This is the trial of two originating summonses in HCMP 1790/2016 and HCMP 1791/2016 taken out by the applicant (“John”) against his younger brother, Chang Wing Dee (“WD”) and younger sister, Hu Esther Yung May (“Esther”) concerning the administration of the estate of their father (“Father”) and the estate of their mother (“Mother”) (collectively, the “Estates”).  John seeks the following similar orders in the two originating summonses in respect of the two estates:

WD to be removed as administrators of the Estates;

(a)  Galaxy Chan and Edward Middleton of KPMG or some other fit and proper persons be appointed to act as administrators of the Estates; and

(b)  WD to make an affirmation exhibiting true and perfect inventory and account of the assets of the Estates supported by vouched particulars.

In the alternative, John seeks an order that:

(a)  WD to make an affirmation exhibiting true and perfect inventory and account of the assets of the Estates supported by vouched particulars; and

(b)  there be due and proper administration of the Estates by WD.

2.  The grounds for seeking WD’s removal are:

(a)  conflict of interest;

(b)  incompetence;

(c)  failure to render full and proper accounts of the Estates; and

(d)  hostility towards John.

3.  WD’s and Esther’s case is that John has failed to perform the mediation agreement agreed between the parties (the “Mediation Agreement”).  In particular, John has failed to render proper accounts of the properties in Canada and is holding onto them as if they were his own.  Hence, WD and Esther counterclaim against John for an order that:

(a)  John be removed as trustee of the properties of their Mother under the declaration of trust dated 4 March 1999 (the “Trust”) and WD be appointed in his stead;

(b)  a professional accountant or forensic accountant be appointed for preparing a final account of the Estates;

(c)  the forensic accountant shall appoint valuers to estimate the missing information in relation to the Canadian properties or other properties under John’s control for the preparation of the final accounts of the Estates;

(d)  the Estates be distributed based on the final accounts so prepared; and

(e)  a determination whether by the Mediation Agreement, it was agreed by John, WD and Esther that WD be appointed as the administrator of the properties of the Estates in Canada, including those in British Columbia and Ontario.

4.  The grounds for seeking John’s removal are John’s failure to perform the Mediation Agreement, in particular, he has failed to render proper accounts of the properties in Canada and is holding on to them as if they were his own properties.

THE BACKGROUND

The Family

5.  The Father and Mother (the “Parents”) were domiciled in Hong Kong.  They had four children: John, Esther, WD and Yvonne who predeceased the Parents.  In August 1998, their Parents went to Toronto for medical treatment.  The Father died on 3 February 1999, followed by the Mother on 8 September 1999.

6.  John was born in Shanghai in 1946.  He moved to Hong Kong in 1956/57 and then went to study in England in 1967.  He moved to Canada in 1972.  He worked in the Canadian civil service and married Juanita Farnsworth. 

7.  Esther had once resided in Canada, but returned to Hong Kong in 2012.  She used to be a pharmacist in Canada.

8.  WD is the youngest of the four siblings.  He lives and works in Hong Kong.  He was an engineer.

The Estates

9.  John maintained that the Father had made several wills and codicil in 1995, 1996 and 1997, which arguably were only statements of intention as to how the Father wished to dispose of his properties after death.  The validity of those wills and codicil was disputed.  However, by agreement between John, Esther and WD, the Father was treated as having died intestate. 

10.  The Mother made a will on 12 May 1995.  She did not appoint any executor under her will.  She made specific gifts and pecuniary legacies to various persons, including the parties, her grandchildren and a friend.  She left the residuary estates to the parties in equal shares. 

11.  The Estates include:

(a)  a flat in Skyscraper in Tin Hau Temple Road (“Skyscraper unit”) held by the Father;

(b)  shares in Majestic Fashion Knits Ltd (“Majestic Fashion”) held by the Father on trust for John and WD;

(c)  assets in DEF Foundation Inc (“DEF”) and Pine Spring Foundation Ltd (“Pine Spring”) held by the Father (collectively, the “Foundations”);

(d)  8 units in Toronto, being Units 501, 705, 706, 707, 801, 803, 905 and 907 at 188 Spandina Ave (collectively, the “Toronto Properties”);

(e)  5 units in Vancouver, being Units 101, 302, 303, 701, and 801 in the Sundial, Robson Street (collectively, the “Vancouver Properties”)[1]; the parties are in dispute whether Units 501, 502 and 503 in the Sundial, Robson Street (collectively, the “Disputed Units”) should be part of the Estates or were owned by John;

(f)  cash in bank accounts;

(g)  listed shares; and

(h)  jewellery in a safety deposit box.

The Toronto Properties and Vancouver Properties are collectively referred to as the “Canadian Properties”.

12.  On 9 August 1985, the Mother gave a general power of attorney in favour of John.  On 4 March 1999, John made a trust declaration that he shall hold the Toronto Properties as conveyed to him as trustee for the Mother who was the beneficial owner.  On 19 March 1999, he transferred the Toronto Properties to himself.  John said he held the Toronto Properties as a bare trustee on trust for the Mother’s estate.

The Mediation Agreement

13.  After the Parents had passed away, the parties became embroiled in litigation.  Eventually, on 6 March 2009, they entered into the Mediation Agreement for settling the disputes between John on the one part and Esther and WD on the other part.  The other beneficiaries, debtors or creditors of the Estates are not parties to the Mediation Agreement.

14.  The intention of the parties in entering into the Mediation Agreement, as stated in paragraph (4) of the Mediation Agreement, was “to resolve all their disputes in the past and to agree to a settlement of all the family assets” and not just limited to the Estates of the Father and Mother.  The major provisions of the agreement are as follows.

15.  Under Clause (1), the parties agreed in principle to divide all the family assets into three equal shares after assessing the value of the pool of assets.  The assets will be distributed and there will be adjustments after valuation.  The distribution will only take place after obtaining court approval, consent of Yvonne’s two sons, Department of Justice and estate duty clearance and after payment of all reasonable expenses. 

16.  Under Clause (2), John agreed to contribute US$2 million out of his share of the distribution to a charity for charitable purposes approved by the Department of Justice.  Likewise, Esther and WD agreed to jointly contribute US$2 million.  Esther and WD contributed, but John did not.  WD refused to make the contribution from the pool of assets on John’s behalf as he considered John has been holding onto the Canadian Properties and their rental income worth CAD 3 million which belong to the pool of assets and which far exceeds his share from the pool.  John’s stance is that WD and Esther could not make contribution from the pool of assets as the same had not been distributed among the siblings and he is holding the Canadian Properties and the rental income as bare trustee.  As WD thought John is holding onto assets belonging to the pool in excess of his entitlements, it would be prudent not to make the contribution on John’s behalf.

17.  Under Clause (3), the parties agreed that Yvonne’s two sons shall each receive US$1 million from the pool of assets. Yvonne’s two sons had duly received their share and signed an agreement dated 8 March 2009 to settle the legal proceedings in Hong Kong.

18.  Under Clause (4), the parties agreed to give full disclosure of all information in respect of the pool of assets under their control as soon as practicable and in any event not later than 30 June 2009. By Clause 4(a), John undertook to discharge at his own expense the outstanding mortgage on the Toronto Properties and to provide WD and Esther a set of statement of accounts in respect of all the Canadian Properties from the time of the death of their Father and Mother showing all items of income and expenditure.  By Clause 4(b), Esther and WD undertook to provide John with a set of statement of accounts in respect of all the properties and bank accounts of the pool of assets under their control from the time of death of the Father and the Mother up to the present.  Under Clause 4(c), the statements of accounts will have to be certified by a qualified accountant upon request of the other party. 

19.  Under Clause (7), the parties agreed to how the 8 units of Toronto Properties and 5 units of Vancouver Properties were to be distributed.  The 13 units were allocated to the parties as follows:

	John	Esther	WD
Toronto Properties	707, 801, 905	705, 706, 803	501, 907
Vancouver Properties	302, 303, 701, 801	-	101

The four units among the Vancouver Properties to be taken over by John were treated as belonging to John and WD jointly and John will buy out WD’s share of the interest in those units.  No mention was made about three Disputed Units in Robson Street which were sold by John in 2004, after the Father’s and Mother’s death but before the making of the Mediation Agreement.  John claimed that the three Disputed Units were his own properties albeit purchased with loans from the Father.  WD’s stance is that they belonged to the Father’s estate as they were purchased with funds from the Father but were only held under John’s name for tax purpose.  Thus upon the Father’s demise, they fell into the Mother’s Estates.

20.  Under Clause (9), the parties agreed that WD was to be appointed as the administrator of both Estates.  Pursuant to that agreement, WD obtained letters of administration of the Mother’s Estates dated 30 December 2010 with the Mother’s will annexed and the letters of administration of the Father’s estate dated 8 March 2011.

The Disputes

21.  On 30 June, 2009, John and WD exchanged accounts of the pool of assets under their control pursuant to Clause (4) of the Mediation Agreement.

22.  On 6 January 2010, Lam J (as Lam VP then was) approved the Mediation Agreement in HCA 48/2001.

23.  Since then, WD had been pressing John for production of supporting documents in relation to the mortgage of the Toronto Properties.  That led to WD taking out an application in HCA 48/2001 seeking production of certified accounts.  At the hearing on 25 June 2010, John undertook to provide certified accounts relating to all Canadian assets within 21 days (the “2010 Undertaking”).

24.  Then, dispute arose as to what were certified accounts.  John took the view that the tax returns file with the Canadian Revenue Agency (“CRA”) were audited accounts.  WD disagreed and took out another application in HCA 48/2001.  At the hearing on 29 November 2011, Lam J ordered, inter alia, by consent that John provide supporting documents including those provided to his accountant, Pricewaterhouse Coopers LLP (“PwC”) showing all items of income and expenditure relating to the Canadian Properties to Mr Stan Lang instructed by WD within 21 days (the “2011 Order”).  Again, the parties are in dispute whether John has complied with that order.

25.  On 6 June 2012, WD and John disputed about the responsibility for filing T3 Trust Income Tax and Information Returns (“T3 Returns”).  WD wrote to John complaining that he should have filed the T3 Returns in respect of the Toronto Properties and be responsible for payment of tax, penalty and interest.  John replied saying that no one could give consent to file the Terminal Tax Returns except WD who is the administrator of the Estates.  But on the other hand, John objected to WD’s appointment as administrator of the Estates in Canada.

26.  In March 2013, WD complained against John for instructing the property agent not to pay withholding tax for non-residents on the Toronto Properties.  He pressed John for payment of the tax and penalty and for provision of supporting documents relating to the expenses of the Toronto Properties.  John insisted that the tax returns filed with CRA should be accepted as audited accounts.

27.  In April 2013, WD informed John that the Estates could make distribution that month.  He asked John to provide certified accounts in respect of the Canadian Properties for calculating the total assets for distribution, failing which his entitlements would not be distributed to him.  Thereafter, WD kept chasing John for the certified accounts.

28.  On 3 May 2013, John’s children took out an originating summons in HCMP 944/2013 seeking payment of the pecuniary legacies under the Mother’s will.

29.  On 30 May 2013, CRA confirmed with John that he had filed T3 Returns for the estates of the Father and Mother but rejected the filing as they must be filed by the legal representative of the deceased and that John was not qualified to file the returns.

30.  On 6 June 2013, CRA issued tax assessments in respect of the Father’s and Mother’s estates in the amount of CAD201,724.33 each.  On 10 June 2013, CRA issued another tax assessment in respect of the Mother’s estate in the amount of CAD832,359.63, inclusive of interest and penalty.  WD forwarded the assessments to John and requested him to pay.  It is not clear from the evidence how these assessments came to be issued in the face of CRA’s letter of 30 May 2013. 

31.  On 21 November 2014, I handed down decision in HCMP 944/2013 ordering WD to pay the pecuniary legacies to John’s children out of the Mother’s estate in Hong Kong.

32.  WD kept on chasing John for certified accounts and payment of the tax assessed.  John ignored him.  His position is that the tax returns he filed with CRA is sufficient as certified accounts.

33.  On 22 October 2015, WD informed John that he could not keep on waiting for the certified accounts and would distribute all the Hong Kong assets in the Estates based on his calculation of the value of the Canadian assets under John’s control.  He estimated the total rental income and interest John owed to the Estates up to 2013 to be about CAD5,545,123.37 and the loans and interest up to 2015 to be CAD6,487,823.95 and CAD1,074,762.94 respectively.  He proposed to deduct the pecuniary legacies paid to John’s children from John’s entitlements under the distribution as the Mother’s will has been found to be invalid in Canada. After deducting these liabilities, John would receive about CAD2,572,015.28 which will be kept in a savings account, understandably pending John’s submission of certified accounts and finalisation of the accounts of the Estates.  He said that the figures were estimates only and had to be calculated (sic).

34.  On 3 December 2015, John’s solicitors, Messrs. Norton Rose Fulbright Hong Kong (“NRF”), objected to the distribution and requested for up-to-date statement of accounts.

35.  On 27 January 2016, WD’s solicitors, Messrs. Wilkinson & Grist (“W&G”) replied confirming that the pecuniary legacies would not be deducted from John’s entitlements but insisted that the two loans were repayable by John.

36.  On 15 February 2016, NRF wrote to W&G requesting for “ledgers on transfer of funds”.  They also asserted that John had provided certified accounts; that CRA had rejected the tax returns filed by John because he had not been authorised by the administrator of the Estates to do so; and that the Canadian Properties could not be transferred until all encumbrances (including tax) had been cleared.

37.  On 14 July 2016, John took out the two originating summonses in these proceedings.

AN OVERALL VIEW

An Overall View

38.  The relations between the parties have never been good.  Shortly after the Mother’s death, they embroiled themselves in litigations in Canada and Hong Kong for ten years.  Though they reached the Mediation Agreement and agreed to appoint WD as administrator of the Estates, the Mediation Agreement did not have a smooth start.  As reflected in Esther’s email dated 17 April 2009 to John’s then solicitors, Messrs. Chiu, Szeto & Cheng (“CS&C”), John was restless about two promissory notes and had demanded their return but WD refused.  WD’s stance is that the loans under the two promissory notes are debts owed to the Estates which John has to repay. But John disagreed.  However, the issue relating to the promissory notes is a relatively minor one, involving about CAD656,000 only.

39.  By 2015, WD has substantially completed the administration of the Hong Kong assets under the Estates.  He was ready to make distributions from the Hong Kong assets.  Subject to receipt of John’s proper accounts of the Canadian Properties, the administration of the Estates could be completed.  Despite numerous requests followed by two applications to court and John’s undertaking to furnish certified accounts and later the court’s order that he produce supporting documents, John was still withholding production of the supporting documents.

40.  Whereas in Canada, John has been holding onto the Canadian Properties for the past 20 years since the Mother’s death.  He refused to provide supporting documents in respect of his account of the properties.  He sought to remove WD as administrator for WD’s failure in administering the Mother’s estates in Canada.  His complaint is that WD as the administrator of the Mother’s estates is the only person who may sign or authorise the filing of their Parents’ Canadian tax returns.  By refusing to do so, the administration of the Estates in Canada cannot be finalised and John was prevented from transferring the Canadian Properties to WD and Esther.  John’s stance is inconsistent.  He blamed WD for refusing to sign the tax returns as administrator but it was he who objected to and obstructed WD’s appointment as administrator.  WD’s refusal was because of John’s refusal to provide supporting documents so that WD could satisfy himself that John’s accounts of the Canadian Properties on which information the tax returns were prepared were correct.  Thus, the disputes revolve around John’s refusal to provide supporting documents in respect of his account of the Canadian Properties. 

41.  The sentiment of WD is that John is holding onto the Canadian Properties as his own, mortgaging them for his benefit and refusing to give proper accounts for the rental income and mortgage loans received.  To protect his and Esther’s interest as the only other beneficiaries of the Estates, he withheld John’s entitlements to the distribution from the Hong Kong assets pending production of proper accounts with supporting documents in respect of the Canadian Properties by John.  That sentiment was probably the inarticulate major premise why WD resisted paying the pecuniary legacies to John’s children out of the Hong Kong assets.  His proposal to charge John compound interest for the loans under the two promissory notes was probably a means to coerce John to give proper accounts and furnish supporting documents. 

42.  Instead of producing proper accounts or supporting documents, John commenced the present action seeking WD’s removal as administrator.  Then, WD counterclaimed seeking John’s removal as trustee of the Canadian Properties.  Another eleven years lapsed since the making of the Mediation Agreement.  The parties’ litigation is nowhere near conclusion.

43.  The crux of the parties’ dispute revolved around John’s failure to give proper accounts of the Canadian Properties under his control and to provide supporting documents in respect of his accounts.  One wonders if there is any uncompromiseable principle which makes it necessary for John to engage his siblings in expensive legal battles over the past eleven years to resist production of those supporting documents which John never denied he has or has he something to hide.

Credibility

44.  John, Esther and WD gave evidence.  The disputes between the parties extended over a period of twenty years.  Apart from inherent credibility, the most reliable test of credibility is inherent probability and consistency with contemporaneous documents.  The parties are represented by reputable legal firms and senior counsel.  It is reasonable to assume that the parties have produced all relevant documents.

45.  On this issue, except for an admission by WD in re-examination that he had not produced a short email from John requesting for a specific bank documents, there is no suggestion that WD or Esther have failed to adduce any other relevant documents.  By way of contrast, John’s position is most devious.  During cross-examination, he readily asserted he had responded to WD’s complaints and that his testimony was supported by documents in the trial bundles.  Despite having been given ample opportunities, including a weekend, to identify the documents, he could not identify any.  Then, he changed his evidence and came up with another excuse.  He explained that he was testifying in Vancouver and could not access his documents kept in his home in Toronto.  If he had responded and the response was relevant, there was no reason why he would not have supplied copies of his response to his legal team.  In fact, the low number of communications from John compared to those from WD as shown in the trial bundles reflects that he had not responded on many occasions. 

46.  John is highly educated and had good exposure during his working life.  Prior to his retirement, he was a civil servant working in the Department of Communications of the Canadian Government.  But his demeanour in the witness stand was unsatisfactory.  When faced with questions in which an unfavourable answer was expected, he changed the question and gave an answer to the question formulated by himself.  Sometimes, he avoided answering the question by putting the blame on WD.  His performance in the witness stand impressed me as a very intelligent person.  His behaviour could not be explained by his inadequacy in the English language or inability to understand the question.  This is particularly so because he had been warned a number of times not to change the question.  He was only being evasive.  As my analysis of the evidence (for example, his evidence about CRA audit and the CD he gave to Stan Lang) shows, John was particularly good in twisting the facts and giving misleading statements. 

47.  The Achilles’ heel in John’s case is his persistent refusal to produce supporting documents which he claimed at one stage he had stored in electronic form in a CD.  It is inexplicable why instead of producing the CD or duplicating a copy at negligible costs, he engaged expensive legal teams to resist its production.  When he was cornered under cross-examination, he changed his evidence and admitted that the supporting documents had not been stored in the CD.  His conduct demonstrated that he was not a credible witness.  He had much to hide and his evidence is far from the truth.  I do not believe his evidence.

