CHAN TSUN MING v. CHAN LUK MING, the Executor of the Estate of Chan Yat Fu

HCA 3316/2016

[2022] HKCFI 602

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 3316 OF 2016

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J U D G M E N T

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Background

1.  The Plaintiff (“P”) and Defendant (“D”) are brothers among five siblings.  Their father died on 25 February 2014 at age 89, leaving a will under which D is the sole executor and the estate is devised in equal shares to P, D, their two sisters, and their mother.  The eldest brother of the five siblings is not a beneficiary.

2.  D was granted probate on 22 August 2014.

3.  The largest asset in the estate is a flat of about 900 square feet indoor plus 301 square feet outdoor (the “Flat”).  The Flat was where the father and the mother lived and where the siblings had grown up.

4.  D had moved back into the Flat in 2012 with his family to take care of the ailing father and mother.  In his pleadings and witness statement, P made a point alleging D was not really a caring son.  In the end, however, this matter did not feature in the trial.  D was not challenged about what he said; the sister whom he called as a witness to attest to the matter was not cross examined at all.

5.  The Flat was part of some civil servants cooperative housing scheme such that the terms of the assignment prohibit its sale and/or rental without additional land premium first being paid.

6.  The estate had some cash (the “Cash”).  The evidence shows that the Cash comprises around $508,000 kept by one of the two sisters and around $97,000 which D had transferred to the mother at mother’s request.  P does not seriously dispute these matters and has no basis to do so – other than the deep animosity and distrust which he purports to have towards D.

7.  The mother died on 30 January 2015 at age 88 leaving a will, now being contested, under which a nephew is the sole executor and her one-fifth interest in the Flat is devised to the eldest son, i.e., the sibling who is not a beneficiary under the father’s will.

8.  The text messages which the parties have put into evidence show long and continuous bickering amongst some of the siblings since at least the mother’s death.  It is sad reading.  I shall not recite the details.

9.  In these proceedings, the two sisters support D.  One of them is a witness for D; the other has written a long letter to P admonishing his actions and this lawsuit.  The mother’s will is being contested.  No one has come forward to purport to speak for her estate.

10.  P makes essentially four claims against D.  I will address them in turn.

Failure to Sell

11.  By far the largest claim in potential monetary value is a claim that D has failed to take reasonable steps to sell the Flat.

12.  There is no merit in this claim.  The evidence well shows that D has taken many steps to try to sell the Flat.  If anything, P has been the person who is frustrating D’s efforts.

13.  For example:

(1)  On 10 October 2014, less than 2 months after probated was granted, D applied to the Lands Department (“LD”) for assessment of additional land premium payable on the Flat.

(2)  On 2 January 2015, LD assessed the premium payable to be $3,890,000 plus an administrative fee of $32,300.

(3)  On 15 January 2015, D appointed a real estate agency to put the Flat on the market for sale at an asking price of $12,000,000.

(4)  On 20 July 2015, D appointed a second agency to put the Flat on the market for sale at the same price.

(5)  On 15 December 2016, P commenced this action.  His Statement of Claim stated that he believed the market value of the Flat to be $12,000,000.

(6)  On 26 December 2016, D renewed the appointment of the two agencies to put the Flat on the market for sale at a lower price of $10,000,000.

(7)  On 28 December 2016, D applied to LD for an updated assessment.

(8)  On 7 January 2017, D appointed a third agency to put the Flat on the market for sale at $11,000,000.

(9)  On 8 February 2017, D as executor applied to the Civil Service Bureau (“CSB”) for a waiver for entering into any agreement to sell the Flat.

(10)  On 30 March 2017, CSB granted a temporary waiver to D to enter into any agreement to sell the Flat, subject to certain conditions.

(11)  On 4 April 2021, D signed the form acknowledging the conditions.

(12)  On or around 5 April 2017, D received through the first agency an offer for the Flat at $8,750,000.  The agency requested a response within 3 days.  D text messaged P and their sisters.  The sisters quickly replied to consent to the sale.  P replied that he has entrusted his solicitors to handle.  D urged for speedy handling.  One or both of the sisters added that P’s approach would only delay the sale and the buyer would be gone.

(13)  On 11 April 2017, P registered the Writ in this action at the Lands Registry against the Flat.

(14)  On 12 April 2017, P’s solicitors replied that P believed the market value of the Flat should be $9,200,000.

(15)  P instructed a firm of surveyors and appraisers to value the Flat.  The valuation report dated 27 April 2017 put the market value at $8,700,000.

(16)  On 5 June 2017, LD assessed the premium payable to be $4,320,000 plus an administrative fee of $42,700.

