WAH YING CHEONG CO LTD v. CHAN KWOK PING AND OTHERS

HCMP 3059/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3059 OF 1997

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D E C I S I O N

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1. This case has a long history and although the Originating Summons was issued in 1997, the matter has yet to reach its final stage. For present purposes, it would be sufficient for me to start with the order made by Rogers J (as he then was) in these proceedings on 19 November 1997. By that order, the property held by the Plaintiff was to be sold and it was sold in March 1999. Paragraphs 2 and 3 of the order are important,

"2. A declaration that the following persons are beneficially entitled to the Property and the proceeds of sale thereof in the shares or proportions indicated as follows, namely:-

(1)	the Company or alternatively such other person(s) as identified by this Court to be so entitled, as to 160/265th shares;
(2)	the estate of Chan Leung Sing (the 2nd Defendant herein), as to 5/265th shares;
(3)	the estate of one Chan Yee King, as to 45/265th shares (the 3rd Defendant herein); and
(4)	the estate of one Chan Hok Hin, as to 55/265th shares (the 4th Defendant herein).

3.	(1)	The Company may be at liberty to distribute the sale proceeds of the Property, net of all costs and expenses, to the persons who are entitled under the respective estates of Chan Leung Sing, Chan Yee Kin and Chan Hok Hin in the shares or proportions under paragraph 2 above; and
	(2)	Following the said distribution the Company is discharged from any further liabilities in respect of the Property or its sale proceeds."

2. After the sale, the Plaintiff took out a summons on 13 August 1999 seeking directions pertaining to the distribution of the sale proceeds and some specified credit balances in the accounts of the Company. The summons first came before Le Pichon J (as she then was) on 3 September 1999. At that hearing Her Ladyship raised some queries and no direction was given. One of the concerns raised by Le Pichon J was that female descendants could have an interest in the estates and their exclusion from distribution might not be justified. The summons was adjourned sine die with liberty to restore.

3. There was then a long period of inaction in terms of these applications. The matter was restored on 11 April 2002. Representation orders were made by Chu J at that hearing.

4. Then the matter came before me on 28 February 2003. The parties invited the court to focus on the distribution to the three estates, viz. the 2nd to 4th Defendants. From the material before me, I gathered that there were disagreements between the Plaintiff and the Defendants (in particular the 3rd Defendant) as to who were entitled to receive the money in the estates which constituted the 2nd, 3rd and 4th Defendants. It remains an issue whether female descendants of the estates could have any entitlement to distribution. There is no dispute that the Plaintiff is holding the proceeds as trustee, at least in respect of the entitlement as declared under paragraph 2 of the order of Rogers J. There is apparently a disagreement as to who would be entitled to share in the respective estates. I raised three questions for parties' consideration,

(a)	who are the beneficiaries under the trust in which the Plaintiff is the trustee --- the respective estates or the descendants who have an interest in the estates;
(b)	if the estates were the beneficiaries, why should the Plaintiff be concerned about the distribution amongst those interested in the estate. Would it not be sufficient, as far as the Plaintiff is concerned, that an authorized person is appointed in respect of each estate, perhaps by the court, to collect the share of each estate? Upon payment to such a person, the Plaintiff's duty as trustee should be discharged. The further distribution amongst the descendants who have an interest in each estate would be the duty of the appointed representative instead of the Plaintiff;
(c)	if the descendants (instead of the estates) were the beneficiaries, whether the proceedings were properly constituted without naming those descendants as parties.

5. The matter was adjourned. Parties came back before me on 2 April 2003. I was told by counsel for the Plaintiff on that occasion that the estates were the beneficiaries. She however referred to Paragraph 3 of the order of Rogers J and submitted that by reason of that, the Plaintiff had to ascertain who were entitled under the respective estates and made distribution to such persons instead of an authorized representative for each estate.

6. Mindful of the costs implications if the Plaintiff were to be involved in a dispute concerning the ultimate distribution amongst the descendants (as opposed to a simple distribution to the three estates in the proportion set out in Paragraph 2 of the order of Rogers J), I asked the parties if there was any reason why the shares of the proceeds of sale and credit balances belonged to the estates could not be paid into court awaiting proper representative appointed for the respective estate to collect the same. This could apparently save the Plaintiff from incurring further costs on disputes about further distribution amongst the descendants of each estate and the Plaintiff would be discharged from its duty as trustee towards these estates. Counsel for the 2nd and 4th Defendants as well as counsel for the 3rd Defendant were agreeable to such proposal. Counsel for the Plaintiff indicated that she was unable to get instructions from the Plaintiff on the proposal since some directors could not be contacted. The matter was therefore adjourned again.