48.  By way of contrast, WD was more direct and forthcoming under cross-examination.  WD was an engineer before his retirement.  He is also an intelligent person.  He was quick to catch the irregularities in John’s accounts.  He might have adopted the philosophy of using crooked means to catch a crook and conducted himself inappropriately in dealing with the pecuniary legacies to John’s children and in claiming compound interest.  That was probably provoked by John’s refusal to give proper accounts and his concern that the Canadian Properties are being misappropriated.  Apart from those blemishes, I find him credible.  His evidence is supported by contemporaneous documents and is inherently credible. 

49.  Esther was not involved much in the disputes. Her evidence is less controversial.  She has difficulties explaining her email of 17 April 2009 to John’s then solicitors.  It damaged her credibility slightly.  But that email has little impact on the case.  I find her credible.

THE FACTS

Introduction

50.  The disputes between the parties revolve around John’s liability under the two promissory notes; his duty to account for the three Disputed Units; his duty to account for the mortgage created over the Toronto Properties and the rental income; and the adequacy of the accounts provided by WD.  John also raised the question of propriety of WD’s refusal to pay the pecuniary legacy to John’s children.  But that is no longer a live issue.

51.  I shall make some finding of facts before proceeding to analyse the disputes relating to John’s grounds for WD’s removal and WD’s grounds for John’s removal.  I shall only make such finding of facts as is necessary for the purpose of considering the grounds for removal.  So far as possible, I shall refrain from making definitive finding of important facts which should be resolved by way of adjudication of discrete issue on an application properly made.  In these applications, there is only one application for adjudication of a discrete issue, namely the parties’ agreement as to WD’s appointment as administrator for the Canadian assets. 

52.  It will be convenient to set out at this stage the conclusion reached in relation to that discrete issue.  On the true construction of the Mediation Agreement, the parties’ intention was that the agreement covers all the assets of the Father and Mother in Canada and in Hong Kong.  In that context, it must also have been the parties’ intention that WD was to be appointed as the administrator of the properties of the Estates in Hong Kong as well as in Canada.

The Disputed Units (Units 501, 502 and 503 of the Sundial, Vancouver)

53.  A major dispute between the parties is whether the Disputed Units, ie Units 501, 502 and 503 of the Sundial form part of the Estates.  These properties were purchased, at least in part, with the Father’s funds but were held in John’s name.  They were sold in 2004 after the Father’s death but before the Mediation Agreement was entered into.  They were not mentioned in the Mediation Agreement.

54.  The evidence in support of Esther’s and WD’s case is very scanty.  They rely on three fax communications between the Father and John.  They have neither first-hand information nor hearsay evidence from the Father about the ownership of these units or the funds for the purchase of these units.  In the first letter dated 27 August 1991[2], the Father asked John:

“How will you deal with the money you owed to the company and the money borrowed for the three units at 501-3? Please tell me.”

The other contents of the letter suggest that John handled some of the Father’s financial matters such as tax refunds and sale of treasury bonds on the Father’s behalf and that the Father took an interest in a house under John’s ownership or care.  The above quoted passage evidences the fact that the three Disputed Units were purchased with money borrowed from the Father.  

55.  In the second letter dated 28 February 1995[3], the Father wrote:

“Please tell me when the loans for the properties in Toronto and Vancouver can be repaid in full.

Under whose name are the deeds for Vancouver 501-503?  I remember for tax reasons they are under your own name and the money for payment of the properties are regarded as money you borrowed from me.  Was there any IOU issued at that time?  Please tell me.”

The Father also asked John whether the vacation home and another rental house made any profit.  The first passage is probably about mortgage loans for purchase of the properties. The second passage specifically referred to the three Disputed Units.  It is of particular importance that the funds for the purchase were provided by the Father and the Father said that the properties were held under John’s name for tax reasons.  That was why the Father specifically sought a confirmation from John under whose names were the three units being held.  Impliedly, the properties were held by John as legal owner under a resulting trust or constructive trust for the Father who provided the funds for their purchase. Treating the funds as loans was just part of the tax avoidance scheme.  John has no dispute that the arrangement was a tax shelter.  Thus, the funds were not truly loans.

56.  In the third letter dated 1 March 1995[4], John replied:

“The IOU for Vancouver 501-503 had been made for you, but if it is lost, will need to make one … (illegible).”

John responded about the IOU, but was silent about the other matters mentioned in the second passage of the second letter.  Though he did not specifically respond to the question about the name of the holder of the three units, his silence may be treated as an acknowledgement that the units were purchased using the funds from the Father and held under his name for tax purposes.  The IOU was also generated for tax purposes.

57.  John’s case is that these units used to be his and he had sold them in 2004.  The Disputed Units never formed part of the Father’s estate or Mother’s estate.  That was why they were not mentioned in the Mediation Agreement.  He said under cross-examination that the loan from the Father was an insignificant amount and the majority of the funds for the purchase came from bank borrowing.  It is important that John did not say he contributed anything to the purchase price.  He said that the arrangement was a tax shelter.  That may be treated as an implied admission that the Disputed Units were held under John’s name for tax purposes, ie as a tax shelter.  The tax shelter must be one for the very rich Father who provided the funds and not John.  Thus, the Father was their beneficial owner.  The combined effect of the parties’ evidence is that the Father provided the down payment to purchase the Disputed Units with bank finance.  There was no contribution from John at all.  The fact that the purchase of the Disputed Units was financed by bank mortgage does not help John at all.  That is the usual way properties are acquired and with the mortgage paid off by the rental income.  The Disputed Units were held under John’s name for tax purpose.  The purchase was, as John said, a tax shelter for the Father.

58.  This inference is supported by John’s further evidence that he sold the units at a loss and there was nothing to repay the Father.  Effectively, he meant there was no need to repay the Father.  If the Father’s funds were genuine loans and the units were John’s, John bears the investment loss.  He had to repay the loans even though the investment ended up in a loss.  If the Father was the beneficial owner, the risk of loss was on the Father.  There was, therefore, as he said, nothing to repay the Father because the units were sold at a loss.  This is another piece of evidence coming from John that the Father was the beneficial owner of the Disputed Units.  Accordingly, the Disputed Units formed part of the Father’s estate and later the Mother’s estates.  Despite WD’s and Esther’s evidence is very scanty, John filled in all the gaps with his evidence.

59.  Even though the units ceased to exist at the time of the Mediation Agreement and were not mentioned in the agreement, they formed part of the Mother’s estates.  Even though they were sold at a loss as John alleged, John has a duty to account for the three units or the proceeds of sale.  He has to account for the down payments paid by the Father, the mortgage loans, the rental income, the repayments, and the proceeds of sale with supporting documents.  If there was a net loss, he has the right to be reimbursed.  It is not sufficient for him to say that the units were sold at a loss and that is the end of the matter.  It makes no difference that the units were sold before the parties entered into the Mediation Agreement.  Either way, John has to give an account, if not for the loan which is not disputed, for the proceeds of sale received by him which is indisputable.

60.  John has demonstrated a totally irresponsible attitude.  He treated the Disputed Units as his.  He gave no account.  There was no information as to the amount down payments paid by the Father, the mortgage loans, rental income and proceeds of sale.  The services of a professional accountant are needed to investigate and estimate the amount which John has to account for.

The Promissory Notes – Loans or Gifts

61.  On 15 June 1993, the Father wrote on the letterhead of Majestic Fashion and probably on its behalf to John and his wife offering them a loan of CAD170,000 at an interest of 9% per annum and enclosed a cheque of that amount.  John and his wife signed on the letter to acknowledge the loan agreement and receipt of the payment.  This letter is ineptly treated by the parties as a promissory note.  For convenience, I shall keep using that term.  On 9 February 1995, John executed another document addressed to the Father promising to pay him CAD486,000 with interest.  The note was written as a promissory note and was signed by John as president of his company, 2810743 Canada Inc.  The loans under the two promissory notes constituted a small amount out of a huge estate.

62.  The dispute between the parties is whether John’s liability to repay two promissory notes in the sum of CAD170,000 jointly owed by him and his wife to Majestic Fashion and CAD486,000 owed by John’s company to the Father had been resolved in the Mediation Agreement.  WD’s case is that as the lenders and borrowers of these loans are not parties to the Mediation Agreement, these loans are not covered by the Mediation Agreement. Hence, WD argued that these loans belong to the pool of assets and John is liable for their repayment.  WD charged compound interest over these loans and proposed to set off these loans and interest against John’s entitlements to the distribution from the Hong Kong assets of the Estates.  John’s primary case is that these two sums were gifts.  If they were not, his fall-back position is that they were waived under Clause (12) of the Mediation Agreement.

63.  John’s case of gift sits very uncomfortably with the express provision under both promissory notes that they were loans and carried interest.  The burden is on John to prove the gift.  He said that this was the way his Father handled his affairs and that during his lifetime his Father had never asked for the loans back.

64.  He even drew support for his evidence from WD’s failure to respond to his assertion in WD’s Affirmation and argued that WD’s viva voce evidence to the contrary at the hearing should be given no weight. That is a very strained argument because all along it has been WD’s assertion that the loans are repayable.  WD even proposed to deduct the loans from John’s entitlements in his distribution.  On the other hand, John’s evidence is his own words against the dead, which must be viewed with circumspection. 

65.  John also sought support for his case from the financial statement of Majestic Fashion in that the loan under the promissory note was not included as part of the assets of Majestic Fashion.  To this argument, WD replied that the loan was the Father’s and Majestic Fashion was only used as a window to supply the loan.  Hence, it was not reflected in the accounts of Majestic Fashion.  This explanation is credible as Majestic Fashion was the Father’s own company or alter ego. 

66.  In re-examination, John offered yet another contrived explanation that the two sums were characterized as loans because his Father did not want him to squander the money.  Impliedly, his Father had made it clear to him that the two sums were loans with obligation to repay with interest for the purpose of discouraging him from squandering the money.  John’s argument is inherently conflicting.  The common intention of John and his Father must be that the loans are repayable.

67.  In my view, John has quite failed to discharge the burden of proving that contrary to the express wordings in the promissory notes the sums stated therein were gifts.  In the face of the promissory notes, it is open to WD to hold the position that the payments stated therein are loans.

The Promissory Notes – Deduction from John’s Entitlements

68.  John’s ultimate fall-back position is that if the two sums were loans, they were waived by Clause (12) of the Mediation Agreement, which provides:

“Save and except the transactions mentioned in this Mediation Agreement, all the loans due from the parties to the estates will be waived and not to be pursued.”

According to John, during the mediation negotiations, the two promissory notes were the only loans discussed among the parties.  Hence, Clause (12) must be referring to these two payments by the Father to John.

69.  I do not find it necessary to indulge in a lengthy discussion of the evidence of the parties as to what happened during the negotiation or the reason for Esther’s email dated 17 April 2009 suggesting her interpretation of Clause (12) to John’s then solicitors.  A strict literal construction of Clause (12) is that any loans due from the parties to the estates in transactions not mentioned in the Mediation Agreement are waived. Though the loans are not related to transactions mentioned in the Mediation Agreement, they are owed by John jointly with his wife or by John’s company. WD’s position is that as John’s wife and his company are not parties to the Mediation Agreement they may not take advantage of the waiver under Clause (12).  Be that as it may, as submitted by Mr Smith SC, if the borrowers were not John there is no basis for WD to deduct the loans from John’s entitlements to distribution.  Similarly, if John and his wife were jointly, or jointly and severally, liable, the loan is waived under Clause (12).  It is therefore not open to WD to deduct the loans and interest from John’s entitlements in the distribution.  That said, the Estates are entitled to recover the loan of CAD486,000 from John’s company. WD was wrong to insist that the loans are repayable by John and to charge him interest.  The mistake was not an unreasonable one for a layman to make.

Payment of Pecuniary Legacies to John’s children

70.  Since June 2009, WD and John had been engaged in rather hostile disputes about John’s refusal to produce supporting documents in respect of the Canadian Properties under his control.  That resulted in two applications before the court in 2010 and again in 2011.  In 2013, WD also issued interrogatories about the use of the Canadian Properties by John’s son. The son made an application under HCMP 944/2013 seeking to have the interrogatories withdrawn.  The application was dismissed with costs.  It was in that hostile and litigious atmosphere that John complained that WD acted unreasonably in refusing to make distributions under the Mother’s will to his two children which made it necessary for his children to commence action in HCMP 944/2013.  WD’s case was that there were questions on the proof of identity of the children coupled with John’s refusal to guarantee their identities.  I ruled in favour of John’s children.  I was satisfied that they were John’s adopted children to whom the pecuniary legacies were intended to be given. However, in view of the particular circumstances, which I shall set out in greater details below[5], I did not consider WD acted unreasonably.  Thus, while awarding costs to John’s children against the estates, I made no adverse costs order against WD personally.

Transfer of the Toronto Properties to John

71.  The Mother became the beneficial owner of all Toronto Properties after the Father’s death.  On 4 March 1999, John made a trust declaration that he shall hold the Toronto Properties as conveyed to him as trustee for the Mother who was the beneficial owner.  On 19 March 1999, using the general power of attorney given to him by the Mother on 9 August 1985, John transferred the Toronto Properties to himself.

72.  WD complained that by these transfers John was treating the Toronto Properties as his own.  John’s explanation is that he was the executor under his Father’s wills and codicil and it was the Father’s wish to leave a significant portion of his estates, including the Toronto Properties to charity.  Hence, John used the power of attorney given to him by the Mother to transfer the Toronto Properties to himself as a costs saving measure so that he could distribute the Father’s estates to the charitable foundations.  After litigation ensured, he gave up his claim that the Father’s wills and codicil were valid for the purpose of amicable settlement among the parties.  But at the time of execution of the declaration of trust, he did not know that Esther and WD did not intend to honour the Father’s wish to donate the Toronto Properties to charity.

73.  John’s explanation is not credible.  First, his costs saving explanation does not make sense.  He could have transferred outright to the charity.  If there were any costs issue, it would be for the charity.  Second, except for his assertion about the Father’s wills, the rest of his explanation was not mentioned in his Affidavits.  His explanation was made up in submission without any proper legal or evidential basis.  If his explanation were true, it is inexplicable why the properties were transferred to him as beneficial owner as connoted by the word “BENO” as shown by the land search report.  Under cross-examination, John disputed that the word “BENO” meant beneficial owner and said that the transfer was handled by his lawyer.  On the following day, he changed his evidence and said that the land search report was wrong and the word “BENO” was no longer used.  Besides, despite the agreement reached in Clause (2) of the Mediation Agreement, while Esther and WD contributed to charity, John refused to do so.

74.  However, as was observed by Lam J during the hearing on 29 November 2011, the transfer which took place before the Mediation Agreement became a non-issue after the Mediation Agreement.  The parties agreed to distribute the Toronto Properties among themselves.  I treat the transfer as a neutral event.

Prior Mortgage of Unit 501 and 707 of the Toronto Properties

75.  Under Clause 4(a), John undertook to discharge the outstanding mortgage on the Toronto Properties at his own expense.  As at the date of the Mediation Agreement, Units 501 and 707 of the Toronto Properties were subject to mortgage.  The mortgages were discharged on 23 April 2009 and 22 July 2009, obviously by John in the performance of his undertaking.  However, the land search reports provided by PwC show that these units had been previously mortgaged on 13 March 2007 and 10 January 2007 respectively.  Prior to those dates, these units were unencumbered.  These mortgages must have been created by John while the units were under his control after the Father’s and Mother’s death in 1999.  Though the mortgages were subsequently discharged by John in accordance with the Mediation Agreement, the mortgages raise the question as to who received the mortgage loans and John’s obligation to account for the loans and the rental income allegedly applied towards repayment of those loans.  Again, despite repeated demands, John did not respond.

76.  In this hearing, John admitted he had mortgaged Units 501 and 707 in 2007 to meet emergency expenses.  He said he had proffered that explanation during the mediation discussions.  His explanation was that Condominium Corporation MTCC 713 (“MTCC”), in which all unit owners of 188 Spandina Avenue are members, was facing severe financial crisis due to defaults from commercial unit owners, and hence the remaining owners had to increase their contributions to cover the shortfall.  The mortgages were to cover the increased contributions required of the Toronto Properties and not for his personal use.

77.  WD and Esther disputed that John had given such explanation during the mediation discussions.  Esther further alleged that John had on the contrary told her that some of the Canadian Properties were mortgaged to finance John’s legal proceedings.  That was denied by John.  When tested against the contemporaneous circumstances, John’s explanation sounds like a late concoction.  Despite the matter had been raised in WD’s email of 24 November 2011 and repeated in some other emails thereafter, John never responded.  His explanation was only tendered for the first time in his Affidavits filed in these proceedings.  Even in his Affidavit, he still failed to particularise his explanation for the mortgage and to verify his explanation with supporting documents, such as requests for increased contributions from MTCC, mortgage documents, bank statements showing receipt of the mortgage loan and repayments and particularly documentary evidence justifying the need for mortgaging the units and the use of the mortgage loans. 

78.  John did no better in his viva voce evidence.  When pressed for documentary evidence, he impatiently dodged the question saying that “this is not the case to examine the property management” and that “had this been an issue I would have included it in”.  He even failed to give some ballpark figures as to the amount of the mortgage loans, the amount required to meet the alleged emergency expenses.  He only said incongruously that the emergency expenses were a “small amount”.  That answer begs the question why such a small amount would warrant mortgaging, not one but, both units.  The size of the loans and purpose to which the mortgage loans were to be applied was left in vacuo.  His belated explanation about MTCC is unconvincing and unsupported by documentary evidence.  His evidence carries the hallmark of not only late concoction, but an attempt to conceal the truth.  Absence a credible explanation, the irresistible inference is that he mortgaged the properties, appropriated the loans and used the rental income from the properties to repay the mortgages.  Mr Smith SC submitted that John had nevertheless discharged the mortgage over the two units in accordance with his obligation under the Mediation Agreement and in any event the mortgages were not for a large amount.  Be that as it may, John has not accounted for the rental income used to pay the mortgages during the two years from 2007 to 2009.

79.  Putting aside the above disputed evidence and the rental income used to repay the mortgage loans during those two years, the fact remains that John refused to provide supporting documents.  Though the mortgage is not disputed, the reason for the mortgage is and the amount of the mortgage loans and repayments remain unknown.  The amount of funds unaccounted for in relation to these prior mortgages is not likely to be significant given the size of the Estates.  However, the funds involved in the alleged mortgage of all the Toronto Properties, which I shall deal with in the next subsection, is very significant.