(17)  On 25 August 2017, D applied to the LD for an updated assessment of premium.

(18)  On or around 12 November 2017, D received through an agency another offer for the Flat at $10,000,000.  He sought P’s and their sisters’ consent, by text messages, by emails, and by solicitors’ letter to P’s solicitors.  P’s solicitors asked for “detailed proposal”.  D’s solicitors replied. Correspondence ensued.  D then emailed P to express frustration and told P that he could contact the real estate agent if he really wanted to know more about the buyer.  D even expressly warned that P would have to be responsible if this opportunity was lost.

(19)  On 15 November 2017, D applied again for a temporary waiver for entering into any agreement to sell the Flat.

(20)  On 20 November 2017, P’s solicitors wrote to D’s to give P’s consent for a sale at $10,000,000 for a limited time of 6 weeks.  Further correspondence ensued.  On 21 November 2017, P’s solicitors wrote to D’s to say that P would consent to vacating his registration of the Writ “when the sale is substantiated”.  But by then, the buyer had backed away, apparently because of he was uncomfortable entering into an agreement with the Writ only to be vacated afterwards.

(21)  On 27 December 2017, D renewed the appointment of the first real estate agency to put the Flat on the market for sale at an asking price of $10,300,000.

(22)  On 16 March 2018, D obtained an Order from Master K.W. Wong to vacate P’s registration of the Writ.  The Master’s Order indicated P filed affidavit evidence and attended by Counsel and the Order was not by consent.

(23)  On 27 March 2018, D signed a letter of intent to consent to a plan for a joint sale (hopefully by all the owners of flats in the relevant buildings to a developer).

(24)  On 12 July 2018, D signed a letter of intent to appoint a firm of surveyors as agent for the joint sale.

(25)  On 20 July 2018, P’s solicitors wrote to D’s to, amongst other matters, expressly revoke the previous consent for the Flat to be sold at $10,000,000.

(26)  On 6 January 2019, D signed a letter of intent to consent to a proposed joint sale.  The sisters had indicated their consent to D; P had too, but also requested D to send all documents to P’s solicitors.

(27)  On 13 February 2019, a person left a note to D stating an interest to buy the Flat.    D’s solicitors in recent inter partes correspondence said D did reach agreement with that person to sell the Flat at $13,800,000 on condition that the other person was able to sell his flat to raise the money, and that person was unable to do so.

(28)  On 29 March 2019, LD assessed the premium payable to be $6,100,000 plus an administrative fee of $56,450.

(29)  On 28 October 2019, D paid $3,000 in legal fees for the drafting of some documents in relation to the proposed joint sale.

(30)  On 5 December 2019, the agent for the proposed joint sale informed all the owners that the interested buyer had suspended the project.  (I note that the ensuing text messages amongst some owners seem to suggest that D was amongst a working group of owners following the proposed joint sale.  If so, this further shows D was all along actively seeking to sell the Flat for the estate.  But this particular point was not canvassed during trial thus I will not place any reliance on it.)

(31)  Between September and December 2020, D listed on 2 online real estate platforms and appointed 8 agencies to put the Flat on the market for $14.5 million.

(32)  On 24 December 2020, D applied yet again to CSB for a temporary waiver for entering into any agreement to sell the Flat.

(33)  On 2 February 2021, D signed a letter of intent to agree to a second plan for a joint sale.

(34)  On 3 February 2021, CSB granted a temporary waiver to D to enter into any agreement to sell the Flat, subject to certain conditions.

(35)  On 8 February 2021, D signed the form agreeing to the conditions.

(36)  On 9 April 2021, the agent for the proposed joint sale informed all owners that potential buyers were hesitant because, amongst other reasons, the asking price was too high.

14.  The above well show that D all along actively and diligently tried to sell the Flat.  Indeed, he at least twice found buyers.  Under cross examination P said there were even more than two such occasions.  Such other occasions, however, were not canvassed in the evidence.

15.  Some might imagine that a flat in an urban part of Hong Kong should be easy to sell.  But the Flat in this case has special characteristics.  It is subject to stringent restrictions on alienation.  Even CSB’s temporary waivers are subject to conditions and involve some uncertainty.

16.  Moreover, the Flat is old and (as the photos in evidence show) in a dilapidated state.  Yet the siblings, including in particular P, wanted a high price.  Given the recent conditions of the real estate market, it is well understandable that the Flat is not easy to sell.

17.  Indeed, as seen in the two occasions when D found buyers, if anyone is to be blamed for the Flat not being sold, it should be P himself.  It lies ill in P’s mouth to allege that D has failed in his duty.

