SO SUK CHUN AND ANOTHER v. CHAN SHEK CHUNG AND OTHERS

HCA 81/2012

[2018] HKCFI 1842

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 81 OF 2012

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J U D G M E N T

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INTRODUCTION

1.  The plaintiffs commenced this action in January 2012.  The property which features prominently herein is a shop located at Shung Ling Street, San Po Kong (“the Shop”).  The plaintiffs’ claim is essentially that the defendants have wrongfully failed and/or refused to pay the plaintiffs a proper portion of the Shop’s rental income.  In gist, the plaintiffs seek the payment of the unpaid rental income.  Implicit in the plaintiffs’ claim is the case that:

(a)  after the death of her husband (“Chan senior”), the 1^st plaintiff (“the late mother”) was entitled to inherit 50% of the Shop; for the 2^nd plaintiff (“the younger sister”), her entitlement would be one-twelfth (or 8.33%);

(b)  after the death of the late mother, the younger sister was entitled to inherit 58.33% of the Shop.

For convenience, the plaintiffs, together with their next of kin (that is, the other children of the late mother) will be called “the Chan family” below.

2.  The defendants deny the plaintiffs’ above allegation (and claim), contending that they have been authorized by the Chan family (including the plaintiffs) to manage the Shop.  As a result of the consensus reached by the Chan family, according to the defence, the late mother was entitled to a life interest of the rental income of the Shop, but her share in the Shop was “reduced to” one-seventh (or 14.29%).  Hence, the rental income (after expenses) should be paid to her (until her death in 2015).  Since the death of the late mother, the rental income should be distributed among the siblings (each being entitled to one-seventh share (or 14.29%), except the younger sister (who is entitled to two-seventh shares (28.57%))).

BACKGROUND

3.  As is common in the economic history of Hong Kong, the family fortune of Chan senior (and hence the Chan family) began with the toy business founded by Chan senior (“Maries Ind’l”).  Again, as is common among family founded businesses, the shares of Maries Ind’l used to be held by Chan senior and the late mother.

4.  Chan senior and the late mother have 6 children.  Of the 6, a son and a daughter went to Canada since their youth and are still residing there (see also para 12(4) below).  The defendants are the eldest 3 sons (all residing here); the younger sister is the youngest child, and the only daughter who also resides here (since 1988).

5.  The Shop has (since 1969) all along been acquired as a long term investment.  The rental income became one of Chan senior’s sources of income.  After his death, the rents were paid to the late mother for her keeping (and for paying various (especially household) expenses).

6.  Chan senior passed away in 1979 intestate.  The next of kin surviving him being the late mother and the 6 children.  Consequently, according to the law of succession in the case of intestacy, the late mother and the 6 children were the beneficiaries of the assets in Chan senior’s estate.

7.  The late mother passed away in September 2015. She made a will in October 2011 naming the younger sister as an executrix and the sole beneficiary.  From 2004 or 2005 to the time of the late mother’s death, the younger sister was the only child who resided with her under the same roof (two residential units in San Po Kong (“the Chan family home”)).  The other children visited the late mother from time to time (there was testimony to the effect that they encountered difficulties when they attempted to visit her towards the later stage).

8.  The court records also show a claim commenced in the late mother’s name in October 2011 against the 2^nd defendant (HCA 1827/2011) (“the 2011 action”).  The 2011 action concerned the Chan family home, and was settled in April 2014.

MAIN ISSUES

9.  The gist of the plaintiffs’ complaints (gathered from the current version of the statement of claim and the witness statements) is:

(1)  the plaintiffs trusted the defendants with the Shop’s rental matters since Chan senior’s death;

(2)  the defendants have thereby become (and have been) the trustees of the Shop’s rents (the beneficiaries of which included the plaintiffs);

(3)  on various occasions in March or April 1998, the 1^st defendant dishonestly lured the plaintiffs into signing 3 documents which he claimed were only for conferring him with the powers to undertake the above rent management work;

(4)  the 3 documents which the plaintiffs actually signed (collectively “the 1998 documents”) are not such documents;