John’s Alleged Mortgage of all the Toronto Properties

80.  The accounts provided by John were in the form of spreadsheets showing the rental income and expenditure relating to the Canadian Properties.  The spreadsheets show that John deducted mortgage repayments in respect of principal and interest from the rental income of all the eight units of Toronto Properties.  The mortgage over Unit 501 was discharged in April 2009.  The mortgage over Unit 507 was discharged after the cut-off date of the spreadsheet.  According to the land search reports, the other six units were unencumbered since 2006.  The inconsistencies between the land search reports and John’s spreadsheets raise serious questions as to whether the mortgage over the other six units were genuine; if they were, whether the loans were raised for the purpose of the Estates, whether John pocketed the loans, and whether John has to account for the mortgage repayments deducted from the rental income.  If the mortgages were not genuine, the accounts given by John were incorrect and false accounting.

81.  Then, John asserted that the land search reports were incorrect.  This is a bald assertion.  In the three Affidavits he filed between July 2016 and September 2018, John never adduced any evidence to show that the records were wrong.  He produced no mortgage documents or bank repayment records.  The land search reports are public records.  Given the absence of proper contradicting evidence, the records must be taken to be correct.  Even if the land search reports were wrong, John still owes explanations whether the mortgage repayments are genuine, the amount of mortgage loans, the purpose of the loans and supporting documents.

82.  The prior mortgages mentioned in the preceding subsections and alleged mortgage of all the Toronto Properties mentioned in this subsection set the factual background leading to the heart of the parties’ dispute, ie whether John has furnished proper accounts and supporting documents.  The inconsistencies between the land search reports and John’s spreadsheets cry out for the supporting documents to be produced so as to ascertain the truth for the proper administration of the Canadian Properties in the Estates.

John’s Refusal to Furnish Supporting Documents

83.  John’s spreadsheets show a summary of the rental income, mortgage repayments, tax, management fees and other expenditures of all the Toronto Properties[6]. According to the spreadsheets, all Toronto Properties were subject to mortgage.  The spreadsheets were John’s own computations.  The computations were not supported by any supporting documents.  The same spreadsheets were relied on by PwC in preparing the tax returns.

84.  Upon receipt of the spreadsheets, WD raised questions about the mortgages and requested supporting documents.  Despite repeated requests, John never provided any.  Eventually, on 7 June 2010, Esther and WD along with the Foundations as plaintiffs applied in HCA 48/2001 for an order requiring John to provide certified accounts relating to all Canadian assets.  At the hearing on 25 June 2010, John gave an undertaking before Lam J to provide the plaintiffs with certified accounts.  Lam J also ordered John to bear his own costs while the plaintiffs were to have their costs out of the Estates.  That adversely reflected John’s fault in not providing certified accounts.

85.  In purported performance of his undertaking, John caused PwC to send WD and his solicitors a set of tax returns but not certified accounts.  In PwC’s letter dated 9 August 2010, Cliff Taylor wrote:

“… We certify that we have prepared these tax returns in accordance with the prevailing Canadian tax laws pursuant to Mr John Chang’s instructions. This certification is made in compliance with the undertaking given by Mr John Chang to the court at the hearing on June 25, 2010.

Information for this ten year period was provided, in summary form, by Mr John Cheng together with supporting documents of a volume in excess of a suit case load over 20 kg.  This information was used to prepare the above noted income tax returns.  We have not been requested in this engagement to perform an audit or a review engagement in respect of this information.  Accordingly, we have not expressed any assurance thereon.”

(Emphasis highlighted in bold and italic print)

86.  John relied on the above letter as evidence that the tax returns amounted to certified accounts.  Carefully read, the first passage quoted above is a badly written misleading statement.  In the first sentence of the quote, Cliff Taylor certified that PwC had prepared the tax returns in accordance with Canadian tax laws.  Then he wrote in the sentence which followed that “this certification” is made in compliance with John’s undertaking before Lam J.  The words “this certification” must refer to what he certified in the preceding sentence.  In this context, “this certification” could not have the effect of certifying John’s compliance with the undertaking given before Lam J.  In any event, Cliff Taylor was not in such a position to certify.  The second passage went further to say that no certification or verification had been done.

87.  The second passage was skilfully drafted referring to the suitcase of over 20 kg of supporting documents.  Carefully read, that passage was just a smoke screen.  PwC had not verified the information against any of the supporting documents.  PwC merely used the information provided in summary form in John’s spreadsheets for preparing the tax returns.  The last two sentences made it unequivocally clear that PwC had not referred to any supporting documents and had not verified the information in the spreadsheets against the supporting documents because it was not engaged to perform an audit.  It further confirmed that position in the last sentence by saying that it was not expressing any assurance on the accuracy of the information.  Thus, even though John had provided 20 kg of documents to PwC, he had not engaged PwC to certify the information in the spreadsheets or to prepare the tax returns based on the 20 kg of documents.  PwC’s skilfully written letter, if not carefully read, gives an unwary reader a false impression that PwC had referred to the 20 kg of supporting documents in preparing the tax returns which were therefore equivalent to certified accounts.  It is intriguing that John could have manipulated a reputable international firm of accountants like PwC to write such a misleading letter.  That was how John’s counsel pulled wool over the court’s eye at the hearing on 29 November 2011 and led Lam J to make the adverse comments against WD, which Mr Smith SC now repeatedly quoted to support John’s case.

88.  The lack of certification is further confirmed by WD’s then solicitors’ (“PS&C”) letter to John’s then solicitors dated 29 July 2011.  PS&C mentioned that John refused PwC’s offer of CAD150,000 to undertake a certification according to Clause 4(c) of the Mediation Agreement. PS&C suggested engaging Stan Lang of Messrs. Lang & Yuen to do sufficiently certified accounts at a lower fee.

89.  Despite some exchanges via emails, WD and John were in dispute about a number of matters, in particular whether WD was entitled to bank statements and supporting documents in relation to John’s accounts for the Canadian Properties.  This made it necessary for WD to make a second application in HCA 48/2001 on 4 November 2011.  At the hearing on 29 November 2011, John consented to an order to be made that he provide supporting documents, including those provided to PwC, showing all items of income and expenditure relating to the Canadian Properties to Mr Stan Lang instructed by WD within 21 days. 

90.  Mr Smith SC produced the transcript of the hearing before Lam J on 29 November 2011.  Referring to the transcript, he argued that WD was not entitled to audited accounts as opposed to certified accounts.  In his view, an account prepared by a qualified accountant as such and without more is a certified account; and in seeking supporting documents to verify the accounts, WD was seeking an audited account which he is not entitled to under the Mediation Agreement.  To my knowledge, the term “audited account” and “certified account” are used interchangeably in loose language.  “Certified account” does not mean an account prepared and signed by an accountant only without reference to any supporting documents.  It is common knowledge that an “audited account” in the technical meaning of the term is an account which has been certified for accuracy by an accountant qualified to conduct an audit known as an auditor (not merely a qualified accountant) and the auditor states that in his opinion the account gives a true and fair picture of the company’s affairs.  WD was not seeking such an audited account but a certified account meaning an account supported by documents.  As no expert evidence is before this court, I do not wish to make any determination as to what the parties meant by “certified account” and whether under John’s 2010 Undertaking, WD is entitled to documents supporting a certified account.  It is unnecessary to do so because by consenting to the 2011 Order, it is plain that even John accepted that what he had furnished in purported performance of his 2010 Undertaking was not sufficient to qualify as “certified account” and that his accounts should be supported by documents.

91.  Mr Smith SC quoted extensively from the transcript about Lam J’s questioning WD’s counsel why WD took the view that the requirement for production of certified account had not been satisfied, given PwC’s explanatory letter on how the filings were prepared (presumably that was the letter quoted in paragraph 85 above); and why the tax filings vetted by CRA should not be treated as authoritative.  He quoted Lam J’s observation that PwC was apparently comfortable “certifying” the account as per its letter dated 9 August 2010 without the itemization of income and expenditure; that if the tax returns contained an account that would be a certified account; and that provision of bank statement was not required by the Mediation Agreement. 

92.  With respect to Mr Smith SC, he was blowing the exchanges between Lam J and counsel out of all proportions.  Those exchanges were first impression comments or opinions and not rulings or determinations by Lam J.  Lam J could not be taken to have made any finding or ruling by those exchanges.  I do not wish to second guess what was in Lam J’s mind.  Lam J might well have changed his mind after hearing all the submissions or upon a critical examination of the documents.  I have analysed PwC’s letter dated 9 August 2010.  It was skilfully written and could give an unwary reader the false impression that PwC had prepared the tax returns using the 20 kg of supporting documents when they have actually not.  In the next subsection, I shall show that for the purpose of the particular tax in question CRA did not vet or verify the expenditures or mortgage payments in respect of the Canadian Properties.  The queries raised by Lam J were all answerable.  The exchanges between Lam J and counsel cannot be treated as limiting the terms of the 2011 Order or be used for construing those terms. 

93.  What is important is that at the end of the day, John’s counsel offered to have the order made in those terms against John by consent.  The terms of the 2011 Order set out John’s obligations.  John was by consent ordered to provide within 21 days supporting documents showing all items of income and expenditure relating to the Canadian Properties to Mr Stan Lang instructed by WD.  It reflected a recognition by John that the tax returns he relied on as adequate accounts were not adequate.  The supporting documents include, and not just, those provided to PwC.  The use of the term “supporting documents” avoided John’s argument based on “certified account”. 

94.  In purported compliance with the 2011 Order, John wrote to Stan Lang on 17 December 2011 asserting that the documents which had been reviewed by PwC were sent by courier to him.  On the follow day, he further emailed Stan Lang saying that pursuant to the 2011 Order he was sending over the supporting documents reviewed by PwC.  But, on 29 December 2011, Stan Lang replied that he had received the 2000 to 2009 annual rental summary of the Toronto Properties and statements from Bank of Montreal as from 2000 to 2009.  He went on to say that he needed the following documents:

(a)  Nature and supporting of each deposit into the bank account;

(b)  Nature and supporting/source documents of each payment out of the bank account;

(c)  Annual mortgage statement from Bank of Montreal; and

(d)  Monthly statement from third party property management agent, if any.

The documents sought are source documents or supporting documents.  Obviously, John had not sent those supporting documents which he said he was sending over.  On the same day, WD also wrote to John pressing for the documents.  John gave no meaningful reply.  Initially, he asserted that he had already sent over the documents Stan Lang asked for.  When pressed further, he said the data he sent should have answered all the questions. 

95.  John’s email in reply dated 3 January 2012 betrayed him.  In that email, John wrote:

“The package couriered to you on December 17,2011 contains the following:

1. Bank of Montreal A/C 3214-3001-445 and A/C 0005-3280-659 covering the period of 2000 to 2009

2. The statement of account for the rental properties in summary form at 188 Spadina Avenue, Toronto

3. Rental property data for 1999

4. Rental property data for 1999-2009

5. The 1999 Terminal Returns for the Estates of Father and Mother

6. Estate of Yin-Ching Chang T3 Returns 2000-2009 (properties in Toronto and Vancouver)

7. Estate of Wong-Ing Zee T3 Returns 2000-2009 (properties in Toronto and Vancouver)

Items 1 and 2 are in hard copies and Items 3-7 are in electronic format stored on the attached CD. Item 2 is prepared by me. Items 3-7 are prepared by Pricewaterhouse Coopers LLP (PwC).

…

“The objective to have your review is to assure WD that the tax documents prepared by PWC are matched with the supporting bank statements and are sufficient for the purpose of filing income tax in Canada. With your “certification” of the same, the estate administrator can give authorization to PriceWterhouseCooper (sic) LLP to proceed with the filing the Terminal Returns and the T3 Trust Income Tax Returns for the two estates.”

(Emphasis highlighted in bold and italic print)

96.  The first paragraph revealed what John had couriered to Stan Lang.  They were just bank statements, tax returns and rental property data.  There was not a single item which suggested, not even in the faintest way, that it was a supporting document.  The last paragraph revealed John’s intention never to furnish any supporting documents.  He was changing the terms of the 2011 Order.  He was asking Stan Lang to just review PwC’s tax returns to see whether the figures matched the bank statements, not whether the returns were supported by documents.  If so, there was no reason why John would have provided the supporting documents.  What John wrote reflected his steadfast determination not to provide the supporting documents.

97.  In his email dated 4 January 2012, Stan Lang immediately retorted.  He explained that he could only compare the rental income and rental expenses per tax return and the mortgage repayment with bank statements and compare the data provided to him with the tax returns prepared by PwC.  He said he could not verify the correctness of the rental income and the nature and correctness of the rental expenses without the supporting documents.  This email reconfirmed his earlier email of 29 December 2011 that John had not provided the supporting documents.  I have no reason not to believe Stan Lang.

98.  As a result of John’s allegation that he had sent Stan Lang over 20 kg of supporting documents, WD sought verification from Stan Lang.  Stan Lang replied on 5 January 2012 that the documents he received was 1.7 kg.  He also repeated what John had told him in his email of 3 January 2012, ie that Stan Lang’s duty was just to match John’s data with the tax returns and not to do any audit or verification of the data.  WD sent a follow up email to John telling him that what he told Stan Lang to do was in breach of the 2011 Order.  Again, John did not respond.  At this hearing, John said that he had replied but, like many of his other assertions, he could not locate the document.  There is a whole chain of contemporaneous emails showing that John had not sent Stan Lang the supporting documents and emails from John showing that he had no intention to do so and was changing the terms of the 2011 Order.  I reject John’s evidence.

99.  In his 2^nd Affidavit filed for the purpose of these proceedings, John raised a new explanation.  He said he had supplied the supporting documents in electronic form.  To reinforce John’s assertion, Mr Smith SC submitted that based on John’s email of 3 January 2012, John had provided the supporting documents in electronic form.  Mr Smith SC argued that Stan Lang did not deny that the supporting documents were provided in soft copy form.  There is no basis for such implication.  John listed out what he had sent and what was stored in the CD.  He said that items 3 to 7 were stored in the CD.  Those were tax returns and rental property data.  There is no suggestion that those items included supporting documents.  Indeed, Stan Lang complained about lack of supporting documents and specifically listed four categories of supporting documents.  It is ludicrous to suggest a professional accountant such as Stan Lang would have overlooked the existence of those documents in the CD. 

100.  John’s 2^nd Affidavit caused WD to seek confirmation from Stan Lang for the purpose of this trial whether Stan Lang had received any supporting documents from John whether in a CD or other electronic device.  On 9 January 2017, Stan Lang replied that he only received soft copies of the tax return via email. 

101.  With respect to Mr Smith SC, his submission was an over-optimistic speculation on his part.  In his email dated 29 December 2011 mentioned above, Stan Lang acknowledged that he received the items he set out but said that there were no supporting documents.  He specifically identified four categories of supporting documents which he requested from John.  Obviously, he did not consider the rental property data were supporting documents.  In fact, the description appeared to me to be computations. The property data were probably the summaries which Stan Lang mentioned in his email.  Next, there was John’s email of 3 January 2012 which betrayed him.  It set out what John had actually sent.  There were no supporting documents.  Stan Lang retorted by his email dated 4 January 2012. Then WD joined in accusing John of breaching the 2011 Order.  Finally, here is Stan Lang’s reply dated 9 January 2017, though five years later, that there were no supporting documents.  Eventually, at the hearing John contract and admitted that the only documents sent by him to WD in electronic form were the spreadsheets he prepared and the tax returned prepared by PwC.  John has been changing his evidence.  Mr Smith SC’s submission is futile.

102.  In his untiring effort to twist the terms of the 2011 Order and to blow up Lam J’s observations at the hearing on 29 November 2011, Mr Smith SC argued that what Stan Lang attempted to seek from John was contrary to Lam J’s observations on three levels.  Like John, he was also changing the terms of the 2011 Order.  First, he said that Lam J had already stated that there was no obligation on John’s part to provide audited accounts. That is beside the point.  The 2011 Order was that John to provide supporting documents. 

103.  Second, Mr Smith SC said that Lam J took the view that the PwC tax filings had been certified by PwC and would be authoritatively vetted by the CRA.  I do not wish to second guess what was finally in Lam J’s mind and whether he had changed his mind after hearing all submissions.  I repeat that the order was for John to provide supporting documents.  The so called “audit” by CRA relied on by Mr Smith SC is also beside the point.  It is a fallacy. I shall address that issue separately in the following subsection.

104.  Third, Mr Smith SC quoted the following observations of Lam J:

“Well, if my understanding of accounting is correct, that would tantamount to investigation and review and auditing. And that’s not the requirement in the Mediation Agreement. If your clients want to have audited accountants, he should spell it out in the Mediation Agreement. And if it has not been spelled out then there’s no requirement under the settlement agreement.”

I repeat that I do not wish to second guess what was finally in the mind of Lam J.  Those exchanges with counsel do not represent his Lordship’s final ruling.  On the fact, John consented to the terms of the order to be made against him.  The order was that he produce supporting documents, as simple as that.  WD was not asking for audited account, which to my understanding means an account which has been certified for accuracy by an accountant qualified to conduct an audit known as an auditor and the auditor states that in his opinion the account gives a true and fair picture of the company’s affairs.  Mr Smith SC’s repeated attempts to borrow weight from the observations of Lam J reflect his recognition of the lack of substance in his client’s case.

105.  John’s failure to provide certified account or supporting documents is also supported by WD’s email dated 5 April 2012.  In that email, WD referred to his meeting with John at the Skyscraper unit when John agreed to produce certified accounts in respect of the Toronto Properties.  At that stage, WD was ready to make distribution from the Estates subject to receiving certified accounts in respect of the Toronto Properties. On 12 April 2012, WD issued a reminder.  At the hearing, John did not deny having made such an agreement.  His excuse was that he could not remember.  He was being evasive.

106.  It is beyond any doubt that John deliberately refused to comply with the 2011 Order.  He demonstrated a steadfast determination not to furnish supporting documents to Stan Lang for the purpose of certifying his accounts in respect of the Toronto Properties.  I have to ask rhetorically, if the supporting documents were stored in the CD, what could be simpler and cheaper than inserting another disk into the computer and press a few keys to produce a copy instead of engaging an expensive legal team to resist the production of the documents.  If they were not, what has he to hide by resisting their production.

“Audit” by CRA

107.  I now return to the point made by John in his email to WD dated 27 July 2009 when he asserted that the financial accounts or financial statements he provided to WD on 30 June 2009 will be “legitimized” when they are returned from CRA.  That is also the “audit” referred to by Mr Smith SC and vetting by CRA referred to by Lam J.  John’s argument is that the spreadsheets he provided to WD which formed the basis of the tax returns prepared by PwC had been submitted to CRA; that they will be checked; and if endorsed are deemed to be certified.  John said in paragraph 44 of his 2^nd Affidavit[7]:

“44.  …  In respect of the Canadian Properties, the CRA audited the tax filing submissions prepared by PwC and confirmed their audited report.  Please refer to pages 16 to 24 of “JC-2” for a copy of a letter from the CRA to me dated 31 January 2013 which shows that the CRA has completed its audit.  The CRA has subsequently informed me that they have provided the audited report to WD.”