18.  P in his oral testimony and P’s Counsel when cross examining D argued that D could have simply sold without P’s agreement.  This may be a clever point but is entirely unrealistic and indeed disingenuous.  Given P’s animosity – even having retained solicitors and speaking through them to demand a higher price – it is understandable and reasonable that D would not sell without P’s agreement.

19.  P’s Counsel also challenged D during cross examination that D’s agreements with real estate agents to put the Flat on the market for sale is not any evidence of genuine efforts, because he could and did cancel the authorizations. The point is not pleaded (when, as asserting a positive case, it should have been pleaded).  Further, it is fanciful, without proper basis, and contradicted by evidence that the agents did find potential buyers and D did try to obtain his siblings’ including P’s agreement to sell.

Failure to Rent

20.  The second largest of P’s claims is that D has failed to rent the Flat out to generate rental income.

21.  There is equally no merit in this claim.  It is obvious all along that the Flat could not be rented out without additional land premium being paid. The premium would be in excess of several million dollars; the estate had at most about half a million.  Renting out was not only economically questionable; it simply could not be implemented.

22.  Indeed, in all the bickering amongst the siblings, no one, and certainly not P, ever suggested putting the Flat on the rental market.

Mesne Profits

23.  As an alternative to the claim for loss of rent, P contends that D should pay mesne profits for staying in the Flat after the father’s death up to the present time.  P claims 20% thereof for himself as one of the five equal beneficiaries of the estate.

24.  D and his family have stayed in the Flat with his mother after the father’s death in February 2014, and have stayed there by themselves after the mother’s death in January 2015 up to the present.

25.  D’s defence is that he is staying in the Flat as a beneficiary.

26.  D’s evidence is that he and his family only occupy one of three bedrooms in the Flat.  This was not contradicted.  (It appears that “family” actually refers to his wife, and not any children.  But this was not canvassed at trial.)

27.  D’s evidence is also that all the beneficiaries have the keys to the Flat and could use the Flat.  This accords with what he wrote in the text messages in documentary evidence.  P under cross examination disagreed that he had kept the keys to the Flat.  But he did not say he never have keys to the Flat.  He also did not contradict that the other beneficiaries had keys, that all the beneficiaries could use the Flat, and that D had told them they could use the Flat.

28.  As I told Counsel for both sides at the end of evidence, I find the matter of mesne profit somewhat difficult.

29.  On my mind are the issues as follows.

(1)  A beneficiary has no right to take possession or use the assets of the estate.

(2)  Insofar as D has any right to use the Flat, it would have to be derived from his acting as executor of the estate and authorizing all beneficiaries to use the Flat.

(3)  But such an authorization would be self-dealing, which would be a breach of fiduciary duty, absent disclosure and consent.  Disclosure was made, since his use of the Flat was well known to all.  Consent was impossible – since P would dissent.

(4)  However, P has never even pleaded the duty of no self-dealing, still less any case that D breached his fiduciary duty by self-dealing, viz., in authorizing himself to stay in the Flat.  P’s pleaded case is that D should pay mesne profit, which, by definition, is payable in law only if D is an unauthorized user.

(5)  Even if D is to pay mesne profit, there is no meaningful or reliable evidence on how much.

(6)  P says in his Statement of Claim in 2016 and Amended Statement of Claim in 2019 that the rental value of the Flat should be $25,000 per month.  He also says in his Witness Statement filed in 2018 and adopted at trial in 2021 that the rental value should be $20,000 per month.  The figures are inconsistent.  P does not explain from where he obtained or derived the figures.  In any event, the figures are said to be of the rental value of the Flat.  This is conceptually different from value of the benefit accrued to D, which would usually the rental expenses saved by not having to rent other accommodation.

(7)  There may be two further complicating factors. First, D and his family use one of three bedrooms. Especially if and since others could use the Flat, D cannot be said to have occupied the whole Flat.

(8)  Second, D staying in the Flat is in reality likely positive for the maintenance of the Flat and for efforts to sell the Flat.  The Flat is very old.  Left empty, its upkeep would likely become more burdensome and expensive, and it less attractive to potential buyers viewing it.

(9)  The matters in (8) above may not have been covered in the evidence. However common sensical I may regard them to be, I am reluctant to simply take judicial notice of them.

(10)  In any event, it is questionable whether P can make any personal claim, allegedly for 20% of the mesne profits which, if payable, D should pay to the estate.

30.  Counsel on both sides did their best to assist in their closing submissions, for which I am grateful.  In particular, the legal research and expositions of P’s counsel Ms Isabel Tam should be complimented.

31.  With Counsel’s assistance, I see some answers to the issues in paragraph 23 above.

(1)  Subparagraphs 26(1)-(3) above are indeed correct.