(5)  further, in late 2003/early 2004, the late mother became concerned with the above rent management, and asked the younger sister to request the 1^st defendant to add her as another person to manage the Shop’s rental matters;

(6)  after the younger sister’s request to do so, the 1^st defendant dishonestly lured her to sign another document purporting to be for adding her to be a manager (“the 2004 assignment”);

(7)  the 2004 assignment in truth did not serve the purpose set out in sub-para (5) above, but was a purported assignment conferring title to the defendants and the younger sister;

(8)  the defendants have breached their duties by failing (a) to account for the Shop’s rental income, and (b) to let out the Shop at the prevailing market rents (but see para 44 below).

10.  The current version of the defence pleads essentially:

(a)  it is true the 1^st defendant has been managing the Shop’s rental matters since Chan senior passed away.  It is, however, denied that any of the defendants have acted wrongfully;

(b)  all of the late mother’s children (including the younger sister) respected her and have always followed her plan (or advice, as the case may be) regarding the affairs of the Chan family (including the Shop);

(c)  it was the wish of the late mother not to sell the Shop (at least during her life time);

(d)  the late mother also told her children (including the younger sister) that (instead of succeeding to half of the Shop) she wanted to receive the Shop’s rental income during her life time.  On the other hand, the late mother would share ownership of the Shop with all her children;

(e)  it was to carry out the above wish and plan of the late mother that the 1^st defendant found a law firm and instructed them to prepare the necessary legal documents;

(f)  the 1998 documents were prepared and signed in such circumstances (and for such purposes);

(g)  in 2004, the late mother advised the 1^st defendant that, from a taxation viewpoint, it would be better for the Shop to be registered in the names of her 4 children who resided in Hong Kong (see para 13 below);

(h)  the 2004 assignment was prepared and signed in accordance with the said advice of the late mother;

(i)  the defendants have been managing the Shop’s rental matters faithfully and properly: (1) the Shop was let out at the prevailing market rents; (2) the rents have been paid to the late mother (until after the commencement of this action, when they were deposited into a separate bank account); (3) book-keeping “deductions” were made to the rents as provisions for repair and/or maintenance works which may be required as a result of building orders registered against the land (on which the Shop is located).

WITNESSES’ CREDIBILITY AND FINDINGS OF FACT

11.  The approach adopted by the courts for assessing credibility has been set out in some of my earlier decisions.  See, for example, the decisions in Chiu Chi Tong v Lau Chong Sai & Another, HCA 765/2002 (para 28); Yu Ming Investment Ltd v Peng Ru Chuan, Richard, HCA 814/2002 (para 13);林傳龍對謝巧玩, HCA 1443/2011 (19 December 2014) (para 15) and Star Glory Investment Ltd v Kai Tuo (HK) Technology Co Ltd and Others, HCA 3523/2002 (13 August 2005) (para 12).  See also what appears to be a similar approach in Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corporation Ltd [2007] 3 HKLRD 439, para 135.  The above will be adopted in this action.

12.  The following witnesses testified at trial:

(1)  the younger sister;

(2)  the 1^st defendant;

(3)  the 2^nd defendant;

(4)  Mdm Chan, the other sister (“the other sister”).

As stated above, the late mother passed away in September 2015 before this action has reached trial stage.  The 3^rd defendant, who suffers from ill health, decided not to testify.  Because they were not available for cross-examination, the parties agree that their witness statements should be ignored.

13.  Before discussing the witnesses’ credibility, the 1998 documents have to be described briefly to assist the comprehension of the paragraphs below:

(a)  a Deed of Family Arrangement (signed by the Chan family), by which in gist narrated that all the beneficiaries agreed that (1) the Shop should be co-owned by them equally, and (2) all the personal properties of Chan senior should be inherited by the late mother (“the 1998 deed”);

(b)  an assignment (which was to give effect to the 1998 deed), by which the late mother and the 1^st defendant (as the administrators) conveyed the Shop to the Chan family by way of a tenancy-in-common;

(c)  an assignment (signed by the Chan family), by which the Chan family conveyed the Shop to the 1^st and 2^nd defendants as tenants-in-common (“the 1998 assignment”).