7. When the matter was restored on 31 July 2003, Mr Fung SC (who did not appear for the Plaintiff on the two previous hearings) told the court the directors of the Plaintiff considered that they should not pay the money into court and wash their hands on the matter. They considered that they had a sense of mission to follow the matter through. I was told that the sale proceeds were safely kept in a stakeholder account held by the solicitors for the Plaintiff.

8. In substance, Mr Fung contended that the Plaintiff should be allowed to assume the role of a personal representative administering the interest of the respective estates in the sale proceeds and the credit balances. In paragraph 5 of his skeleton argument, he said,

"Past history and practice show that [the Plaintiff] has been assuming a very special and dual role in the administration of the trust property for Chan Leung Sing, Chan Hok Kin and Chan Yee Kin (which is peculiar to this "Chan" clan and this Company). It has been assuming the respective offices and duties of the "personal representative" and the "trustee" (though these offices are not mutually exclusive in law). The [Plaintiff] has been charged with the continuous administration of the trust property for the beneficiaries (which is the general task of a trustee); whereas it was also collecting the assets of the estates, and discharging taxes, debts and expenses (which is the general task of a personal representative)."

9. I have read the material contained in the hearing bundles and I am fully aware of the difficulties in terms of tracing the descendants interested in the respective estates and the probably long time lapses since the demises of these gentlemen. I also note what was said in respect of how the Plaintiff had operated in the past concerning the affairs of the deceased. However, I do not think these could override the requirements under the general law regarding probate and administration of estates. Nor could it justify a distribution of the assets of the estates in a manner inconsistent with the applicable law concerning succession.

10. Therefore, as a matter of law, I have difficulties with the notion that the Plaintiff could be allowed to take on the role and perform the duties of personal representatives regarding the affairs of the estates of Chan Leung Sing, Chan Hok Kin and Chan Yee Kin without any proper Grants being issued in respect of those estates. I also have doubt whether the Plaintiff's proposed mode of distribution is consistent with the applicable law of succession.

11. Mr Fung attempted to deal with these concerns by arguing that Paragraph 3 of the order of Rogers J authorized the Plaintiff to be involved in the administration of the estates of Chan Leung Sing, Chan Hok Kin and Chan Yee Kin insofar as the distribution of the proceeds of sale and the credit balances are concerned. I am not sure if this was what Rogers J had in mind when the order was made. On the face of it, Paragraph 3 referred to the distribution to the three estates in the shares or proportions specified under Paragraph 2 of the order. It does not refer to the further distribution amongst the descendants who have an interest in the estates. Although there was a reference to "the persons who are entitled under the respective estates", that could be construed as a reference to the persons to be appointed as personal representatives of the respective estates. For reasons given below, I do not propose to decide on the point at this stage but in my judgment, it is an issue which has to be resolved in order to define precisely the role of the Plaintiff in distributing the sale proceeds and the credit balances.

12. Mr Fung further argued that the references to the estates of Chan Leung Sing, Chan Hok Kin and Chan Yee Kin in the title of these proceedings and in the declaration granted under Paragraph 2 of the order of Rogers J did not have the usual meaning of the estate of a deceased person. He submitted that those references were just shorthand expressions connoting all persons beneficially entitled to the interests registered under the name of Chan Leung Sing, Chan Hok Kin and Chan Yee Kin. He submitted that another way to name these parties would be a nomenclature similar to the naming of the 5th and 6th Defendants in these proceedings. That seems to me to be a roundabout way of saying that the beneficiaries of the trust in respect of which the Plaintiff is the trustee are the descendants rather than the estates. This was not the position taken by Ms Chan, counsel appearing for the Plaintiff on 2 April 2003. Mr Chung, counsel for the 2nd and 4th Defendants and Mr Lam, counsel for the 3rd Defendant, informed the court that they were ready to argue the proper construction of Paragraph 2 of the order of Rogers J on 31 July 2003.