(2)  It may not be entirely fair to hold the pleading point in subparagraph 26(4) against P.  After all, D also has not expressly pleaded self-authorization qua executor.

(3)  The lack of evidence noted in subparagraphs 26(5)-(6) may be due to what P seeks as relief: “An enquiry and/ or account of the outstanding rental income of the [Flat] or mesne profits”.  In other words, P may not have seen a need to put in relevant evidence.

(4)  The complicating factor in subparagraph 26(7) may be naturally taken into account because of the last point in subparagraph 26(7) above.  Any mesne profit would be assessed by reference to what rental expenses D would have incurred had he and his family needed to rent other accommodation, which would have been a smaller flat.

(5)  It is indeed difficult to try in these proceedings to take into account the matters noted in subparagraphs 26(8)-(9) above and possibly other similar matters.

32.  After some reflection, I have decided to rule against P’s claim for mesne profit.

(1)  There is no meaningful or reliable evidence on what the mesne profits should be.

(2)  P bears the burden of proof.

(3)  It is not right to defer the matter by seeking the relief of an account or enquiry.  There is no reason why P could not have adduced appropriate evidence, so that matters can be dealt with together in a sensible manner.

(4)  Ordering an account or enquiry would only prolong the litigation and be rather disproportional to the amount at issue as well as to the size of the overall estate.

(5)  In this regard, it is worth noting that, even if there was to be mense profit, the assessment would be on the basis as explained in subparagraph 31(4) above.

33.  P’s Counsel points out that D’s self-authorization, even if part of an authorization to all siblings, is still self-dealing.  This is a good point. But it is made too late in these proceedings.

(1)  P’s pleaded case on his loss is that he “has suffered loss and damages as [D] is liable to account and pay to [P] 20% of the Estate …including 20% of: … (iii) the rental income which the Property could otherwise earn … or the mesne profit of the Property based on the market value of the Property …”  As I have explained above, the claim for loss of “rental income which the Property could otherwise earn” has no merit, while the claim for mesne profit is not substantiated.  P has not pleaded any other loss arising from any breach by D of his fiduciary duty.

(2)  I note P’s fifth prayer for relief is for “Damages and/or equitable compensation”.  But this is a prayer, and not part of P’s pleaded case.

(3)  Even in P’s Counsel’s opening submissions, references to conflict are made in the context of allegations that D has failed to sell the Property and failed to distribute the estate.  It is not made as the basis of a claim for damages for breach of fiduciary duty.

34.  Even if P had made any claim for damages for D’s breach of fiduciary duty, it would be doubtful whether there is any material amount to be awarded. For the same reasons as I have explained above in relation to mense profit, the amount should be quite small.

35.  Moreover, D could well have applied under s60 of the Trustee Ordinance (Cap. 29) for his breach to be forgiven.  The issue was not raised in these proceedings.  In the circumstances which I am able to see, I would have been open to arguments that D has acted honestly and reasonable, and ought fairly to be excused.

(1)  The Property has always been the Chan family home.

(2)  D moved back to live there to take care of his (and P’s) ailing parents.  The evidence clearly show that D was a good son and made laudable efforts, if not also a degree of sacrifice.

(3)  D has not taken any steps to claim the Property as his, or to exclude his siblings from it.  The evidence is quite the contrary.  He actively sought to sell it, even though that would mean he would have to move out.

(4)  Indeed, it would be difficult for D to attend to potential buyers if he did not live in the Property.  In any event, his living there helps with the upkeep of the place.

(5)  The two sisters, being the only other siblings who have expressed views, both apparently consent to D living in the Property.

(6)  D would have stayed in the Property for a short period only, had P himself not caused difficulties to its sale.

36.  In short, I find against P’s claim for mense profit and (belated) claim for damages for breach of duty.

Failure to Distribute the Cash

37.  The last of P’s claims is that D has failed to distribute the Cash.

38.  In the normal course of events, not distributing half a million in cash for 7 years (up to the time of the trial) is suspicious.  This is perhaps especially when, on D’s own evidence, most of the cash is kept exclusively by one of the sisters, who support him in this action.

39.  D’s case is that he has had to keep the Cash for various uses including to purchase a columbarium for the late father, to potentially settle prospective claims from the estranged eldest sibling, to pay management fees and rates for the Property,and to pay administrative charges by the LD in the event of a successful sale but before completion.

40.  D also probably has had to keep the Cash in light of P’s quick animosity and likely legal action against him.  But for some reason, perhaps to avoid appearing as self-interested, D has not pleaded so nor mentioned it in his witness statement.  Thus I will not place any reliance on this matter.