The 2004 assignment recorded a conveyance of the Shop from the 1^st and 2^nd defendants to themselves, and to the younger sister and the 3^rd defendant, as tenants-in-common.

14.  In addition, as the plaintiffs fairly accepted during closing submissions:

(1)  the 1^st and 2^nd defendants, who have been working for Maries Ind’l for lengthy periods at the time of trial, are not highly educated, and not particularly articulated when they testified;

(2)  the younger sister and the other sister, on the other hand, have better academic achievements (both are university graduates). They also articulated better than their brothers when they testified. 

In addition, the sisters’ work (or earlier work) must have involved handling more than a few documents (the younger sister has been a college tutor whereas the other sister is a senior customs officer in Canada). 

15.  Bearing para 14 above in mind, and for the reasons given below, I conclude that the younger sister is not an honest or reliable witness.  On the other hand, I find the defence witnesses to be truthful and reliable.

(a)   Plaintiffs’ witness

16.  As the plaintiffs have confirmed during their opening, it is part of their case the defendants jointly attempted to misappropriate not only the Shop’s rental income, but also the ownership of the Shop. Furthermore, the defendants’ “plot” was conceived after Chan senior’s death (certainly by 1998 at the latest).  A substantial part of the younger sister’s testimony is also to such effect.

17.  The plaintiffs’ case concerning the 1998 documents (summarized in para 9(3) to (4) above) is inherently implausible.  If the defendants had “plotted” to misappropriate the Shop, that goal would have been achieved with the execution of the 1998 assignment (see para 13(c) above). Despite that:

(a)  they have not disposed of the Shop in any way, even up to the trial of this action (except to execute the 2004 assignment);

(b)  they have not improperly spent the Shop’s rental income, even up to the trial of this action;

(c)  further to sub-para (a) above, they joined the younger sister (who is admittedly not a co-conspirator) as a co-owner of the Shop in 2004.

18.  The plaintiffs’ case regarding the 2004 assignment (summarized in para 9(5) to (7) above) is equally inherently implausible.  As stated in para 9(5) and (6) above, the purpose of signing the 2004 assignment was to enable the younger sister to oversee the Shop’s rental matters (in particular, to oversee the 1^st defendant’s management work). Such being the case it is highly unlikely (or unbelievable):

(1)  the younger sister would still believe in the 1^st defendant’s words and sign the 2004 assignment without checking what the document was about;

(2)  the younger sister has not been able to adduce any evidence (including her own testimony) as to what work she has carried out to oversee the 1^st defendant’s work.

19.  In view that the plaintiffs’ case necessarily would involve an attempt on the defendants’ part to misappropriate the Shop, it is surprising they do not claim for any part of the Shop in the prayer for relief.  In particular:

(a)  the younger sister testified that by July 2011, she was already advised that she had a share in Chan’s senior’s estate;

(b)  the letter dated 19 July 2011 from the plaintiffs’ former solicitors (“the 2011 demand letter”) already threatened to take legal action if the co-ownership of the Shop was not rectified (according to the plaintiffs’ case in this action).

20.  There is, furthermore, a discrepancy between the 2011 demand letter and the part of the plaintiffs’ case regarding the alleged misstatements on the 1^st defendant’s part (to the effect he dishonestly lured (1) the plaintiffs to sign the 1998 documents, and (2) the younger sister to sign the 2004 assignment).  The allegation was glaringly missing from the 2011 demand letter (in fact the 2011 demand letter also appears to be vague as to whether the plaintiffs were aware of the purport of the 1998 documents when they signed them).

21.  Other criticisms have been levied at the testimony of the younger sister:

(1)  her testimony differs from her witness statement regarding the circumstances under which she heard the 1^st defendant’s misstatement in 1998;

(2)  she admitted she also paid part of the property tax after she signed the 2004 assignment.  However, she did not find it necessary to ask the 1^st defendant why she had to do so;

(3)  she has not been able to provide details as to how the 2^nd and 3^rd defendants were involved in the management of the Shop’s rental matters.

There is no need to elaborate about the above save to say that I have taken them into account when assessing the younger sister’s testimony.