13. With respect to Mr Fung, I have much reservation about this argument. The Plaintiff seems to have proceeded on the basis that the estates were the parties instead of being shorthand expressions for a group of persons, see for example the 2nd Affirmation of Yu Shuk Mei and the Affirmation of Lam Tsz Chung. Be that as it may, I do not think I should decide this issue at this stage since I have not heard full submissions from the parties. Further, it may be necessary for the parties to refer back to what happened at the hearing before Rogers J and they may consider obtaining the transcript of that hearing.

14. Mr Fung said these issues could be canvassed at a later stage. He suggested this court to give directions for the advertisement of the proposed mode of distribution first. Hence, he asked for directions in terms of Paragraphs 1 to 3 of the summons of 13 August 1999. He also indicated that the Plaintiff was agreeable to delete the word "male" in the references to the descendants in those paragraphs so that notice would be given to female descendants as well as male descendants.

15. On the other hand, Mr Lam submitted that shares of the proceeds of sale and credit balances belonging to the 2nd to 4th Defendants should be paid into court with an affidavit verifying the same by the Plaintiff. Thereafter, the Plaintiff could be discharged from its duties as trustee towards the estates. He asked for directions for advertisement and notification to all descendants/beneficiaries (both male and female) of the estates inviting them to apply to court for the appointment of judicial trustees for the administration and distribution of these monies.

16. Mr Chung, counsel for the 2nd and 4th Defendants took a neutral stance.

17. I shall first deal with the question of payment into court. Under Section 62 of the Trustee Ordinance Cap.29, a trustee may pay the trust fund into court and the same shall be dealt with according to the orders of the court. But the initiative lies with the trustee. In my judgment, this section does not empower the court to order payment into court against the wishes of the trustee (apart from the situation where there is difference in opinions between several co-trustees, see Section 62(3)). Mr Lam submitted that the court has inherent jurisdiction to intervene in the management and administration of a trust and where expedient, the court may order the trust fund to be paid into court. He cited Halsbury's Laws of Hong Kong, Vol. 26, Paras. 400.032 and 400.405 and also two old English cases Bartlett v Bartlett (1845) 4 Hare 631 and Marryat v Marryat (1854) 23 LJ Ch 876.

18. On the other hand, Mr Fung submitted that the trust funds were safely kept in a stakeholder account held by the Plaintiff's solicitors. Given the Plaintiff's stance as to its duty, the court should not order the funds to be paid into court. He referred to Underhill and Hayton, Law relating to Trusts and Trustees, 16th Edn. p. 903 Article 93. He submitted that the court should only order a trustee to pay the trust fund into court when the court is satisfied that the trust property is in danger. On the facts of the present case, there is no such danger and such order should not be made.

19. In his skeleton submissions, Mr Lam tried to argue that there were instances of misconduct on the part of the Plaintiff in the past. Those allegations were answered by Mr Fung in his Skeleton in Reply. In the context of this interlocutory hearing, Mr Lam accepted that this court is unable to investigate into the details of these allegations. For my part, I am not satisfied that those allegations of misconducts were justified and I say no more about the same in view of the stance of Mr Lam. Since the trust funds are placed in a stakeholder account of a reputable solicitors firm, it is difficult to see how it could be suggested that they are in danger. As I said in the course of arguments, the solicitors firm is well aware that these are trust monies and if they allowed the Plaintiff to apply the same in a manner inconsistent with its trust obligations, the solicitors firm might be liable as constructive trustee.

20. At one stage, I was concerned about whether the costs incurred by the parties would eventually be a burden on the trust fund and if the Plaintiff's involvement on the question of distribution amongst the descendants of each estate unnecessarily increases the costs incurred, whether that would amount to a depletion of the trust fund. I am now satisfied that these could be dealt with by appropriate order as to costs and if necessarily, order for costs to be borne by the Plaintiff. I was told by Mr Fung that the Plaintiff had net asset of about $13 million (excluding the trust fund). Moreover, for reasons given below, I am of the view that the issue as to the proper role of the Plaintiff will have to be sorted out before one embarks on the consideration as to how the money distributed to each estate is to be further distributed to the descendants having interest therein. The costs pertaining to the argument on this issue should be limited.