41.  P does not really dispute that at least some of items which D claims to have to keep money for are reasonable.  P’s Counsel’s argument is more that D’s case cannot justify distributing nothing.  But this takes the analysis into the realm of judgment – about whether the remaining amount should be distributed immediately, or kept until a final tally.

42.  Ultimately, one must bear in mind that the largest asset in the estate if the Property.  It has a net value – after payment of land premium – of around $8 million.  Yet, for all the reasons already discussed, it is not an easy task to realize the Property to achieve this value.  Certain expenses such as management fees and rates may be incurred for some time to come.  There may also well be other unanticipated expenditures.

43.  On the other hand, the Cash is only around $500,000.  After keeping some for necessary expenses, then divided five ways, each sibling would stand to receive a relatively small amount.  Indeed, this may be why none of the other siblings have complained about non-distribution.  P is the only beneficiary to have complained, and his complaint is evidently driven by a personal animosity towards D.

44.  In the circumstances, I cannot say that D’s not distributing the Cash or part thereof, to date, is a clear failure of his duty as executor.  On the contrary, there appear to be some justifications.  Taking all matters into account, I do not find for P’s claim.

Counterclaim of Defamation

45.  I next turn to D’s counterclaim.  In January and February 2016, someone sent two letters to the chairman and members of the management committee of the incorporated owners of the buildings where the Property is situated.  The letters alleged that D and his wife to have taken the assets of D’s parents for themselves and called them names.

46.  P does not seriously dispute that the contents of the letters are defamatory.  His case is rather that, firstly, he did not send the letters and, secondly, the contents consisted of true facts and honest opinions.

47.  For the same reasons which P’s claims fail, the defence of true facts and honest opinions must also fail.

48.  The real difficulty for D’s counterclaim is proving P sent the letters. The letters were written in the name of the P and the eldest brother but unsigned and cannot be traced.  They gave the full Chinese names and also the mobile numbers of both P and the eldest brother.

49.  Given the contents and the fact that the sender(s) knew to send to the chairman and members of the incorporated owners, it would be safe to infer that the sender(s) must be one or more of the siblings.  The sisters have no dispute with D.  That leaves P and the eldest brother.

50.  It is, however, impossible to tell from the very little available evidence whether it was P or the eldest brother or both who sent the letters. Neither P nor D has confronted the eldest brother.  D does not suggest, and have not referred to any basis to suggest, that the eldest brother could not have written or sent the letters, e.g., because he did not know the identities of the chairman and members.

51.  It may be argued that P is the one who has demonstrated any or the most animosity towards D, and that he stands to gain more directly than the eldest brother (who is at most an indirectly beneficiary through the disputed will of the late mother), so he is more likely to be the person who sent the letters. There is some logic to this thinking.  But it does not suffice as proof, especially for a serious accusation.

52.  In the circumstances, there is simply not enough to find, and I decline to find, P liable for the letters and their defamatory contents.

Conclusion and Costs

53.  For the reasons which I have given, I dismiss all of P’s claims and also D’s counterclaim.

54.  As I have mentioned earlier, the communications between the brothers and the inter partes correspondence between their solicitors make sad reading.  This litigation was entirely unnecessary and unwarranted.

55.  At the end of trial, I suggested to Counsel on both sides that I would withhold handing down judgment, in the hope that the brothers may find a way to avoid a public record of their dispute.  Alas, that has not been achieved. Hence this judgment, and the necessary consideration of costs.

56.  It takes more than audacity for P to accuse D of failing to sell the Property when it was in fact he himself who has been obstructive.  It is also extraordinary how P accused D to have been a bad son who mistreated their late mother, only to abandon all such accusations at trial.

57.  Perhaps P’s attitude in court may explain this action.  He was argumentative, quick to point fingers, and more interested in his perceived rights than maintaining any relations with his siblings.

58.  It is too late to tell if his action has caused further rift within the family.  It has certainly caused significant expenses to the estate and D as the executor of the estate.  As the figures show, the estate is worth around $8 million.  Divided five ways, each beneficiary’s share is only around $1.5 million.  That probably already exceeds the legal costs in this action.

59.  I note that D has failed in his counterclaim.  But this does not mean he was unreasonable in suing P, especially in reaction to P’s action.  The letters were very much defamatory.  They were sent either by P or the eldest brother or both; some might even think it was more likely P.  Unlike P’s claims, D’s counterclaim failed not because he had no case.

60.  In the circumstances, I make an order nisi that P shall pay D’s costs for the action, with the costs for the trial be assessed on an indemnity basis, to be taxed if not agreed.

61.  I thank Counsel on both sides for their assistance.