22.  I also noticed that the late mother sought by the 2011 action to recover the Chan family home from the 2^nd defendant.  This makes it even harder to understand why the same relief is not sought herein.  However, because this matter has not been put to the younger sister in cross-examination, it should not be taken into account when assessing her credibility (and I did not do so).

(b)   Defence witnesses

23.  The plaintiffs submit that the 1998 documents do not serve any of the two purposes put forth by the defence for these documents; namely, the late mother intimated she wished:

(a)  to be given a life interest in the Shop’s rental income;

(b)  the Shop to be co-owned by her 6 children after her death.

(para 31, plaintiffs’ closing submissions)

24.  First, the above is not an entirely summary of the defence case (compare para 10(d) above; para 10 to 13 and 15 to 25, the 1^st defendant’s re-amended defence (and similarly for the other defendants); para 17 to 19 and 25 to 30, the 1^st defendant’s witness statement (and similarly for the other defence witnesses).

25.  Secondly, it is incorrect to say that none of the 1998 documents served the purposes put forth by the defence:

(1)  the 1998 deed (and the related assignment which was to give effect to the 1998 deed) is consistent with the defence case that the Shop was to be co-owned by the Chan family;

(2)  the 1998 assignment is consistent with the defence case that it was intended to empower the 1^st and 2^nd defendants to manage the Shop (the Shop’s co-owners would of course have the right to collect rents).

26.  What can amount to a valid criticism of this part of the defence case is that, rather than executing the 1998 assignment, a power of attorney could have been executed instead.  The last-mentioned document could more accurately describe the concerned parties’ inter-relationship.  To put almost the same point in another way, there is an obvious omission in the 1998 documents of any reference to the Shop’s rental matters (and the management of these matters).

27.  Neither the 1^st nor the 2^nd defendant has put forth a reasoned explanation for the alternative document mentioned in para 26 above.  I have borne this in mind when assessing this part of their testimony.  On the other hand, I observed that they appear to be unsophisticated people, and do not appear to be well versed with complex legal issues.  Also, the 1^st defendant has to use a hearing aid while testifying, and mentioned that he suffered a stroke earlier (this is not challenged by the plaintiffs).  These matters are relevant to assessing whether they were perjured witnesses.  I find that they were not.

28.  It was put to the 1^st and 2^nd defendants that it is inherently implausible that any solicitor would prepare the 1998 documents for execution if he/she had been instructed in the manner which the defence contended (para 10(d) above).  I do not agree with the alleged implausibility; for example, there may be taxation implications for the siblings who were residing in Canada (if they had remained as the registered co-owners).

29.  The plaintiffs also contend that the assignments were “fictitious” in that the prices mentioned therein were not paid (and were never intended to be paid).  First, they were documents executed by close members of the Chan family, and were (according to the defence) not outright sales.  Secondly, insofar as it is contended that such an arrangement is inherently implausible, I note that there were decisions to the effect deeds of gift could constitute a “blot” on title (because it is often unknown if the donor was solvent at the time of gift).  Some conveyancing solicitors may prefer their clients to execute a “nominal” assignment (that is, one without actual payment) to overcome such potential title problem.

30.  In finding that the part of the defence case regarding the 1998 documents is credible, I also bear in mind the matters set out in para 14, 17 and 19 above.

31.  Similar considerations also apply to the 2004 assignment.  Further to what has been said above, the younger sister admitted during cross-examination she had also paid part of the property tax for the Shop since 2004 (see para 21(2) above).  This fact supports the defence case that the 2004 assignment was executed effectively as a tax planning measure. When challenged about this during cross-examination, the other sister was in fact able to explain quite sensibly how this could save tax (by lowering the tax bracket of each of the signatories to the 2004 assignment).

32.  Finally, the defence was criticized for not being able to explain why the sum of $6,750 (and later $7,500) was “deducted” per month from the amount actually paid to the late mother.