21. To order a trustee to pay the trust fund into court against the wish of a trustee is a drastic step. In effect, it tantamount to the removal of the trustee. Even if the court does have the jurisdiction to make such an order in situation other than where the trust fund is in danger (as to that I do not find it necessary to decide and prefer to leave the question open), I am of the view that the power should only be exercised sparingly and cautiously. On the facts of this case, I am not satisfied that the reasons put forward by Mr Lam warrant such a drastic step to be taken. Apart from the allegations of misconducts (which I have dealt with), Mr Lam suggested that money paid into court would earn a higher interest rate. I have no evidence to substantiate that and I am not satisfied that this must be the case. In any event, that would not, in my judgment, be a sufficient reason.

22. Mr Lam further submitted that because the 3rd Defendant, a beneficiary, wished the money to be paid into court, the court should make such an order. I have no hesitation in rejecting this as a valid proposition of law. I do not regard Bartlett v Bartlett as authority for such a proposition. The judgment reported did not contain any reasoning for the decision. From the arguments of the counsel as set out in the report, the trustee in that case did not appear to dispute the payment into court. He only argued that it would be sufficient to pay into court the sum to which the plaintiffs were absolutely entitled. Insofar as the learned judge in Marryat v Marryat regarded Bartlett v Bartlett as laying down such a proposition, I respectfully disagree.

23. Mr Lam also raised concern about the costs implication. I have dealt with the same earlier.

24. I am not persuaded that it is appropriate to exercise my discretion (assuming but without deciding that such discretion exists even if the trust fund is not in danger) to order that the trust fund be paid into court in the circumstances of the present case.

25. I turn to the relief sought by Mr Fung in terms of Paragraphs 1 to 3 of the summons of 13 August 1999. The purpose of those paragraphs is to notify all those who might have an interest in the three estates about the intention of the Plaintiff to distribute the sale proceeds and credit balances in the manner set out in a chart. The proposed distribution was to distribute the trust funds to the male descendants identified in the chart. According to another chart prepared by those instructing Mr Lam, about 20 odd female descendants were excluded from the chart of the Plaintiff.

26. In my view, the issues identified in Paragraphs 8 to 12 above are fundamental issues in this case. They should be resolved before one starts to embark on any step towards distribution. On one view of the matter, assuming that this court were to conclude after hearing full arguments that the estates were the beneficiaries and the general law as to administration of estates is applicable, it is questionable whether this court could authorize any distribution to the descendants interested in the estates without any grant of probate or letters of administration for these estates. Subject to submissions from the parties, I am doubtful whether this hurdle could be overcome by an order made under Order 15 rule 6A. I am not aware of any authority suggesting that one can resort to Order 15 rule 6A to avoid the requirements under the general law as to administration of estates. If that were the correct analysis (and at this stage I express no conclusion as to whether it is correct), even if persons were to be appointed to represent the respective estate in collecting the share of the trust fund from the Plaintiff, such person could not distribute the same to the descendants without any application for grant of probate or letters of administration. There may also be implications as to liability for estate duty.

27. Further, I also have doubts about whether the proposed mode of distribution put forward by the Plaintiff is in accordance with the applicable law of succession.

28. In view of these, it may be futile to give notices to the descendants about the Plaintiff's proposed mode of distribution. Whilst I agree with Mr Fung that the Plaintiff seems to be in the best position to set the ball rolling in terms of giving notice to the descendants, I think such notice should only be given after the fundamental issues identified above have been resolved. Only then can one tell whether distribution could be authorized by an order made in these proceedings, who should be responsible for the distribution and on what principle could distribution be made to the descendants.

29. I consider that the representation orders made by Chu J are wide enough to cover arguments on these fundamental issues. Since the three estates are legally represented, I do not think there is any need to give notice to the descendants about the hearing in respect of these issues.

30. In the circumstances, I decline to make any order in terms of the summons of 13 August 1999 at this stage. Instead, I intend to fix a hearing in consultation with counsel's diaries for argument as to the issues set out in Paragraphs 8 to 12 above. The legal representatives of the parties should liaise with each other and submit a set of proposed directions within 10 days for such hearing. The directions should include estimated length of the hearing, directions for filing of evidence, bundle and skeleton submissions. If parties could not reach agreement within 10 days as to the proposed directions, the court will fix a 9:30 appointment for directions.

31. I propose to reserve the question of costs until the resolution of the fundamental issues.