(Emphasis highlighted in bold and italic print)

108.  John’s assertion that the spreadsheets had been submitted to CRA for checking is a false representation.  The above quoted passage from John’s Affidavit is full of misrepresentation.  First, John impliedly represented that PwC had submitted an audited report together with the tax returns to CRA.  Second, he expressly misrepresented that CRA had confirmed that audited report.  Third, to add credence to what he had asserted, he represented, most probably falsely, that CRA had sent a copy of the audited report to WD.  None of these three assertions was supported by any documentary evidence.  There was no reason why CRA would send documents submitted by a tax payer to a third party and there was not a scintilla of evidence that CRA had sent any audited report to WD.  There were no particulars as to when and why CRA sent the audited report to WD.  It was just a bare assertion, dressed up step by step with one misrepresentation giving credence to the next.  This is just one of many of John’s misrepresentations in his Affidavits.  The only possibly true assertion is that PwC had filed the tax returns.  That is also doubtful because according to CRA only the administrator or its authorised representative may file tax returns.  The above quoted passage in John’s 2^nd Affidavit is less than half-truth.

109.  I now turn to how PwC prepared the tax returns. In response to WD’s query about the spreadsheets and the tax returns, PwC wrote to WD on 28 June 2010 as follows:

“Please find attached, below, the spreadsheets that were used to prepare the tax returns for the various taxation years. … In very general terms, we took the reported income for each of the Estates (i.e. their share of the rental property income) and reflected this on the related tax return. …

Terminal tax returns (final returns for each of your parents) and the Estate tax returns were not filed over the past ten years given the issues surrounding the Estates and, most importantly, the fact that it was not clear who was the Administrator. Also, it is my understanding that there would have been an inability to fund the tax payments … since most of the free funds were being used to service the mortgages on these properties.

…

… John has advised us that the accounts he did send to you on June 30, 2009 were the same as the accounts that he provided to us for preparing the various tax returns noted herein. When preparing the returns, based on the information received from John, we did not identify any incomplete information for the purposes of these filings.

…  At this point I would recommend that the authorizations be signed so that we can proceed with the voluntary disclosure so to mitigate penalties and interest that may be assessed by the Canada Revenue Agency.”

(Emphasis highlighted in bold and italic print)

From this email, it is apparent that PwC just “took the rental property income” as shown in the spreadsheets and “the information received from John” to prepare the returns. In preparing the returns in this way, PwC did not identify any incomplete information for the purposes of the filings.  That does not mean PwC had verified the information received from John against any supporting documents. The tax returns cannot be treated as having been verified by PwC as John asserted. 

110.  Apart from an email from John to Esther and WD alleging that he had submitted all statements of account and tax returns to CRA and CRA had accepted them, there is no evidence that John or PwC had actually submitted the statements of account to CRA and that CRA had accepted them in their letter dated 31 January 2013[8]. The relevant part of the CRA’s letter relied on by John reads:

“Dear Sir:

Subject: Proposed Assessment – Part XIII Withholding Tax

It is our understanding that you act as the rental agent on behalf of the beneficial owner, The Estate of the Late Won Ing Zee, for the following properties:

(Quoted the eight Toronto Properties)

…, every non-resident who receives rental income in Canada is subject to Part XIII tax which must be withheld on the gross rental income at the statutory rate of 25%. …

Our records indicate that the Part XIII withholding tax was not withheld or remitted on the rental income received … for the period September 9, 1999 to December 31, 2011. We have assessed 25% of the gross rental income amount plus interest. …

Retention of records

The fact that our audit is completed should not be considered as permission to destroy your books and records.  …”

(Emphasis highlighted in bold and italic print)

111.  John relied heavily on the last sentence of the above quote from the letter as evidence that CRA had completed an audit of the spreadsheets.  In my view, that is another of John’s misleading attempts. According to the unchallenged opinion of Stan Lang who is a qualified accountant in Canada[9], “CRA audit” has a special meaning.  He wrote:

“CRA called it an “audit” when they wanted to carry out certain procedures to determine whether tax return or data submitted by the taxpayer is corrected based on requirements set out by CRA. 

In this case, they stated they have completed the verification procedures according to their guidelines with respect to the gross rental (only) for properties in Toronto.”

112.  The word “audit” must be understood in the context of the letter.  The context was about withholding tax.  As stated in the letter, the withholding tax is imposed at the statutory rate of 25% on the gross rental income.  The only material information which would have been considered by the CRA was the gross income.  Maintenance fees, management fees, property tax, operation and repair costs, insurance, professional services fees, mortgage interest, repayment of principal, which were rental expenditures claimed in the spreadsheets, were totally irrelevant.  While there is no evidence of what CRA did in “auditing” the gross rental income, it is absolutely clear that there was no point for CRA to “audit” rental expenditure, management fees, mortgage interest, repayment of principal, etc, which form the essence of what John had to account for to WD and Esther.  I would have thought for a withholding tax based on rental income, CRA would “audit” the reported gross rental income against its own information of the range of market rent for comparable properties rather than going through a formal audit of checking rental agreement, payment slips, receipts and bank statements.  At the highest, John can only claim that CRA had no disagreement with the rental income he reported.  That is far from saying that CRA had performed an audit of the spreadsheets sufficient to “legitimize” them as certified accounts.  All that he said about audited report and CRA vetting were just illusions.  I reject John’s evidence that the spreadsheets he prepared are equivalent to certified account of the income from and expenditure relating to the Canadian Properties.

The Account Given by John

113.  John has to give an account of the Canadian Properties under his control.  He has to account for the income and expenditures arising from the Canadian Properties.  The only income is the rental income.  The expenditures include the mortgage repayments, management fees, tax and other expenses. 

114.  John furnished the spreadsheets to WD in the purported performance of his obligation to account for the Canadian Properties.  The spreadsheets were just his computations of rental income, mortgage repayments and expenditures as claimed by him.  None of those items of income and expenditure was supported by any documents.  The essence of his case is that his spreadsheets formed the basis of the information used by PwC in preparing tax returns for the Estates in Canada and as the returns had been audited by CRA, the spreadsheets were as good as audited accounts.  I have rejected all those arguments in the preceding subsections. 

115.  The situation is very simple.  On John’s case, he had the supporting documents stored in electronic form in the CD given to Stan Lang.  If so, why did he not reproduce the CD but instead incur hefty legal costs fighting this case and resisting production of the supporting documents.  Of course, I note that John later changed his evidence and said that the CD did not contain soft copies of those documents.  It is reasonable to expect that supporting documents for such mortgages exists.  John never denied he did not have supporting documents; he only refused to produce them.  If a person, who is reasonably expected to have documents in his possession to support his assertion, refuses to produce those documents and offers no credible reasons for his refusal, it is open to the court to draw as the only inference that he does not have the documents and his assertion is false.  Given the circumstances of this case, the only reasonable inference to be drawn from John’s deliberately refusal to produce the supporting documents is that the so called supporting documents do not actually exist and possibly the mortgages are fictitious. 

116.  For the present purpose, it is sufficient to focus on just one item of expenditure, ie mortgage repayments, which is the single largest item of expenditure.  In the spreadsheets John claimed to set off the mortgage repayments against rental income.  On the other hand, the land search reports show that there are no underlying mortgages to support such mortgage repayments or setting off.  John gave no explanation why those unencumbered properties were mortgaged under his management and no information as to the use to which the mortgage loans obtained were applied.  He gave no supporting documents for the mortgages and repayments.  He produced some bank statements, which I shall return to later.  But bank statements only show deposits and withdrawals and cannot support the existence of the mortgages and the reasons for the withdrawals.  There is no reason why the alleged mortgages are not shown in the land search report, which are public records.  John offered no reason why he refused to produce supporting documents.  His accounts are not proper accounts.  Particularly, the rental income, the existence of the mortgages, the mortgage repayments and expenditures were never audited and no supporting documents were ever produced.

117.  Because of the lack of supporting documents, WD estimated that John had received rent of up to CAD 3 million from the Canadian Properties as of 2013.  John argued that the rent received are being kept in a designated bank account at the Bank of Montreal in Toronto and in a trust account of Caron Management in Vancouver.  Expenses in respect of the Canadian Properties are being paid out from the same respective accounts.  Relying on his argument that the T3 Returns are sufficient to show that the income and expenses from the Toronto Properties have been properly accounted for to the CRA, he argued that he had properly accounted for the income from the Canadian Properties, had not transferred any funds away from the Bank of Montreal account or the Caron Management trust accounts for his personal investment purposes.

118.  As I have time and again emphasized that the tax returns are based on the information from John’s spreadsheets.  They are John’s computations not supported by basic documents.  They are not certified accounts.  They are inconsistent with credible official land search reports produced by his own accountant showing that the Canadian Properties are not subject to mortgage.  The loans purportedly obtained by the mortgages are not accounted for.  Prima facie, there are no underlying mortgages which support the repayment of mortgage loans and interest.  Prima facie, the information in the spreadsheets is false and the rental income has not been properly accounted for. 

119.  Apart from failing to give proper accounts, the way John handled the rental income is very suspicious.  It is common ground that after the Mother’s death in 1999, a joint account was open with Bank of Montreal which was to be operated by John and Esther (who then resided in Canada) for receiving rental income from the Toronto Properties.  However, in 2001, John unilaterally abandoned the use of this joint account and used a new account to be operated by himself solely.  The reason he gave was that the joint account had to be operated jointly and because Esther left Canada and he could not operate the account.  However, Esther only left Canada briefly.  It was only until 2012 that she left Canada to return to Hong Kong.  When asked why he did not reactivate the account upon Esther’s return, he put the blame on Esther for not asking him to.  That is too convenient an excuse.  It was he who changed the status quo and it should be he to restore it when Esther returned.  John must have some untold reason for using a new account.

120.  John’s evidence about this new account is very confusing and evasive.  He said the new bank account is a personal account opened by him but not in his own name.  It is titled “Trust”, but is not a trust account.  In re-examination, he said the name of the account is “The Trust”.  Whatever the banking practice in Canada, it is not his suggestion that “The Trust” has a corporate identity separate from his own.  But, he still withheld the name of the account holder. 

121.  The reason he gave for opening this new account is also confusing.  Initially, he said that he had to open this new account because when he wanted Esther’s signature, Esther was not available in Toronto.  In answer to the question from the bench, he changed his evidence and said that the joint account could be operated by the single signature of himself or Esther.  If so, there was no reason for changing the account.  Then, in re-examination, John reverted to his initial position that the joint account could only be operated by his and Esther’s signatures together.  John is a very intelligent person and perfectly communicable in English.  I have read the transcript of this part of his evidence many times.  I am unable to convince myself that he had mistaken the questions I asked him or he had failed to properly express himself.  Hereunder are the exchanges between him and the bench[10]:

“Court: How many people had to sign to operate this joint account?

John (1): One is enough. The reason why I have Esther sign is basically from politeness.

Court: So then there’s no need to change the account?

John (2): That’s right. There’s no need, yes.

Court: But you did change. You said while Esther was away you changed to a new account, operating under a name you don’t want to tell us?

John (3):  Oh. Because if I started an account with two names, then we are obliged to have two signatures at the same time.”

John’s first answers show he had no misunderstanding of the question and that the joint account meant the joint account with Esther.  He said one signature was enough and he gave a reason for having Esther’s signature authorized.  It was for politeness.  In his second answer, he promptly confirmed that one signature was enough.  In his third answer he tried to explain why he did not open a joint account. His explanation contradicted his first answer.  In Hong Kong, a joint account can be operated by one or both signatures of the account holders.  It all depends on the mandate given to the bank.  I do not think the Canadian banking practice is any different.  Whatever is the Canadian banking practice, John’s evidence is so contradicting, so much so that this court cannot place any weight on it.  He has something to hide in changing the bank account.  The only reasonable inference to be drawn from his conduct is that he wanted to exclude Esther from managing the account.

122.  In conclusion, I am satisfied that John has not given a proper account of the Canadian Properties, the use of the mortgage loans and the rental income.  The mortgages appear to be fictitious.  John puts suspicion on himself by excluding Esther from control of the rental income.  The genuineness of the mortgages and the use of the mortgage loan had to be properly investigated.  WD’s estimation of the rental income is very crude.  The only proper way to do justice to all parties is to have the matter properly examined and assessed by a qualified accountant.

John’s Miscellaneous Breaches of Duty as Trustee

123.  WD complained about John’s failure to pay tax for the Canadian Properties, which resulted in tax interest having to be paid. John raised three defences.  First, Mr Smith SC relied on Lam J’s observation at the hearing on 29 November 2011 that the Mediation Agreement did not impose the obligations to pay tax on John.  That observation does not release John of his obligation to pay tax because of his position as trustee of the properties.  He is the legal owner of the Canadian Properties and he controlled of the rental income from the properties.  All along, John was the person handling tax matters relating to the Canadian Properties with CRA.

124.  Second, John relied on a notice from CRA given to him through PwC that any tax payable was to be temporarily suspended until the conclusion of the litigation between John and WD in Canada.  This is a hearsay statement from PwC.  No evidence was adduced from PwC.  The notice was also not produced.  Mr Smith SC sought to excuse John from the obligation to exhibit the notice on the basis that WD has not made any request for production under Order 24, rule 10.  He quoted Progetto Jewellery Company Limited v Lau Chiu Ying & Anor[11] and argued that WD is precluded from criticizing John for not producing the notice.  Mr Smith SC’s reliance on Progetto Jewellery is intriguing.  In that case the court held that the defendant could not rely on the lack of document to prove her case by saying that the document was in the possession of the plaintiff when the defendant just did not seek the document from the plaintiff to support her case.  What Mr Smith SC was suggesting is that the opponent ought to seek discovery from the other party to help that other party to perfect its case.  That cannot be right.

125.  Third, John said that in any event he had started paying tax in 2011 and paid every year such that there is no tax owing.  This is disputed by WD.  Mr Smith SC argued that the dispute arose out of cross-examination and that John’s case in his 3^rd Affidavit that he had filed tax returns had never been challenged by WD before trial.  Hence, no adverse inference can be drawn from John’s failure to disclose other documents in support when WD had not advanced any positive case.

126.  This issue of John’s filing tax returns and paying tax was not raised until he filed his 3^rd Affidavit.  All along and up to now, the evidence is very scanty.  There was a letter dated 9 August 2010 in which Cliff Taylor of PwC wrote to PS&C saying that PwC required authorization from the executor for filing tax returns.  Thereafter, there were repeated utterances by John to WD asking WD to file tax returns or to give authorization to PwC to do so.  On 31 January 2013, there was a letter from CRA saying that it had assessed withholding tax on the Toronto Properties at 25% of the rental income and issued an assessment.  On 30 May 2013, there was a letter from CRA acknowledging receipt from John of some T3 Returns for the Estates of the Father and Mother but rejecting the filing as John was not the legal representative and not authorized to file those returns.  Then all out of the blue, John filed his 3^rd Affidavit producing copies of T3 Returns for the Father and Mother for 1999 to 2017 and asserting that “they should be sufficient to show that the income and expenses deriving from the Toronto Properties have been properly accounted for to the CRA.”  Presumably, the purpose was to reinforce his argument that his accounts for the Canadian Properties were proper accounts as they have been audited by the CRA.  But, he forgot it was all along his case that he could not file the tax returns as he is not the administrator.  He did not explain why he could now file the T3 Returns in the face of CRA’s letter dated 30 May 2013 rejecting his filing of those returns.

127.  Given the way this new assertion came to be raised, Mr Smith SC’s argument that WD is precluded from disputing the assertions cannot be right.  It cannot be right to shift the burden on WD to challenge the purported tax returns, their filing, CRA’s assessments and John’s payment.  He who asserts must prove.  John raised his filing of the T3 Returns and his paying the tax.  He bears the burden of proof. 

128.  By way of observation, these returns are curious.  Presumably, it is John’s case that they are copies of the returns actually filed with CRA.  Most of them were the same as those prepared by PwC and rejected by CRA on 30 May 2013 on the ground that John was not the administrator.  Some were typed out and purportedly prepared by PwC but were not signed by anyone.  A few were handwritten and signed by John.  Some show that he signed under a power of attorney.  One of the returns did not indicate the authority under which he signed.  The certification box shows that the return may be signed or certified by a trustee, executor, liquidator or administrator. John still owes an explanation why he could file the same tax returns in 2017 when he could not in 2013. 

129.  There is also no evidence that the returns have actually been filed.  John exhibited no acknowledgment of receipt of the tax returns, assessments made by CRA or receipts of tax paid.  Unlike the returns for withholding tax, CRA accepted the returns and issued an assessment based on 25% of the reported rental income.  John produced no receipt for his payment of tax.  His evidence is that he could telephone CRA and be connected to an automatic answering system which would confirm that he had paid the tax.  John’s evidence is fragmented, inherently inconsistent and prima facie incredible.  This court could have no clue what John’s case on this issue is.  The issues are in dispute.  They could only be resolved by examination by a qualified accountant. 

Provision of Accounts by Esther and WD

130.  In accordance with Clause (4) of the Mediation Agreement, Esther and WD provided John with estate accounts in respect of the Hong Kong estates 30 June 2009.  On the same day, Esther and WD also provided John with account summaries of the bank accounts held by Bravo Asia Limited (“Bravo”)[12], DEF Foundation Inc and Pine Spring Foundation Limited certified by Leung Yiu Kwong, a certified public accountant, on 19 June 2009.  In these certified accounts, Leung Yiu Kwong confirmed that he had performed the agreed procedures enumerated in the account with respect to the bank balance of the three companies; that his engagement was undertaken in accordance with Hong Kong Standard on Related Services 4400, “Engagements to Perform Agreed-Upon Procedure Regarding Financial Information” issued by the Hong Kong Institute of Certified Public Accountants, including examining the relevant supporting documents, matching them with the transactions shown on the monthly statements from banks and obtaining direct confirmation from the banks concerned.  This is what I call a properly certified account.  These accounts were re-produced by WD to John via his email dated 19 July 2012 and his solicitors’ letter dated 27 January 2016.

131.  John admitted receipt of the above accounts. His stance is that these accounts were not properly prepared.  He complained that the estate accounts of 19 July 2012 and 27 January 2016 were WD’s own tabulation and not supported by evidence or vouched particulars.  He also requested a complete up-to-date account.

132.  WD refuted John’s complaint saying that the complaints were raised too late and that he had intended to prepare the final account once he received John’s accounts of the Canadian Properties.  In any event, WD has produced an updated estate account as at 31 May 2016 prepared by C. S. Wong & Co, a firm of certified public accountants, dated 1 March 2017.  As stated in that report, the accounts were prepared without carrying out an audit but were from the information and explanations supplied to the maker by the administrator of the estate, ie WD.  It is not a certified account.  However, WD said in evidence that he will produce supporting documents.  In my view, despite the inadequacies, there was substantial compliance.  