33.  While it is true no logical explanation has been proffered, one must bear in mind the background leading to this.  Various building orders have been registered against the land on which (and the superstructure in which) the Shop is located.  Until the problems relating to the building orders have been discussed and resolved by all the co-owners of the land (and the superstructure), there is no known way of ascertaining the amount involved in any remedial measure.  The sums deducted was about 20% of the rental income.  There is no evidence that:

(a)  the late mother has been in any way deprived of a sufficient income;

(b)  the “deducted” sums have been improperly used.

(It is noted here there is no complaint that the defendants’ discovery of documents was incomplete.)  In these circumstances, I do not find the “deductions” to materially affect the credibility of the defence case, or to constitute a breach of the defendants’ duties (at the very least, it does not constitute a substantial breach of their duties).

34.  Finally, the plaintiffs advance two further arguments:

(a)  an adverse inference should be drawn against the defence for failing to call the solicitors who prepared, or witnessed, the 1998 documents: Tullett & Tokyo International Securities Ltd v APC Securities Co Ltd [2001] 2 HKLRD 356, 365; Paul Matthews & Hodge M Malek QC: Disclosure (5^th Ed), para 17.38;

(b)  courts should act cautiously regarding claims made against deceased persons: Hong Kong Hua Qiao Co Ltd v Cham Ka Tai, HCA 2619/2005 (30 July 2013), para 33; Phipson on Evidence (2018) 19^th Ed, para 14-11.

35.  The defence counter argues that any adverse inference should be drawn against the plaintiffs instead.  This is because of the (rebuttable) evidential presumption (of fact) to the effect:

“[on] the proof that … [an] official act has been performed, it is presumed that the act has been regularly and properly performed.” (Phipson, para 6-30)

36.  The above presumption has been mentioned, in the context of a will prepared by solicitors, by the court of appeal in Choy Po Chun and Another v Au Wing Lun [2018] 2 HKLRD 864 (the will concerned was set aside on the facts of the case).

37.  In relation to the 1998 documents (and the 2004 assignment), the documents were undisputedly prepared by, and signed in front of, a solicitor.  There is (among other things) an interpretation clause which is regular on its face.  I have rejected the younger sister’s testimony to the effect she was asked to sign them without explanation or interpretation (para 13 to 21 above).

38.  In view of the above, if it was necessary to rely on the above presumption (which places the burden of proving irregularities on the plaintiffs), I would have found that the presumption is applicable, with the result that any omission to call rebuttal witnesses was the plaintiffs’ omission.

39.  As regards para 34(b) above, I note that this action was commenced a few years before the late mother passed away (in September 2015).  The original pleadings and the original witness statements of the 1^st and 2^nd defendants were filed before her death.  This is therefore not quite a claim made against a deceased person.

(c)   Findings of fact

40.  In the light of the conclusions reached relating to witnesses’ credibility, I find that the plaintiffs have failed to prove the facts summarized in para 9 above whereas the defence has proven those summarized in para 10 above.

41.  Further, there is no evidential basis to support the plaintiffs’ allegation that the defence might not have accounted for the rents received.

CONCLUSION

42.  Consequent to the findings of fact made above, none of the causes of action pleaded by the plaintiffs have been established.

43.  The plaintiffs’ claims are therefore dismissed.

OTHER MATTERS

44.  The plaintiffs expressly abandon their complaint that the defence has not obtained the prevailing market rents for the Shop.

45.  The defendants indicate in their closing submissions they are ready and willing to hand over the portion of the Shop’s rents (after deducting the necessary sum(s)) due to the late mother’s estate to the personal representatives (one of whom is the younger sister).

46.  The parties are thus to attempt to reach agreement on this matter within 28 days, failing which, they are at liberty to lodge with court and serve written submissions related thereto within 14 days thereafter.  Any such dispute will be deposed of without further hearing.

47.  The parties’ written submissions also mentioned various other points.  These have not been expressly set out or dealt with above.  This is so only because of the need to balance between the length of the judgment and its easier comprehension.  It does not mean those other points are thought to be irrelevant (or have been overlooked).  To avoid doubt, those other points have also been considered.

COSTS ORDER NISI

48.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this action (including any reserved costs) be paid by the plaintiffs to the defendants to be taxed if not agreed.