Transfer of the Canadian Properties; WD’s Refusal to Sign Tax Returns

133.  Under Clause 7 of the Mediation Agreement, the parties agreed to obtain valuations of the Canadian Properties and to transfer them as set out under that clause.  No valuation or transfer has been made. According to Esther and WD, that was because John had failed to pay tax of the Canadian Properties as required for effecting the transfer.  On the other hand, it is John’s case that it was WD who obstructed the transfer by refusing to sign tax returns.

134.  Again, Mr Smith SC submits that John’s case is powerfully supported by Lam J’s observation at the hearing on 29 November 2011 that if WD refused to sign the tax returns, then the transfer of the Canadian Properties could not be effected and it “lies bad in his mouth” to say that he wanted to take things forward.  He also referred to Lam J’s comment that WD might be “putting obstacles in the way of implementation of the Mediation Agreement.”  I can only repeat my earlier conclusion that such exchanges between the bench and counsel in the course of the hearing are not finding of facts binding on the parties.  I do not wish to second guess what was in the mind of Lam J when he made those remarks.  Hereunder, I shall make my finding of fact based on the evidence adduced in this trial. 

135.  The Canadian Properties were held by the Parents as non-residents.  It is not disputed that before any transfer of the Canadian Properties can be effected, a non-resident estate must be cleared of tax liabilities with CRA.  On 23 July 2012, John wrote to WD asserting that no one else can give consent to file the Terminal Tax Returns except WD as it was his duty as the administrator of the Estates to do so.  John also relied on CRA’s letter dated 30 May 2013 informing him that as he was “not the legal representative and therefore not authorised to file these returns”.  This much of the evidence is not in dispute. 

136.  Then, on John’s behalf, Mr Smith SC argues that WD refused to cooperate in transferring the Canadian Properties.  He submitted that “after the audit of the Canadian properties tax returns in 2013 (the incident to which the letter dated 31 January 2013 related), CRA told John that WD had been informed regarding the filing of the non-resident tax returns.”  He drew support for the above submission by relying on PwC’s email to WD dated 28 June 2010, which I have quoted above.  He said “John referred to a copy of an email from PwC on 28 June 2010 whereby PwC requested WD to sign the tax returns.  However, WD refused to do so.”

137.  Apart from reversing the chronological order of events to fit with the flow of his submission, Mr Smith SC also amplified John’s misleading statement by giving it weight as if CRA had told WD about the filing of non-resident tax returns.  There is indeed no evidence that CRA had told WD that he had to file tax returns, neither had PwC as impliedly suggested by John.  There is nothing in CRA’s letter dated 30 May 2013 to that effect.  John’s evidence and Mr Smith SC’s submission is premised on PwC’s email to WD dated 28 June 2010.  What happened was that in 2010 while WD was querying John’s spreadsheets, PwC mentioned in the email dated 28 June 2010 in reply that it was not clear who was the administrator and suggested that to mitigate penalties and interest, the administrator should authorise PwC to file tax returns.  PwC was far from saying that WD was the administrator and asking WD to authorise PwC to file tax returns and WD refused.  PwC’s email dated 28 June 2010 also mentioned nothing about CRA having told WD he had to file tax returns, as John impliedly suggested, or anything about filing of non-resident tax returns.  WD did not dispute that he refused to sign tax returns in 2010 and maintained that position since.  I shall go into WD’s reasons later.  But to present John’s case as Mr Smith SC did that WD refused to sign tax returns after the tax audit by CRA in 2013 when he was told by CRA about filing tax returns is a total misrepresentation.  That was probably the reason why Mr Smith SC repeated borrowed weight from Lam J’s observations to make good John’s case.

138.  John’s position has never been consistent.  He had been obstructing WD’s appointment as administrator of the Mother’s Estates in Canada.  It is now his case that WD as administrator of the Estates is the only person who may file tax returns.  Thus, when the issue is about payment of tax and filing tax returns, John’s position is that these are WD’s obligations as the administrator.  Otherwise, WD is not the administrator.  Then, all out of the blue in his 3^rd Affidavit filed on 10 September 2018, John asserted that he had filed T3 Returns in respect of the Father’s and Mother’s estates for the years 1999 to 2017 and exhibited copies.  On his own evidence, John can also file tax returns.  If so, why there has been no T3 Returns filed in the past ten years which resulted in hefty penalty and interest.  This is contrary to his allegation that WD’s cooperation is required to file the terminal tax returns in order to transfer the Canadian Properties.  John’s case about his filing of the T3 Returns is a mystery.

139.  On 6 June 2013, CRA issued tax assessments in respect of the Father’s and Mother’s estates in the amount of CAD201,724.33 each.  On 10 June 2013, CRA issued another tax assessment in respect of the Mother’s estates in the amount of CAD832,359.63.  These assessments were sent to Lang & Yuen CGA in Vancouver.  John said he had paid the tax.  There is no explanation as to why these assessments were made a few days after CRA had informed him that he was “not the legal representative and therefore not authorised to file these returns”.  John’s evidence about these returns is fragmented and incoherent.  I am unable to give any weight to his evidence based on these returns. 

140.  Putting aside the mystery of John’s filing of T3 Returns, WD advanced four reasons why he could not sign the tax returns. First, according to Stan Lang there are outstanding steps to be completed by John as trustee before the Canadian Properties could be transferred.  Mr Smith SC criticised WD’s reliance on the evidence of Stan Lang without properly identifying him and obtaining affidavit evidence from him.  In the absence of any explanation for WD to do so, I think the criticism is justified.

141.  The second reason given by WD is that he could not sign because John had refused and failed to provide proper accounts of the Canadian Properties.  Mr Smith SC argued that WD was obstructing the administration of the Estates by obstinately refusing to accept the accounts given by John and refusing to sign the tax returns.  He quoted extensively from the transcript of the hearing on 29 November 2011 and emphasised Lam J’s criticisms of WD’s refusal to sign the tax returns.  He quoted the following observations of Lam J:

“… if he wants to get the property transferred to him, if he wants to get the process going, I see no reason why he should decline to sign the tax return.”[13]

“I really do not see much point in your client [ie WD] dragging over the things by refusing to sign the tax return, because as explained by the Canadian accounts, all these will be checked by the tax authority. And they always treat the tax authorities’ vetting as the authoritative one.”[14]

“I don’t see how it follows. The point is if your client [referring to WD] don’t sign any document, the process cannot be taken forward in terms of the transfer of properties. Unless your client can produce evidence that shows that he is not required to sign anything under Canadian law before the (indistinct) (10.33.04) can be taken forward. Otherwise he is just putting obstacles in the way of taking things forward in terms of the implementation of the agreements.”[15]

“It lies bad in his mouth to come here and say “I want to take things forward” on the one hand and then refuse to facilitate the process.”[16]

“… the implementation of the agreement in terms of the Canadian properties as to distribution and transfer of the properties to the names of the parties cannot be taken forward … Unless these are dealt with, the tax clearance and tax payment.”[17]

“… although I understand plaintiff wishes to dispute it – things cannot be taken forward until the tax clearance is obtained. And tax clearance cannot be obtained until the plaintiff was willing to sign the tax return – authorized the accountant to file the tax return.”[18]

Mr Smith SC argued that WD should have, as observed by Lam J, signed the authorisation letter enabling PwC to file the tax returns.

142.  These are criticisms by Lam J against WD for his refusal to sign the tax returns without being shown the supporting documents on which the tax returns were made.  Lam J’s remarks and criticisms have been quoted time and again by Mr Smith SC in different contexts.  I can only repeat that these were just exchanges between the bench and counsel in the course of the hearing and not finding of facts.  At the highest, they were just provisional views.  It is important to appreciate that at the end of the day, Lam J ordered by consent that John do produce the supporting documents.  That is a recognition by Lam J and an admission by John that the tax returns could not be equated with certified accounts.  In the one-hour hearing, Lam J did not have the opportunity to analyse the documents supporting counsel’s submission and test them against other evidence and documents as I have in these seven days’ hearing and the luxury of time in deliberation.  

143.  Lam J’s criticisms are premised on two mistaken beliefs.  First, his Lordship must have been led to the belief that WD being the administrator of the Mother’s Estates has the obligation to sign tax returns in respect of the Mother’s estate in Canada, when it has all along been John’s position that WD is not the administrator of the Mother’s estate in Canada and John has been obstructing WD’s appointment.  Second, his Lordship was also led to the belief that the tax returns had been checked by CRA in respect of all the issues which are material for the purpose of giving an account in the context of administration of estates, when they had not.  This is the very crux of the matter.  Lam J did not have the opportunity, as I have, to appreciate that CRA only examined the reported rental income and assessed withholding tax without auditing the expenditures reported in the spreadsheets; and that PwC just prepared the tax returns according to the information provided by John without verifying the information.  All these facts are supported by the evidence of Stan Lang and PwC.  As Stan Lang pointed out, CRA’s tax audit has its own meaning and is not the same as verification.  These findings removed the underlying premise of Lam J’s criticism. 

144.  As for the last quote, the supposition in that quote was left open.  It was not conclusive.  There is one further supposition to follow and it will bring home a conclusion.  With these additions in italics, the quote and additions read:

(a)  things cannot be taken forward until the tax clearance is obtained;

(b)  tax clearance cannot be obtained until WD was willing to sign the tax return;

(c)  WD was not willing to sign until the supporting documents were produced by John;

(d)  the supporting documents will not be produced because they did not exist or John had something to hide.

Item (c) is the additional supposition I suggest.  Item (d) is the conclusion which I have already found in the previous subsections.  I repeat my rhetoric question.  If John has the supporting documents, why should he spend hefty legal costs to litigate on this issue in the past eleven years.  On his own case, he had the supporting documents in the CD given to Stan Lang.  Why did he not replicate one for less than $10 and give it to WD to settle all the disputes?  On his alternative case, the CD did not contain supporting documents in soft copy form. Why did he not produce the supporting documents as it never is his case that he did not have supporting documents.  All point to one conclusion.  John had something to hide not to produce the supporting documents.  With absolutely no disrespect to Lam J, I dismiss Mr Smith SC’s arguments based on Lam J’s criticisms. 

145.  The third reason proffered by WD is unanswerable.  WD is not the administrator of the Mother’s estate in Canada.  That is also John’s position.  John obstructed WD’s appointment as administrator.  How can he now turn around and argue that WD is the administrator obliged to file tax returns?  John as the trustee of the Canadian Properties should have submitted the returns and paid the tax.  He cannot argue being a bare trustee he has no obligation to do so when he received the rental income.  Whatever is the administrator’s obligation under Canadian law, WD is not the administrator of the Mother’s estate in Canada.  Obviously, WD has no obligation to file tax returns for the Mother. 

146.  WD’s fourth reason is also unanswerable.  Even if WD were the administrator, given the way the tax returns were prepared by PwC (ie just based on John’s information without verification) and John’s refusal to produce supporting documents, WD has good reasons to refuse to sign or authorise the filing of those returns.  This is because he did not know the accuracy of the returns and given the above suspicious circumstances, there is a real risk that he will be subject to criminal liabilities if the returns turn out to be false.  WD had told John the reason as early as 5 January 2012.

147.  Canada does not have a simple tax system as has Hong Kong.  On the evidence before me, there are different kinds of taxes, such as T3 Trust Income Tax, Terminal Tax, Withholding Tax and Estate Tax.  While I note from CRA’s letters that it is CRA’s position that only legal representatives or their authorised agents may file tax returns for the estates, somehow, in his 3^rd Affidavit, John suddenly asserted for the first time that he had filed the T3 Returns.  Somehow, WD’s accountant received tax assessments from CRA.  May be John has not fully disclosed his correspondence with the CRA.  It is unclear what the tax law and practice are. However, for the purpose of determining if WD had been uncooperative and prevented the transfer of the Canadian Properties, WD’s reasons proffered and the fact that he is not the administrator of the Mother’s estate in Canada is a sufficient reason.

148.  Mr Smith SC argued that WD cannot rely on any presumption that Canadian tax law or practice is the same as in Hong Kong tax law or practice.  He cited the case of Igal Dafni v CMA CGM SA[19].  As submitted by Mr Li SC, that submission is mystifying.  All that is pointed out by WD is that there is no evidence of tax returns being filed and tax being paid.  WD did not refer to any specific Canadian tax provision.  The non-application of the default position only happens when one is talking about specific statutory provisions which may differ from jurisdiction to jurisdiction.

Valuation and Transfer of the Skyscraper unit and Shares in Majestic Fashion

149.  Under Clause 8 of the Mediation Agreement, the parties agreed to obtain valuations of the Skyscraper unit and shares of Majestic Fashion and for John to take over WD’s share in Skyscraper unit while Esther and WD take over John’s share in Majestic Fashion.  From the email exchanges between John and WD, it seems that John had a change of mind.  As with the valuation and transfer of the Canadian Properties, I do not find it necessary to make any finding on this issue and on whom the fault lies, particularly as the combined value of the Skyscraper unit and shares in Majestic Fashion is much less than the value of the Canadian Properties.  Also, in view of the order I am going to make, the less said the better.

Distribution

150.  There is no dispute that WD distributed from the Estates stock of value of $55,725,614.76 and cash of $34,164,656.78.  WD and Esther were each given their one-third share.  However John’s share of a similar sum was held by WD as dividend in the name of the administrator for John.  WD also distributed the jewellery in the deposit box.  The distribution had been dealt with in the Mother’s will which provided for distribution of specific items to various persons, including John, Esther and WD.  John complained that he had never received his share and valuation of the assets by WD.  Basically, the complaint is one of logistics and not of substance.

151.  John’s position is that WD was wrong to make distribution based on his calculations while withholding distribution to him. He complained about deduction of the payment of pecuniary legacies to his children from his entitlements.  This is now a non-issue as WD has retracted such deduction after obtaining legal advice with the position indicated as early as 27 January 2016 in his solicitors’ letter to John’s solicitors. 

152.  John’s second complaint is about WD’s insisting that the loans represented by the two promissory notes are debts due to the Estates for which John is liable.  I have outlined the evidence relating to these promissory notes above.  I have expressed my view.  WD may be wrong in seeking to set off the loans against John’s entitlements and in claiming compound interest in respect of the loans.  There is no need for me to make an adjudication for the purpose of the present applications.  I trust WD will take appropriate adjustment in view of the above observations.  If WD will not and John should wish to challenge WD’s decision, he should take out an administration action for the purpose of adjudicating on that discrete issue. 

153.  On the other hand, WD complained that John had not accounted for loan or the proceeds of sale of the Disputed Units and failed to give an account for the Canadian Properties.  The amount John has to account for under the Canadian Properties is probably very substantial.  WD holds on reasonable grounds a strong suspicion that the accounts given by John were false in that the deductions from the rental income by John in respect of mortgage repayments are not supported by underlying mortgages, and that John is holding and treating the Canadian Properties as his own.  In the circumstances, it is reasonable for WD to withhold John’s distribution.  WD would be in breach of his duty of care, if he does not.

154.  Furthermore, WD’s position is that his calculation and the distribution were preliminary and subject to the provision of accounts of the Canadian Properties by John.  There is nothing to suggest that WD will not make appropriate adjustments if supporting documents in respect of John’s account of the Canadian Properties are provided by John.  In proposing engagement of professional accountants or forensic accountants for the preparation of the final account of the Estates, WD is amenable to have the final accounts prepared by professionals who will make appropriate corrections to the account already prepared by him.

How John’s Distribution Is Held

155.  John’s complaint is that the way his entitlements are being held by WD is of crucial importance.  He argued that as administrator, WD had a duty to ensure that his personal interest did not conflict with the interest of the beneficiaries of the Estates.  However, his entitlements are being held under WD’s personal name.  His entitlements are in jeopardy in case of WD’s bankruptcy.  He insisted that his entitlements should be held in a segregated trust account which makes it clear that John is the beneficial owner and thus protected.

156.  According to WD, John’s entitlements are kept in an account opened expressly for the administration of the Estates.  It is in fact a trust account which could only be used for administration of the Estates and would not be at risk of being treated as WD’s asset in the event of WD’s bankruptcy.  There is also not a scintilla of evidence suggesting that WD was at risk of being bankrupted.  This shows how flimsy John’s argument was.  A further and better reason as explained by WD in evidence at the hearing is that the entitlements are kept in the trust account for John’s benefit because to have them deposited in a segregate account in John’s name or on trust for John would have tax implications for John because of the global tax system of Canada.  In my view, there is nothing wrong to have WD as the administrator holding John’s share pending finalization of the administration of the Estates, particularly as the account in which his entitlements are kept is a trust account.  To allay his concerns, I shall direct John’s entitlements be paid into a separate trust account pending finalization of the administration of the Estates.

REMOVAL OF WD AS ADMINISTRATOR

The Legal Principles

157.  The applicable legal principles on removal of administrators are not in dispute.  Section 33(3) of the Probate and Administration Ordinance (Cap 10) gives the court power to remove administrators.  The section 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.”

158.  The overriding consideration for the court is the welfare of the beneficiaries.   In deciding whether to remove a personal representative, the proper question to ask is whether for that end the removal is necessary for the due and proper administration of the estate:  see Chow Chak Kiu v Chow Man Chit[20]. It is not every mistake or neglect of duty, or inaccuracy of conduct of trustees, which will induce the court to remove the office of a personal representative.  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:  see Thomas and Agnes Carvel Foundation v Carvel[21].

159.  In exercising its discretion, the court should have regard to the size of the estate, the nature of the assets that need to be administered, the background and education, training and experience of the remaining and substituted personal representatives and the interests of the beneficiaries: see Wong Tat Lun Eddie & Ors v Wong Chi Ho Jimmy & Ors[22]. The view of the majority beneficiaries is a relevant factor:  see Chan Yu Hong v Chan Kam Hong[23]. The discretion is to be exercised with great caution and sparingly.  In general, removal of a representative is not to be preferred unless the administration is still far from completion:Chan Yu Hong[24].  The courts are reluctant to exercise the discretion where the incumbent executor or administrator wishes to carry on, without allowing that incumbent an opportunity to repair or remedy any defects and progress promptly with due administration.  The fact that administration of the estate could have been done better is not of itself sufficient ground:Wong Tat Lun Eddie & Ors[25].  Hostility between the trustee and beneficiaries as such is not a ground for removal of the trustee, unless the breakdown of 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: Chan Sau Heung v Kwan Siu Fai[26]; Re Estate of Kwan Chung[27]; Jones v Firkin-Flood[28].

160.  Common examples where the court has exercised its power of removal of administrators are: inactivity for years as in Re Lam Choi Hing Billy[29]; failure to render a full and proper account despite repeated request while adopting a dilatory attitude in distributing funds of the estate as in Re Estate of Lee Da Kor[30]; risk of misappropriation of the estate’s property by reason of the personal representatives’ drug addiction as in Re Estate of Yuen Wing Sum[31]; misappropriation of the estate’s property and repeated failure to follow court’s order as in Chow Chak Kiu v Chow Man Chit[32].

Ground (1) – Conflict of Interest

161.  It is John’s case that WD, being a beneficiary, put himself in a serious position of conflict as an administrator of the Estates by:

(a)  wrongfully proposing to deduct from John’s entitlements to the Estates the pecuniary legacies paid to his children and the two loans under the promissory notes;

(b)  WD’s wrongful valuation of the Canadian Properties and assessment of rent and charging of compound interest on the rental income assessed;

(c)  withholding payment of his entitlements; and

(d)  thereby enriching himself as a beneficiary at John’s expense.

162.  First, on WD’s proposed deduction for the pecuniary legacies to John’s children, WD has confirmed that the issue was resolved on legal advice and the deduction will no longer be made.  John said he is still worried about WD’s incompetence and hostility.  I shall deal with the issue of incompetence and hostility separately.  But even if this conduct complained of reflects incompetence and hostility, it is spent.  There is no issue of conflict.  John’s repeated reliance on such spent issues shows the lack of substance in his overall case.

163.  Second, on WD’s valuation of the Canadian Properties, assessment of rent and charging of compound interest on the loans, the issue arose because of John’s refusal to provide proper or certified accounts supported by source documents and his very suspicious conduct of setting off of rental income against doubtful mortgages repayments.  WD made it clear in his email of 22 October 2015[33] that the valuations are estimates.  The estimates will be revised upon John’s production of proper or certified accounts with supporting documents.  It is all along John’s failure which necessitated the assessment to be made.  As for the compound interest charged, WD explained that was in accordance with Canadian practice.  Even if it was wrong, that is not a conflict.  If John has any real complaint about the valuation or excessive interest, he should seek the court’s determination of the dispute as a discrete issue.  This matter will be taken care of if professional accountant and valuer are appointed as requested by WD.

164.  Third, on the issue of withholding payment of his entitlements, the true position is that the payment is withheld pending resolution of the amount owed by John because of his own conduct in handling the Canadian Properties.  There are serious doubts if the mortgages over the Canadian Properties are genuine or created for the purpose of the Estates or trust.  If they are not, John would have to account for the deductions from rental income.  These are substantial amounts over a period of twenty years. If the mortgages were created for purposes other than for the trust or the Estates, John would also have to repay the Estates.  Again, such repayments would be substantial.  Having regard to the value of the Canadian Properties under John’s control and the deductions yet to be accounted for, it would be prudent for WD to withhold John’s entitlements.  Thus there are reasonable grounds for WD to withhold the payment.  Indeed, WD would be failing in his duty as administrator not to have done so to protect the Estates and the interest of the beneficiaries, including himself and Esther.

165.  The second and third conducts complained of have no substance.  In any event, these conducts are acts done in the proper administration of the Estates.  It seems to be John’s position that because WD is an administrator and a beneficiary, he is in a position of serious conflict of interest.  Mr Smith SC quotes extensively from Tsao Chi Ching v Tsao Lung May in support of the proposition that a conflicted personal representative ought not to have been appointed, quoting dicta before the master[34], the Court of First Instance[35] and Court of Appeal[36].  I have no disagreement with that proposition, but that does not mean any beneficiary must be disqualified from acting as personal representative.  That is not the law.  It is not uncommon for beneficiaries to be appointed as administrators. 

166.  Tsao Chi Ching v Tsao Lung May is distinguishable from the present case.  In that case, the son contested the application for appointment as personal representative of the estate by the daughter who was an alleged major creditor of the estate.  That was a clear case of potential conflict.  Here, the parties have agreed to distribute the Estates in equal shares.  There is no question of any party having any other claim against the Estates.  WD is a creditor of the Estates but the debt is not in dispute.  If any of the party is likely to be in a position of conflict, it would be John because of the two promissory notes and his failure to give proper accounts of the Canadian Properties under his control.

167.  Mr Smith SC quoted The Estate of Shih Chia Ying[37] in which the administrator was removed due to, inter alia, a conflict of interest when she and the estate in which a minor is interested in made a rival claim to certain securities.  There is no such rival claim in the present case between WD and John or Esther and John. 

168.  The fourth conduct complained of is the overall result of the first three conducts.  All these conflicts John alleged were caused by his failure to give proper or certified accounts in respect of the Canadian Properties under his trusteeship.  If there is any conflict, it is one between John and the Estates arising from the Estates’ possible claim against John in respect of the two promissory notes and John’s own failure to account for the Canadian Properties.  Once John gave proper accounts and supporting documents and the discrete issue about the promissory notes is resolved, the final accounts will be drawn up and the Estates will be distributed in equal shares.  I am not satisfied that there is any conflict of interest for WD to continue as administrator of the Estates

Ground (2) – Incompetence

169.  The allegation of incompetence is based on:

(a)  the lack of progress in administration of the Mother’s estate and no distribution being made;

(b)  WD’s refusal to pay John’s children their pecuniary legacies resulting in legal action having to be taken out by his children and payment of costs by the Mother’s estates; and

(c)  WD’s wrongful calculations of John’s entitlements from the Estates by deducting the loans under the two promissory notes, the payment of pecuniary legacies to John’s children, rent and the value of the Canadian Properties.

170.  WD had instructed a firm of certified public accountants to prepare an account of the Mother’s estates in Hong Kong as at 31 May 2016. Though the account is not an audited account, it was prepared on the basis of information and explanations supplied by WD.  The assets mainly comprise of cash in bank accounts.  John has not raised any specific queries on the account.  His only complaint is that it was not audited.  In response, WD said in evidence that the movements in the accounts were just receipts of interests.  He will update the accounts and produce supporting documents.  There is no reason to doubt that WD will not honour his promise.  Insofar as the Mother’s estates in Hong Kong is concerned, the administration is substantially completed.

171.  WD has been unable to complete the administration of the Mother’s estate in Canada.  The thrust of John’s complaint of incompetence or lack of progress is mainly premised on WD’s refusal to sign tax returns which prevented the distribution of the Canadian Properties due to lack of tax clearance.  What John wished is to force WD to accept his un-certified accounts of the Canadian Properties and rental income under his control as correct.  As already analysed above, WD is not the administrator of the Mother’s estate in Canada.  He has no authority to sign the tax returns or authorized PwC to file the tax returns.  Furthermore, the tax returns were prepared by PwC on the basis of the information from the spreadsheets prepared by John.  Apart from being uncertified, John’s account or the spreadsheets are on the face full of question marks.  Plain and simple, the existence of the alleged mortgages is doubtful and the deductions from rental income for mortgage repayments are questionable.  The situation is rendered all the more suspicious by John’s persistent refusal to provide supporting documents and misrepresentation that his account has been audited by the CRA.  Worst still, is his evasiveness at trial when cross-examined on these matters.  There is a high risk of criminal liability should WD sign the tax returns or authorize PwC to file them. WD could not be criticized for not doing so.  As WD had time and again said in his emails to John, the administration is complete pending John’s account of the Canadian Properties and rental income.  John is largely responsible for the lack of progress.

172.  As for John’s complaint about WD’s failure to make distribution, the fact is that WD did make distribution of about $11 million each to himself, Esther and John out of the Mother’s estates in Hong Kong, but that John’s distribution is being held by WD as administrator pending John’s account of the Canadian Properties and rental income, which would most likely far exceed John’s entitlements.  In view of John’s conduct, there is a real risk that he will not fully account for the Canadian Properties and rental income under his control.  It is only prudent that WD should withhold John’s distribution pending John’s production of proper accounts.  WD would be failing in his duty as administrator not to do so.

173.  John also relied on WD’s refusal to pay the Mother’s pecuniary legacies to his children as evidence of John’s incompetency.  That resulted in his children commencing action in HCMP 944/2013 against the Mother’s estates.  I have summarised my finding in that action in paragraph 70 and in greater details in paragraphs 188 to 191 in the context of John’s complaint of hostility.  I ruled against WD.  I found his arguments artificial and speculative.  But I attributed no fault to him for resisting the children’s application.  I awarded costs to John’s children out of the estates without making any adverse costs order against WD personally.  It was WD’s mistake not to pay the pecuniary legacies to the children.  He acted in person and probably without the benefit of legal advice.  On the peculiar facts of the case, I do not consider WD acted unreasonably.  I accept that WD made a trivial mistake.  That cannot justify his removal.

174.  John’s next complaint is that WD made wrong calculations about John’s entitlements from the Estates by deducting the loans under the two promissory notes, compound interest, payment of pecuniary legacies to John’s children, rental income from the Canadian Properties.  The most important dispute is about the Canadian Properties and rental income. Because of John’s uncooperative attitude, WD could only make his own estimations. Had John produced proper accounts for the Canadian Properties and rental income or produced supporting documents, this dispute will not arise.  I do not wish to repeat my observations, save to add that WD is right to be cautious and would be failing in his duty if he does not.  All in all, even if WD turns out to be wrong in his estimations, it would not adversely reflect on his competence.

175.  The next important dispute is about the Disputed Units.  On my finding, the Father was the beneficial owner of the Disputed Units which John sold.  John failed to account for the Father’s equity in the Disputed Units or, at least, the loans for their down payment.  The amount involved could be very substantial.  Again, the blame lies on John’s shoulder. WD could not be accused of being incompetent.  Indeed, he was very competent in identifying this asset and protecting the interest of the Estates.

176.  As for the two promissory notes, on my analysis, the sums mentioned in the promissory notes are loans and not gifts.  WD may have erred in his construction of Clause (9) of the Mediation Agreement and his understanding of its effect.  Whether the loans are waived under Clause (9) is a discrete issue.  I have not made an adjudication, as I have not been invited to.  If the parties cannot reach agreement, the proper way to resolve this dispute is to seek adjudication by an administration action.  Even if the loans are waived, the Estates still has a cause of action at least against John’s company.  However, any error, if made by WD, is understandable and does not adversely reflect on WD’s competence. 

177.  The issue over the pecuniary legacies have been resolved in favour of the children.  I have also made a finding that WD made a trivial mistake. 

178.  In conclusion, WD has in substance completed administration of the Mother’s estates in Hong Kong.  There is little more to be done than to update the estate accounts and to produce supporting documents, which are mainly bank statements.  There is no reason to doubt WD will not or would not be able to do so.  He was prevented from finalising the Mother’s estate in Canada because of John’s refusal to give proper accounts for the Canadian Properties and rental income under his control.  WD made a minor mistake in refusing to pay the pecuniary legacies to John’s children.  The situation has been rectified by subsequent payment.  WD has probably made another mistake about the loans under the two promissory notes.  The mistake, if made, was a minor one and understandable.  To his credit, WD was right in identifying the Disputed Units as part of the pool of assets.  There are some disputes about the valuation of the Canadian Properties and rental income. These are discrete issues which the parties should seek adjudication by administration action.  In respect of the valuation of the Canadian Properties, it would be John’s burden to produce proper accounts and supporting documents before the matter could go to adjudication.  Viewed in the round, John’s complaint of incompetence has absolutely no substance.

Ground (3) - Failure to Render Full and Proper Account

179.  An administrator’s duty on rendering accounts is well settled.  His duty is to keep clean, clear and accurate account and to be always ready to render such account when called upon to do so.  Lack of experience is no excuse as in such cases it would be their duty to employ a competent accountant to keep them.  To discharge the duty properly, there must be production of the relevant supporting documents and receipts, as well as proper breakdown of items:  see Chan Yu Hong[38].  An administrator must at all reasonable times be ready to render a clear and accurate statement of account to a beneficiary, so that the beneficiary is able to see his entitlement under the trust:  see Re Estate of Lee Da Kor[39] and Re Leung Kam Wah[40].

180.  Pursuant to Clause 4 of the Mediation Agreement, the parties exchanged statement of accounts of the assets of the Estates under their control on 30 June 2009.  The assets of the Estates under WD’s control are the Hong Kong assets.  As can be seen from the Schedule of Properties annexed to the Letters of Administration of the Father and Mother, the properties of the Estates are simple, consisting of bank balances in accounts of the Father, Mother and the Foundations, publicly listed shares and items of jewelleries in the safety deposit box. 

181.  John received WD’s and Esther’s accounts on 30 June 2009.  He was unable to pinpoint to or rely on any criticism on those accounts after having engaged an accountant to examine them and after he himself said he would study them.

182.  John admitted receiving the second set of accounts on 30 May 2011.  He was adamant that he had sent WD an email commenting on the data therein.  That was denied by WD.  Under cross-examination, John was asked to locate the alleged reply, but he could not.  He gave various excuses, such as that the bundles in court were WD’s bundle not his; that the email could have been misplaced; and lastly that he had put it down and did not file it properly.  These are first time excuses offered when giving evidence.  Needless to say, the bundles were prepared by the parties’ solicitors jointly.  If there was such an email, he ought to have produced them to his solicitors.  The different excuses given and the way the excuses changed simply suggests they are mere excuses which are untrue.  John was unable to make any specific complaints about the accounts.  In fact, he admitted that WD had also provided him the accounts of the Foundations and that the figure of US$33 million as stated in his Affidavits were quoted from those accounts.

183.  John admitted receiving a third set of accounts on 19 July 2012 but complained that they were just WD’s own tabulation of the Estates’ assets and not supported by evidence or vouched particulars.  This is precisely the same complaint WD made against him which John insisted were certified and misrepresented were audited by CRA.  In his 1^st Affidavit, John complained that WD’s accounts contained obvious errors in that it did not include the assets owned by Bravo and the two Foundations in the amount of at least US$33 million.  It is true that on 9 November 2013, John wrote to WD asking for a photo copy or a scan of the bank statements.  According to WD, these statements had been sent to John together with the certified accounts of Bravo and the two Foundations.  As the evidence adduced by WD and Esther shows, Messrs Leung Yiu Kwong, Certified Public Accountant, had prepared audited accounts of Bravo and the two Foundations as at 28 February 2009 with supporting documents annexed.  These accounts were dated 19 June 2009.  There is simply no reason why WD would not have produced them in the first set of accounts exchanged on 30 June 2009.  Under cross-examination, John had to admit that it was not fair to say that WD had not provided the accounts of the Foundations to him and that the asset in Bravo was just bank balance.  Had he not been provided with the bank balance, he could not have quoted the figure of US$33 million in his 1^st Affidavit. 

184.  Furthermore, on 2 August 2010 Messrs Leung Yiu Kwong had prepared audited financial statements of Majestic Fashion for the year ended 31 March 2010.  The report of directors signed by Esther was annexed to the financial statements.  If WD and Esther had these accounts in their possession, there was no reason why they would not have sent them to John along with the second set of accounts on 30 May 2011.  John never responded to the first and second sets of accounts when he received them in 2009 and again in 2011.  It was only in his 1^st Affidavit dated 8 July 2016 that he made the above complaints for the first time in respect of the third set of accounts.  The overwhelming evidence is that WD had provided John with proper accounts in 2009, 2011 and again in 2012, but John just ignored them.  It was only in support of his application to remove WD as administrator that he lumped all these complaints against WD in the context of the third set of accounts provided to him in 2012, forgetting or ignoring that these accounts and supporting documents had been provided to him in 2009 and again in 2011.  His complaints are demonstrably false.

185.  More recently, on 27 January 2016, in response to John’s solicitors’ request, WD furnished the Revised Incoming and Outgoing Accounts of the Estates.  In his 2^nd Affirmation dated 1 March 2017, WD exhibited two sets of statement of accounts for the Mother’s estates and the Father’s estates as at 31 May 2016 prepared by Messrs C. S. Wong & Co, Certified Public Accountant.  These accounts totalled 119 pages.  Though these are not audited accounts, they are very comprehensive and were prepared by a certified public accountant.  The Estates in Hong Kong consists mainly of bank balances in the bank accounts of the Mother, the Father and the Foundations, the shares in Majestic Fashion and the Skyscraper unit.  Certified account of Bravo and the Foundations had been furnished to John in 2010 together with supporting documents.  They are as good as audited accounts. Audited financial statements of Majestic Fashion had been furnished to John in 2010.  Except in two respects, the Estates’ accounts would have met John’s requirements.  These are John’s solicitors’ request for “ledgers showing the trail of fund transfers between these bank accounts” and updates raised in their letter dated 14 January 2016.  As submitted by Mr Li SC, one does not see why there should be ledgers on transfer of funds.  Bank statements would speak for themselves.

186.  Viewed in the round, WD has demonstrated substantial compliance with his duty to furnish accounts.  He furnished three sets of accounts in 2009, 2011 and 2012.  There were no proper or meaningful criticisms raised by John in respect of those accounts.  WD furnished the final accounts of the Estates in Hong Kong via his 2^nd Affirmation dated 1 March 2017.  He has demonstrated his intention and sincerity in performing his obligations as administrator.  Except in two respects, the accounts would have met John’s requirement.  In view of the nature of the Estates and the accounts previously furnished, there is no reason to doubt WD’s sincerity and intention in producing further information to fully comply with the requirement raised by John.  In their Affirmations which are repeated in their evidence, Esther and WD affirmed their willingness to comply with the directions of the court to provide documents or information.  As explained by WD, the Estates consist mainly of bank balances, there were little movements in the accounts except for some interest credits.  There are no difficulties in providing updates as requested by John’s solicitors.  I have no doubt that WD has the intention and ability to remedy the minor inadequacies in furnishing accounts.  On the other hand, John accepted under cross-examination that his concern would be allayed if he receives the relevant bank statements and ledgers right now and that there would be no need to remove WD as an administrator.  There is no ground for removal of WD by reason of the minor inadequacies in furnishing accounts.

Ground (4) - Hostility

187.  John relied on WD’s refusal to pay the pecuniary legacies to his children and WD’s calculations of the distributions, particularly the compound interest charged, and objection to John testifying via video link without coming to Hong Kong as evidence of hostility.

188.  The issue about the pecuniary legacies has been repeatedly raised by John to support his various grounds of complaints against WD.  It appears as if he was short of valid grounds of complaint.  The issue has been resolved.  The Mother’s will was written in Chinese.  She made pecuniary gifts to John’s two children identifying them by their first names in Chinese.  The two children are not John’s natural children but adopted Caucasian children.  They do not have identity documents showing their Chinese names.  John lives in Canada while WD lives in Hong Kong.  There were very few occasions when WD met John’s children.  WD does not actually know John’s two adopted children.  The case was further complicated by the fact that while the first name of John’s adopted son as shown in his birth certificate corresponded with a beneficiary under the Mother’s will, his surname did not; and the first name of John’s adopted daughter as shown in her birth certificate was different from the name of the beneficiary stated in the will.  In an attempt to resolve the impasse, WD offered to pay the pecuniary legacies if John would warrant their identities.  But John unreasonably refused. 

189.  In my view, given the peculiar circumstances, John’s refusal was unreasonable and his conduct litigious.  He put suspicion on himself and his children.  What WD did in ascertaining the identity of the beneficiaries was not selectively aimed against John’s children.  He treated every beneficiary equally and required proper proof of identity before making any distribution.  There is no dispute that he also required Esther to produce identity cards of her children as proof of their identities.  Despite WD has a huge estate at his disposal, he did not seek legal representation and saved costs by acting in person.  WD might have adopted a layman’s approach and acted rigidly and with undue caution.  John argued that the real reason for WD’s lack of legal representation was because his stance was so unreasonable that no lawyers would represent him.  I do not agree.  For reasons as already stated, the facts are unusual and John was also to blame. There is no reason to believe no solicitors would accept instructions at least for putting John’s children to strict proof of their entitlements.  John’s argument is speculative and unconvincing.  I am satisfied that WD acted in person to save costs.  There was no element of bad intention or bias.

190.  Though on the evidence I was satisfied that the children’s identities were proven and commented that WD’s explanation for the course he took was artificial and speculative, in view of the factual circumstances, I attributed no fault to WD for resisting the application.  I awarded costs to John’s children out of the Estates without ordering WD to bear the costs personally.  In a related application by John’s son seeking an order that WD withdraw the interrogatories against him relating to his use of the Canadian Properties, I dismissed the application with costs to WD.  I do not consider WD acted unreasonably or with bias.  It was John who was being difficult, litigious and hostile.  I do not consider there was any hostility on the part of WD. 

191.  Next, John argued that despite his children’s success in the application, WD sought to deduct the pecuniary legacies paid to them from John’s entitlements. The proposed deduction was wrongful. But the sentiment felt by WD is understandable. While John repeatedly refused to account for the Canadian Properties and rental income under his control and was suspected to have misappropriated the Estates’ assets in Canada, his children claimed against the Estates’ assets in Hong Kong. WD might have acted under some misguided sense of fairness as a layman.  That may be taken as evidence of spite or hostility.  However, he reneged from that position after obtaining legal advice.  Then, John argued that taking one and half months for WD’s solicitors to confirm WD’s new position is evidence of hostility.  The time taken to reply was a slightly longer than expected, but WD’s solicitors had to respond John’s substantial allegations spanning over two pages. Furthermore, the delay was actually caused by WD’s solicitors rather than WD. I accept there was some evidence of a very trivial hostility.  Whatever adverse inference which may be drawn on WD’s errors on this matter is spent.

192.  It also appears to be John’s case that WD’s claim of the two loans under the promissory notes against him is another act of hostility.  John’s case of the loans has never been consistent.  I have set out the parties’ case about the loans in another subsection above[41].  At least, prima facie, WD has a duty owed to all beneficiaries, including John and Esther, to collect all the assets of the Estates and to make distribution.  Whether the loan was a gift or was waived under Clause 12 of the Mediation Agreement is a discrete issue which should be resolved by administration action.  The fact that WD took the view that the loans were genuine loans which had not been waived by Clause 12, even if erroneous, could not by itself be treated as evidence of hostility. 

193.  On the other hand, WD voluntarily set off the two loans against John’s entitlements to reduce John’s liability in interest. In making the set-off, WD acted against his and Esther’s interest as the income of the Estates would be reduced.  Far from showing hostility, the incident showed that WD did not harbour any ill will or animosity towards John.  Viewed in the round, I am unable to find that WD’s treatment of the loans, even if erroneous, is evidence of hostility.  If John disputes the loan, he should take out an administration action seeking a determination.

194.  At the hearing, John raised a new ground of hostility.  It was suggested to WD that he attempted to stop John from attending the witness stand by demanding him to come to Hong Kong to testify. Both Esther and John were residing in Canada at the time.  Esther suffered the risk under the COVID-19 pandemic and inconvenience of flying to Hong Kong to testify.  However, John sought to give evidence via video link by submitting that he could not come to Hong Kong under the COVID-19 pandemic as he did not hold any Hong Kong identity card.  It was in that context that WD’s solicitors enquired from John’s solicitors whether John was the holding of Hong Kong identity card numbered “Axxxxxx” which would facilitate his entry into Hong Kong.  The enquiry was a fair one given what John had previously alleged.  It was probably given to assist John’s coming to Hong Kong to testify, if he wished.  There was no evidence of any attempt to obstruct John giving evidence via video link.  The enquiry may be treated as an act of assistance than hostility. The complaint shows that John is trying to blow this simple enquiry out of all proportions.  Such enquiry can hardly be characterised as a vicious act or objection on the part of WD for John to testify as John subsequently accepts under cross-examination.  Rather, it shows that John was the person who is hostile and biased against WD by putting the blame on him unnecessarily and unjustifiably. 

195.  John’s case of hostility is extremely flimsy.  His complaint is based on speculation on his part which is largely unsubstantiated.  I accept there was evidence of a very trivial hostility which is understandable but which in any event was spent.  I have no reason to doubt that given the intervention by his solicitors, WD will act with propriety. 

Conclusion

196.  I am not satisfied that John has proved there is any conflict of interest for WD, being a beneficiary, to act as administrator or evidence of actual or potential conflict.  All the conflicts John alleged were caused by his failure to give proper or certified accounts in respect of the Canadian Properties under his trusteeship.  That made it necessary for WD in his position as administrator to adopt a position which John considered as confrontational, such as withholding his entitlements to be distributed to him. That is basically what gave rise to John’s complaint of conflict. 

197.  I am also not satisfied that WD has been incompetent in discharging his duty as administrator.  WD has in substance completed administration of the Mother’s estates in Hong Kong.  There is little more to be done than to update the Estates accounts and to produce supporting documents, which are mainly bank statements.  There is no reason to doubt WD will not or would not be able to do so.  He was prevented from finalizing the Mother’s estate in Canada because of John’s refusal to give proper accounts for the Canadian Properties and rental income under his control.  WD made minor mistakes in refusing to pay the pecuniary legacies to John’s children and suggest to deduct the legacies from John’s entitlements.  The situation has been rectified.  Indeed, WD has proved himself to be very competent in identifying the Undisputed Units as missing assets of the Estates, though much to John’s annoyance.

198.  Except for some minor and curable inadequacies, WD has given full and proper accounts of the Estates via his four sets of accounts furnished in 2009, 2011, 2012 and 2017.  There are no proper or meaningful criticisms raised by John in respect of those accounts.  What needs to be done is for WD to update the accounts with supporting bank statements and produce the ledgers requested by John’s solicitors.  WD affirmed in court under oath his willingness to comply with the directions of the court to provide documents or information.  In view of the nature of the Estates and the accounts previously furnished, there is no reason to doubt WD’s sincerity and intention in producing further information to fully comply with the requirements raised by John.  On the other hand, John also accepted under cross-examination that his concern would be allayed if he receives the relevant bank statements and ledgers right now and that there would be no need to remove WD as an administrator.  There is no ground for removing WD because of the minor inadequacies.

199.  John’s complaint of hostility is illusory. Though there is some evidence of a very trivial hostility, it was in any event spent.  It could have no impact on WD continuing to act as administrator.

200.  There are some disputes about the two loans under the promissory notes, the valuation of the Canadian Properties and rental income and the Disputed Units.  On my finding, the Disputed Units are missing assets which John has to account for.  The dispute about the two loans are discrete issues which the parties should seek adjudication by administration action, if the disputes remain unresolved.  In respect of the valuation of the Canadian Properties, it is John’s obligation to produce proper accounts and supporting documents before the matter could go to adjudication. 

201.  Viewed in the round, John’s grounds for removal have absolutely no substance.  His dispute with WD arose solely from his refusal to give proper accounts for the Canadian Properties and rental income under his control.  The administration of the Estates in respect of the Hong Kong assets is basically complete.  Once John gives proper accounts in respect of the Canadian Properties and rental income, WD would be able to finalise the accounts and make full distribution.  There are no valid grounds for WD’s removal as administrator. 

202.  Given John’s attitude, it can be anticipated that he will try his utmost to resist production of supporting documents and giving proper accounts of the Canadian Properties.  The parties’ dispute is going to be a long drawn one.  Engaging a professional administrator as WD’s replacement is going to be very costly, let alone unnecessary.  Esther, the only other beneficiary of the Estates, is supportive of WD’s continued appointment as administrator.  The overall interest of all the beneficiaries as well as the interest of the majority of the beneficiaries lie heavily in favour of WD’s continued administration of the Estates.  There is no need to appoint a replacement as requested by John. 

203.  What is needed is for WD to make an affirmation exhibiting an up-to-date account of the Estates with supporting documents and to produce the ledgers requested by John’s solicitors once particulars of the request is clarified.  These are acts which WD is obliged to perform in the due execution of his duties as administrator in due course without the need for a court order.  It would be inappropriate and unnecessary to make an order to that effect. 

204.  Accordingly, John’s summonses are dismissed. Though not specifically sought in the summonses, to allay John’s concerns, I make a direction as requested by his counsel that WD do open a trust account and deposit John’s entitlements into that account pending distribution of the Mother’s Estates. 

WHETHER WD’S APPOINTMENT AS ADMINISTRATOR OF THE ESTATES INCLUDED THE CANADIAN PROPERTIES

Procedural Objections

205.  Esther and WD sought by way of counterclaim the determination of a discrete issue, namely, whether it was agreed in the Mediation Agreement that WD would also be the administrator of the Canadian Estates.  John raised a technical objection to this counterclaim by relying on Order 28 rule 7 on the ground that the additional counterclaim was not raised in the first instance and no direction has been sought for filing the counterclaim.

206.  The issue in the counterclaim arose because of John’s allegation made after commencement of these proceedings.  The allegation was made in a letter dated 18 October 2016 from John’s Canadian lawyers, Messrs Boughton Law Corporation (“Boughton Law”) to WD’s legal representatives in British Columbia, Nejat & Company Legal Counsel.  In that letter, John’s Canadian lawyers wrote:

“We disagree with your client’s assertion that the Mediation Agreement relates to the administration of property in British Columbia or would have any effect on the Supreme Court of British Columbia’s inherent jurisdiction to deal with matters relating to real property in this province.”

British Columbia time is 15 to 16 hours behind Hong Kong.  Thus, the letter was sent to WD’s Canadian lawyers about half a day before WD affirmed his 1^st Affirmation on 19 October 2016, Hong Kong time.  WD did not have time to seek legal advice and deal with the matter in his 1^st Affirmation.

207.  The additional counterclaim was raised in WD’s 2^nd Affirmation filed and served on 2 March 2017.  No objection had ever been raised by John and John indeed dealt with it in his 3^rd Affidavit in response.  Thereafter, the parties appeared in court a number of times, but John never raised any objection.  By conduct, John had shown that he was ready to deal with this issue at trial.  He was unable to show any prejudice for the issue to be dealt with at this trial.  This is precisely the type of situation to which the Court of Appeal’s observation in Ng Wing See v Chang Chi Ching[42] applies.  The underlying objectives under Order 1A must also require this issue to be dealt with in this trial.

John’s Evidence of Negotiation before the Mediation Agreement

208.  It was stated in Clause (9) that the parties agreed that WD be appointed as the administrator of the Mother’s Estates. However, John’s position is that he did not consent to WD to become administrator of the Canadian estates and he objected to it from the beginning because he considered WD violated the Father’s wills.  His evidence was amoeboid.  When asked to particularise the detail of his objection, John first claimed there was discussion and express agreement during the mediation leading to the Mediation Agreement that WD would not act as administrator for the Canada estates.  But upon repeatedly asked why the discussion and agreement was not reflected in the Mediation Agreement and why they were not mentioned in the letter dated 18 October 2016 by his Canadian lawyers, Boughton Law, John changed his case and claimed there was no such need to include it and that it was not necessary.  Upon further cross-examination, John changed his case yet again and said there was indeed no such discussion and that was just his hypothetical answer if the subject were discussed. 

209.  John’s post-agreement conduct is contrary to the various versions of his case.  In his email to WD dated 15 September 2011 to WD, he wrote:

“The accounts were certified in June 2010 for the purpose of filing terminal returns. It is over a year ago, the accountant has requested you to provide a letter of consent to the Canadian Revenue Agency for filing the Terminal Returns for the estates. Since you wanted to be the estate administrator, this is administrator’s duty”

The accountant, ie PwC, was instructed by John.  It must have been John’s instruction to PwC that WD was the administrator of the Canadian estates and hence PwC’s sought consent to file tax returns from WD and John supported PwC’s request.  John’s position was repeated in his email to WD dated 23 July 2012.  He wrote:

“There is no one else can give consent to file the Terminal Tax Returns except you, because it is the duty of the estate administrator.”

John’s evidence is so inconsistent that it must be rejected.  In any event, the parties’ intention expressed during the course of negotiation of the agreement may not be taken into account in construing the agreement.

Construction of Clause 9 of the Mediation Agreement

210.  The issue raised by this counterclaim is what is the true construction of Clause 9 of the Mediation Agreement.  It is trite principle that interpretation of a document is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of making of the document: Jumbo King Ltd v Faithful Properties Ltd & Ors[43] and Investors Compensation Scheme Ltd v West Bromwich Building Society & Ors (No.1)[44]. The document must be read and construed as a whole.  Clause 9 reads:

“The parties agree that Wing Dee will be appointed the official Administrator of the estates of the Father and the Mother as soon as practicable. He will have the authority to pay all reasonable costs in administration of the estates of the Father and the Mother and related costs including legal costs and mediation costs that the parties have agreed to come out of the pool of assets.”

211.  For ten years after the Parents’ death, the parties became embroiled in litigation about the Estates including properties in Hong Kong and Canada as stated in paragraph (3) of the recital of the Mediation Agreement.  It was under those circumstances that the parties entered into the Mediation Agreement to settle their disputes.  The intention of the parties as stated in paragraph (4) of the recital was “to resolve all their disputes in the past and to agree to a settlement of all the family assets”. The phrases “all their disputes” and “all the family assets” under the above background circumstances could not have been clearer.  The word “all” is not geographically qualified.  The phrase “all the family assets” must mean all the family assets anywhere, whether in Canada or Hong Kong, and not just limited to assets in Hong Kong.

212.  Further support for the above construction can be found in Clauses (7) and (8) of the Mediation Agreement.  The former allocates properties in Canada while the latter allocates properties in Hong Kong.  These clauses put it beyond doubt that the intention of the parties was that the Mediation Agreement covers all the assets of the Father and Mother in Canada and in Hong Kong.

213.  In construing a document, the document must be read and construed as a whole.  When Clause (9) is read with the Mediation Agreement as a whole, particularly having reference to paragraph (3) and (4) of the recital and Clauses (7) and (8) of the Mediation Agreement, the meaning which Clause (9) gives to a reasonable reader with knowledge of the factual matrix must be that WD was, by the parties’ agreement, to be appointed as the administrator of the estates of the Father and the Mother whether in Canada or in Hong Kong.  This construction is necessary to give effect or efficacy to Clauses (7) and (8).  Clause (9) is evidence of such an agreement.

214.  The parties’ post-agreement conduct which is consistent with the construction of the agreement goes a long way to support the true construction of the agreement.  WD applied in Canada for appointment as administrator of the Mother’s estate in Canada.  Though John objected, his other conduct mentioned in the preceding subsections, which is inconsistent with his objection, supports the above construction.

Conclusion

215.  In conclusion, I am satisfied that on the true construction of the Mediation Agreement, it is the parties’ intention that the Mediation Agreement covers the entirety of the Father’s and Mother’s estates in Canada and Hong Kong; and that by Clause (9) of the Mediation Agreement, the parties agreed that WD be appointed as the administrator of the Estates in both Canada and Hong Kong.  In view of John’s professed opposition to the appointment of WD as the administrator of the Estates in Canada, an adjudication of this issue is essential.  Accordingly, I make the above adjudication.

REMOVAL OF JOHN AS TRUSTEE

The Legal Principles – Removal of Trustee

216.  The legal principles applicable to removal of trustee are trite and not in dispute.  The court has power under section 42 of the Trustee Ordinance (Cap. 29) to appoint a new trustee for a trust either in substitution or in addition to any existing trustee or trustees (i) whenever it is expedient to do so and (ii) that it is found inexpedient, difficult or impracticable to do so without assistance of the court.  The hurdle is a high one.  The court has to be satisfied of the two prong test that it is expedient to do so and inexpedient to do so without assistance of the court.

217.  For a trustee to be replaced, actual misconduct on the part of the trustee need not be shown, but the Court must be satisfied that his continuance in office would be prejudicial to the due performance of the trust or impede the effectual execution of the trusts, and so adversely affect the interests of the beneficiaries: The Ban Khi & Ors v The Loei Beng & Ors[45]. In deciding whether to exercise its discretion to appoint a new trustee, the court will take into account the following factors:-

(a)  the wishes of the person by whom the trust was created;

(b)  the interests, which may be conflicting, of all the beneficiaries; and

(c)  the efficient administration of the trust, and whether the appointment would promote or impede the execution of the trust.

See: The Ban Khi & Ors[46].

Jurisdiction

218.  John advanced a technical ground of objection by arguing that the Trust is governed by Ontario law which is the law with the closest connection with the Trust in view of the location of the properties and the trustee.  Esther and WD seemed to have no dispute that the proper law of the Trust is Ontario Law.  Hence, John submitted that the Hong Kong court has no jurisdiction over the Trust and argued that WD should commence action in Ontario for his removal. 

219.  John’s argument is premised on articles 6, 7 and 8 of the Schedule in the Recognition of Trusts Ordinance (Cap 76) which is said to have the effect of reversing the common law rule in Chellaram and Others v Chellaram and Others[47]that a Hong Kong court can remove the trustee of a foreign trust.  He quoted Lewin on Trust[48], The Conflict of Laws in Hong Kong[49]and Dicey Morris and Collins on The Conflict of Laws[50]. With respect his argument is founded on his failure to distinguish two issues, namely the court’s jurisdiction and proper or governing law of the trust.

220.  The common law rule referred to in Chellaram is a rule developed by the House of Lords in Ewing v Orr Ewing[51] that the English courts had jurisdiction to administer a foreign trust involving foreign trust property.  In Ewing v Orr Ewing, the trust was created by the will of a testator who died domiciled in Scotland and the subject matter of the trust consisted mainly of hereditable and personal property in Scotland.  The Earl of Selborne LC said[52]:

“… the jurisdiction of the English Court is established upon elementary principles. The Courts of Equity in England are, and always have been, Courts of conscience, operating in personam and not in rem; and in the exercise of this personal jurisdiction they have always been accustomed to compel the performance of contracts and trusts as to subjects which were not either locally or ratione domicilii within their jurisdiction. They have done so as to land, in Scotland, in Ireland, in the Colonies, and in foreign countries: … A jurisdiction against trustees, which is not excluded ratione legis rei sitae as to land, cannot be excluded as to moveables, because the author of the trust may have had a foreign domicil; and for this purpose it makes no difference whether the trust is constituted inter vivos, or by a will, or mortis causa deed.”

Lord Blackburn agreed and said[53]:

“It was argued that the domicil of the testator being Scotch, the Court of Chancery had no jurisdiction at all; that the jurisdiction depended on the domicil of the testator, or at least on the probate in England, and was therefore confined to the comparatively small part of the property that was obtained by means of the English probate.

I do not think that there is either principle or authority for this contention.  The jurisdiction of the Court of Chancery is in personam. It acts upon the person whom it finds within its jurisdiction and compels him to perform the duty which he owes to the plaintiff.”

The common law rule is all about the court’s personam jurisdiction over the person of the trustee.  It is not about proper law of the trust.

221.  In Chellaram, the court assumed that the proper law of the settlement was Indian law.  Scott J said[54]:

“For the moment, however, I propose to leave the question open and to assume that Mr Miller is right that the law of India is the proper law of the settlement and to see where that leads.”

Thus, the court in Chellaram was also dealing with the issue of the court’s personam jurisdiction and not proper law of the trust, which was assumed to be Indian law.  Scott J began dealing with the issue of jurisdiction as follows[55]:

“I start with jurisdiction. In a sense, there is no doubt at all but that the court has jurisdiction. Each of the defendants was either served personally or service was effected on Norton, Rose, Botterell and Roche who had authority to accept service. No question arises as to the application of RSC, ord 11. By reason of due service of the writ, the court has jurisdiction over each of the defendants in respect of each of the issues raised by the writ.”

Then, he quoted the passages I have quoted above and concluded that the English court has jurisdiction to administer the trust of foreign settlement and that jurisdiction includes removal of trustees and appoint new ones[56].  He also added that in the light of the recent pronouncements in the House of Lords, the court has a discretion to decline jurisdiction on forum conveniens or forum non conveniens grounds.

222.  Articles 6 and 7 provides respectively that a trust shall be governed by the law chosen by the settlor, and where no applicable law has been chosen, a trust shall be governed by the law with which it is most closely connected.  Article 8 provides that the law specified by Articles 6 or 7 shall govern the validity of the trust, its construction, its effects and the administration, including, inter alia, the appointment and removal of trustees.  Plainly, these three articles deal with proper law of the trust, including the proper law governing the appointment and removal of trustees, but not jurisdiction.

223.  Mr Smith SC relied on the following statement of law in Lewin on Trust[57] and argues that Article 8 has changed the common law rule that the court has jurisdiction to remove trustees:

“By article 8(a) of the Convention, the proper law governs the appointment, resignation and removal of trustees, the capacity to act as a trustee, and the devolution of the office of trustee. That provision made a change to the common law, under which it was held that the appointment or removal of a trustee of a trust governed by a foreign law was a matter not affecting the nature of a beneficiary’s interest but only the machinery for enforcing it and so was governed in an English court by English law.”

(Emphasis highlighted in bold and italic print)

With respect, that is a happy misreading of the statement on his part.  In the first sentence quoted above, the learned author was unequivocally referring to the proper law or substantive law governing the appointment and removal of trustees.  The old rule used to be that the appointment or removal of a trustee of a foreign trust was only a matter of procedural law and did not affect the nature of a beneficiary’s interest.  The change mentioned in the second sentence is that the law applicable to appointment and removal of trustees is changed from English law to the proper law of the trust.  It does not change the principle governing the court’s personal jurisdiction over the trustees who appear before the court or the procedural law governing enforcement of that right to appoint or remove a trustee.  Whether the court has jurisdiction over a trustee depends on whether the trustee is within jurisdiction and has been served with the legal process or if he is out of the jurisdiction having been served under one of the gateways under Order 11.

224.  The true position is as stated in the following statement in Dicey Morris and Collins on The Conflict of Laws[58]:

“The law applicable to the trust will determine the nature and extent of the beneficiaries’ rights, but their enforcement is essentially a procedural matter governed by the law of the court which has assumed jurisdiction to administer the trust in question. … The court will have jurisdiction whenever a trustee is subject to the personal jurisdiction of the English court, whether based on service of process within or without the jurisdiction, submission, or the provisions of the Brussels I Regulation, Lugano Convention or Sch 4 to the Civil Jurisdiction and Judgments Act 1982.”

The authors cited Chellaram in support of the above propositions.  There is not the least suggestion that Chellaram has been “over-ruled” by the Convention.  The effect of Articles 6, 7 and 8 of the Schedule in the Recognition of Trusts Ordinance is only to change the rule in determining proper law of the trust and has no effect on the procedural law and the court’s personam jurisdiction.

225.  As was held in Ewing v Orr Ewing, this court has undoubted inherent jurisdiction to administer a foreign trust.  The jurisdiction is in personam, exercisable against the trustees on whom the foreign trust obligations lie, and is exercised so as to enforce against the trustees the obligations which bind their conscience.  This jurisdiction includes the jurisdiction to remove trustees and appoint new ones.  The jurisdiction is inherent in nature and not derived from any statute.  In the exercise of this jurisdiction, the court will enquire what are the personal obligations binding on the trustees.  If the obligations are owed in respect of foreign trust assets, the court shall make personam orders against the trustees requiring them to perform their obligations.  It does not matter where the trust assets are situated and what is the proper law governing the trust. What is required is that the legal process has been served on the trustees and they have submitted to jurisdiction : see Chellaram[59].

226.  Next, John argued that if this court is to remove him and appoint a new trustee, this court has to vest the legal title to foreign properties in the new trustee.  This would violate the Mocambique Rule that a local court has no jurisdiction to deal with title or interests in foreign immovable properties: Hong Kong Civil Procedure 2020[60].  He also relied on the following passage from James Chor Cheung Wong and Rita Maria Wong Yuen Wai v Hark Chung Wong[61]:

“32. The subject matter in issue and in dispute is the legal and beneficial title to the Property. Under the Mocambique rule, Hong Kong courts generally have no jurisdiction to determine disputes concerning title to or interests in immovable property outside Hong Kong (see British South Africa Co v Campanhia de Mocambique [1893] AC 602, which is referred to and accepted in Hong Kong in DX v LN, FCMC 7870/2014, 30 November 2015).

33. The reliefs sought by the plaintiffs are declarations and specific performance for the transfer of the Property from the defendant to the plaintiffs. These are orders or decrees for the court of the situs, i.e. where the Property is situated, namely the Supreme Court of Queensland, to make.

34.  It makes no sense either in terms of logistics, fair use of the court's resources, costs or practical prosecution of the case for any judgment to be obtained in Hong Kong only for the plaintiffs to have to then take enforcement measures in Queensland, Australia.  It is also uncertain whether the Supreme Court of Queensland may necessarily give effect to any Hong Kong judgment.”

227.  The learned authors of The Conflict of Laws in Hong Kong identified four exceptions to the Moçambique rule. The first two of these are[62]:

(a)  Where the claim is based upon a personal obligation arising between the parties. 

Where the claim is based upon a contract, fraud, fiduciary relationship or other obligation which does not “depend for [its] existence on the law of the locus of the immovable property”, then the Moçambique rule does not bar the taking of jurisdiction.  This principle, based on old English Chancery cases but applied in more recent times, permits the taking of jurisdiction and making of orders requiring steps to be taken in relation to foreign land where the claim is based on a personal obligation incurred by the defendant, arising from, for example, a breach of contract, fraud, trust or other equitable obligation. 

(b)  Administration cases. 

It appears that the rule has no application to questions arising in connection with the administration of estates or trusts, so long as there is immovable or movable property in Hong Kong as well as immovable property outside Hong Kong.  Were it otherwise, the exercise of jurisdiction in such cases would be rendered very impractical. 

228.  The Canadian Properties are legally held by John but beneficially they belong to the Mother’s estate.  WD’s counterclaim is not concerned with title or interest of the Canadian Properties held under the Trust.  WD is seeking to have John removed as trustee of the Trust for his failure in performing his personal contractual obligations under the Clauses 4(a) and (7) of the Mediation Agreement and for his breach of fiduciary obligations as trustee owed to the Mother’s estate.  The claim falls clearly within the first exception. 

229.  WD argued that the case also falls within the second exception since the Canadian Properties held under the trust forms part of Mother’s estate.  John argued that the exception does not apply because the Trust consists only of Canadian immovable property and the parties are just concerned with immoveable in Canada.  The exception is engaged if the estate consists of moveable or immoveable properties in Hong Kong and immoveable properties outside Hong Kong.  The conditions are satisfied.  To argue as John did that because the parties are concerned with immoveable properties in Canada plainly goes against the spirit of the exception.

230.  John’s further argument is that even if the exceptions were applicable, WD still has to explain why WD has the locus to remove him when the beneficiary of the trust is the Mother and WD has not obtained any grant in Canada in relation to the Mother’s estate in Canada.  The short answer to that objection is that with the Mother’s demise, Esther and WD have become beneficiaries of the Trust.

231.  Then, John renewed his argument about WD’s failure to adduce expert evidence on Canadian law.  This time, his argument is made in the context that absence evidence that Canada recognizes the removal of trustee of a Canadian trust by Hong Kong court, this court should not make any orders in vain.  He quoted Co A and Ors v Co D and Ors[63] for the propositions that if an injunction order cannot be enforced, a court may exercise its discretion not to grant such an order and conversely whether an order can be effectively enforced is a question which is highly relevant in the court’s exercise of its discretion in deciding whether to grant the injunction.

232.  Court orders are made on the footing that those who submitted themselves to the jurisdiction of the court will obey them.  In Chellaram, Scott J deal with a similar argument by the trustees as follows[64]:

“… but if the English trustee had been subject to the jurisdiction of the foreign court exercised in like circumstances to those in which English courts claim and exercise jurisdiction, I can see no reason why I should recoil from an order in personam made by the foreign court against an English trustee. And if the order had been given effect to by, for example, the trustee transferring trust assets in England into the names of new trustees, I can see no reason why an English court should question the efficacy of the transfer. All of this assumes, of course, that there were no vitiating features in the manner in which the foreign order was obtained.”

This passage best reflects the sentiment an English court would approach a personam order made by a foreign court against an English trustee.  There is no question about competing jurisdiction or comity.  The foreign order will be enforced.  I do not doubt that Canada, being part of the common law jurisdiction, will not respect the personam order of a court from another common law jurisdiction.  If John wished to advance a defence along this line, he had to discharge of burden of proving the relevant Canadian law justifying the inference that the Canadian court will not enforce a personam order made by a Hong Kong court, otherwise the presumption is that Canadian law is similar to Hong Kong law.

233.  Lastly, John argued that because he envisaged that the administrators proposed by him in substitution for WD would apply for grant of letters of administration in Canada, there is no need to remove him as trustee of the Trust.  This argument simply collapsed upon my refusal to remove WD as administrator.  Even putting that aside, this cannot be a valid ground when it is clear (as I shall find below) that John has not properly discharged his duty as trustee; because any administrator (independent or otherwise) would face difficulty in administering the trust properties if John does not co-operate (which would likely be the case as John has been holding onto the trust properties as his own properties for the past 20 years for all intents and purposes).

234.  In summary, this court has inherent jurisdiction to administer a foreign trust, including to remove and appoint a replacement trustee.  The jurisdiction is a personam jurisdiction exercisable against the trustee who is in breach of the obligation he owes to the beneficiaries under the trust.  Such jurisdiction is to be exercised in accordance with the law of the court to whose jurisdiction the parties have submitted.  It matters not that the trust assets are situated outside the jurisdiction and that the proper law governing the trust is foreign law.  What is important is that the parties have submitted to the jurisdiction of the court.

Whether John Has Submitted to Jurisdiction

235.  John argued that WD’s claim is made by way of counterclaim and there is simply no gateway under Order 11 to serve out the claim to remove him as a trustee of a foreign trust of foreign land.  John is the trustee of a Canadian trust over properties which are part of the subject matter of his action and the counterclaim.  He has submitted to the jurisdiction of this court by commencing this action in Hong Kong.  The counterclaim sought is a personal action against him.  The fact that the proper law of the Trust is Ontario law is irrelevant.  Under the principle in Ewing v Orr Ewing, the enforcement of John’s obligation as a trustee is essentially a procedural matter governed by Hong Kong law.  The action here is a personal action against John.  As John has submitted to jurisdiction, it is proper for this court to assume jurisdiction to administer the trust in question and in doing so to apply Hong Kong law on procedural matters.  John has not advanced any proper reasons why this court should exercise discretion not to assume jurisdiction.

John’s Failure to Perform the Mediation Agreement

236.  I have dealt with the legal issues relating to the court’s jurisdiction in removal of trustee of a foreign trust, and the factual issue of John’s submission to jurisdiction.  The remaining factual issue is the whether WD has shown sufficient grounds to justify John’s removal as trustee of the Trust.  The major grounds relied on by WD are John’s failure to perform the obligations under the Mediation Agreement, in particular, his failure to render proper accounts of the Canadian Properties; and breach of fiduciary duty in holding onto them as if they were his own.  The minor grounds are John’s other failures or neglect in paying tax and fees of the Canadian Properties which resulted in huge penalties. 

237.  I have made factual findings on these issues when analysing John’s case for WD’s removal.  John’s prolonged failure in rendering proper accounts of the Canadian Properties coupled with his breach of fiduciary duty in holding onto them as his own and failure to pay tax is more than made out.  I do not wish to repeat, save for the salient points.  Except for Units 501 and 707, the Canadian Properties were unencumbered in 2006.  In his accounts, John allegedly set off rental income from the properties against mortgage repayments.  Despite repeated requests by WD, John’s own undertaking and his consent under the 2011 Order, John deliberately refused to produce supporting documents for the mortgage.  His conduct puts suspicion on him.  His case is not that he has no supporting documents or that the documents are loss or no longer available.  He claimed to have the supported documents stored in electronic form in the CD forwarded to Stan Lang.  That was denied by Stan Lang.  Yet, instead of duplicating a copy of the CD, he incurred hefty legal costs in resisting their production.  When he was cornered, he changed his case and said that the supporting documents were not stored in the CD.  He never denied he had the supporting documents or explained what happened to the documents. His conduct enables adverse inference to be drawn against him.  The only reasonable and irresistible inference is that he did not have supporting documents and there were no genuine underlying mortgages to justify or support his setting off mortgage repayments against the rental income.  The adverse inference of breach of fiduciary duty as a trustee and dishonesty may be reasonably drawn against him. 

John’s Removal as Trustee of the Canadian Properties

238.  John’s breach of fiduciary duties is not a trivial one.  It goes to the core and the entirety of his obligation as trustee of the Trust.  Such breach is fatal to his continued engagement as a trustee.  John has held that position for over 20 years.  He has failed to discharge the very basic duty of giving an account of the trust properties under his care.  His honesty is called into question.  Not only has John failed to properly administer the Trust, the trust assets are at stake.  It is only appropriate that John should be removed. 

239.  In paragraph 232 of his closing submission, Mr Smith SC explained John’s position as follows:

“John Chang has no particular desire to continue to be in any way overseeing the properties in Canada, whether as trustee or otherwise, and would be quite happy for administrators to be appointed. If the court decides to appoint new administrators in Hong Kong then we would envisage that they would apply to be administrator in Canada as well and John would be very happy for that to happen, so that they would automatically take over his position as trustee holding for the mother’s estate which would automatically mean that he would have to comply with any instructions they give and effectively transfer the property on their direction, whether directly to them or pursuant to the terms of the mediation agreement if that’s going to mean cutting out one unnecessary transfer and thereby reducing expense or exposure to any potential liabilities for tax.”

According to Mr Smith SC’s closing submission quoted above, John was happy to retire as trustee and to have administrators appointed for the Mother’s Canadian estate.  That being his position, there is nothing in the way against his removal.  I am conscious of the fact that what Mr Smith SC said was in the context of WD having been removed and John’s nominees being appointed as administrator for the Mother’s Estate in Hong Kong.  If WD’s removal is not justified and is allowed to continue his appointment, John should accord WD the same treatment as his nominee. John has no real ground for resisting his removal as trustee of the Trust.

WD’s Appointment as Trustee of the Trust

240.  John’s removal as trustee of the Trust is absolutely necessary.  WD and Esther sought to have WD appointed in his place.  John, Esther and WD are the only beneficiaries under the Trust.  In the absence of a common wish, the majority wish and the beneficiaries’ overall interest are the necessary consideration for the appointment of a replacement.  John is disqualified.  Esther is supportive of WD’s appointment.  WD is willing to act.  There is nothing to suggest the need to appoint a non-interested party from outside the beneficiaries.  Despite some minor blemishes in his performance as administrator of the Mother’s Estates, there is nothing to suggest that WD is not a fit and proper person for appointment.  The majority wish must prevail.  

241.  Furthermore, the parties have agreed under the Mediation Agreement that WD be appointed as administrator of the Mother’s Estates.  In that position, WD would be the best candidate among the beneficiaries of the Trust to act as trustee.  Accordingly, I allow the counterclaim and appoint WD as trustee of the Trust in place of John.

Appointment of Accountant and Valuer

242.  WD sought an order for the appointment of accountant and valuer for the preparation of final account of the Estates.  The assets in the Estates are enormous and the parties are in deadlock for over twenty years.  John has demonstrated bad faith in his administration of the Trust.  He refused to provide supporting documents in respect of his accounts of the Canadian Properties.  Intervention by a properly qualified accountant to estimate the missing information in relation to the Canadian Properties and other properties under John’s control is necessary, particularly the rental income of the Toronto Properties and the value of the Father’s equity in the Disputed Units.  John’s co-operation is unlikely to be forthcoming.  In the circumstances, the proposed appointments are essential steps to be taken for completing the administration of the Estates.  Given the mutual distrust among the parties, these steps can safeguard the interest of all parties concerned. John’s only ground of opposition is that the professional administrators proposed to be appointed by him can also undertake the exercise.  As I have refused his application, this is not an available option. 

243.  Furthermore, John said he was tired of being the trustee and did not wish to continue to oversee the Canadian Properties in any way.  In view of what Mr Smith SC said in paragraph 232 of his closing submission quoted above, John should have no real objection to have administrator appointed for the Mother’s Canadian estate to do exactly the same thing as what WD sought to be done by professional accountant and valuer.  John could have no valid reasons to object to such appointments.  I allow the application.

Conclusion

244.  In respect of the discrete issue, I make a finding that John, Esther and WD have agreed to the appointment of WD as administrator of the Mother’s estate in Canada.  I make an order that John be removed as trustee of the Trust, WD be appointed in his place and that professional accountant and valuer be appointed for the purpose of finalising the accounts and due distribution based on the final account. 

COSTS

245.  WD and Esther are successful in the two originating summonses.  They are entitled to costs.  The parties are beneficiaries of the Mother’s Estates.  John is the trustee of the Trust of properties which form part of the Mother’s Estates.  The disputes between them are concerned with administration of trust and estates and breach of fiduciary duty.  Indemnity costs are appropriate.  Having regard to the facts of the case, particularly John’s conduct, it is appropriate that WD and Esther should be given the liberty to recover the costs to be paid by the John out of his share in the Estates.  Accordingly, I make a costs order nisi that John shall pay WD’s and Esther’s costs in respect of both originating summonses on indemnity basis with certificate for two counsel forthwith and that WD and Esther have the liberty to recover the costs out of John’s share in the Estates.