LAU KOON YING MATTHEW as the Executor of the estate of LAU YIU WING, deceased (“the Deceased”) v. LAU TARK WING AND ANOTHER

HCAP 23/2013
HCA 2305/2012
HCA 2306/2012
[2019] HKCFI 995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO 23 OF 2013

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2305 OF 2012

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2306 OF 2012

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(Consolidated by Order of Master K. Lo dated the 9^th September 2013)
(De-consolidated by Order of Registrar K. W. Lung dated the 24^th day of February 2016)
(Heard together)

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TAKING OF ACCOUNT

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INTRODUCTION

1.  This is a family dispute, essentially between a nephew (“Matthew”) and his uncle (“Tark Wing”). The former is a qualified lawyer, and the latter, a chartered accountant.

2.  Briefly, in the capacity of as the executor of the estate of his father (the “Father”), Matthew commenced one probate action and two High Court actions against Tark Wing and two of his companies (“Caba” and “Wing Hing”).  In the probate action, Matthew also sued his grandmother (the “Grandmother”).  After her passing away, the matter was taken up by Tark Wing as executor for her estate. 

3.  Matthew made a number of claims in the 3 actions.  After a trial of six days, by a judgment handed down on 25 September 2017, the Hon Chow J found him succeeding in some of the claims but also failing in some.  

4.  In so far as the successful claims, the learned Judge ordered and directed for a taking of account, namely:  

(1)  an account be taken of the Father’s share of the proceeds of sale of Lot 2785 and 3825 (“the Sale Proceeds”) received by Tark Wing and the Grandmother; 

(2)  an account be taken of the Rental Proceeds (“the Rental Proceeds”) received by Tark Wing, Caba and/or Wing Hing; and 

(3)  the questions of (i) the appropriate period and rate of interest (“the Interest’), and (ii) what (if any) credit should be given for the construction costs of the houses on Lot 3763C, Lot 3763D, Lot 3763RP and Lot 884 (“the Construction Costs”), be dealt with in the taking of the accounts. 

SUMMONS (TAKING OF ACCOUNT)

5.  Matthew’s solicitor then issued the present summons for taking of account.  He also prepared the supporting affirmation.  As to the 4 matters identified by the judge above, with available information, the solicitor said, inter alia, that:  

(1)  About 7 million was payable because there were simply no documents to determine the whereabouts of the Father’s share of the Sale Proceeds.  

(2)  Regarding the Rental Proceeds, a sum of $10.5 million approximately was payable for the period from 1997 to 2018, based on the limited disclosure^[1] by Tark Wing, Caba and/or Wing Hing herein. 

(3)  Regarding the Interest, compound interest should be calculated at the rate of prime plus one because of wilful default.  

6.  The solicitor asked the court to order for the production of the relevant accounts and affirmation to address on the question of the Interest and the Construction Costs.  

7.  Parties appeared before me on 16 January 2018 and discussed how the accounts were to be taken.  To sum up the directions given by me, regarding the Sale Proceeds and the Rental Proceeds, Tark Wing and/or the defendants had 42 days to prepare the accounts with all vouchers receipts documents and statements, verified by affidavit.  They should also prepare an affirmation by the same time setting out their position on the Interest and the Construction Costs.  

8.  Matthew also had 42 days to make a reply.  Parties were directed to agree on issues of dispute, failing which to lodge those of their own.  The evidence having filed in each of the three actions could be used inter-changeably. 

9.  On 22 March 2018, to comply with the directions, Tark Wing filed his affirmation.  He deposed, among others, that:

(1)  The Sale Proceeds of $1,084,617 was passed to the Grandmother.  He had no record except that he knew it was used by her for constructions of houses.  The Nephew and the Father would be benefited from it.  Nevertheless, he was willing to account for the sake of argument.

(2)  Only a grand total of $2,318,060 was accountable. It was calculated by his record. He did not keep any receipts or invoices as the Father had never asked. He included 10% general wear and tear to offset general maintenance and 16.5% tax payable by Caba and Wing Hing. 

(3)  (i)  No compound interest should be ordered.  

      (ii)  $3,851,363 would be the Construction Costs.  Apart from the evidence produced at trial, he added that $300,000 land premium was paid to the Government.  Further, another $300,000 landfill works were done as well as about $20,000 per house for Fung Shui practices.  

10.  Matthew’s solicitor made a reply by his 2^nd affirmation.  He complained that Tark Wing’s purported accounts were severely deficient.  Such accounts further sought to confuse the issues by raising new allegations and claims.  They were non-starter. New claims could not be argued as they had not been raised at trial.  All these were wilful default to render proper accounts and as such, compound interest could be ordered against the accounting parties.  The calculations of the Rental Proceeds, including purported deductions of specific expenses, 10% normal wear and tear, 16.5% profit tax, were bare assertion and not supported by contemporaneous documents.  As to the Construction Costs, not only there was no evidence showing that the Sale proceeds and the Rental Proceeds went to the Construction Costs, the new calculations of landfill costs, land premium and costs of Fung Shui Master were problematic and not agreed. 

11.  Later, by consent, Matthew’s solicitor made a further reply by his 3^rd affirmation.  Up-dated correspondence among parties were produced and more accurate rates calculations, including concessions from government, were presented. 

THE HEARING

12.  Parties appeared before on 23 November 2018 for one day for the taking of account.  They were all represented by counsel, Mr Robin D’Souza, for Matthew and Mr Richard Leung, for Tark Wing and all other defendants. 

PRELIMINARY MATTER

13.  Two days before the hearing, Tark Wing issued a summons to seek leave to adduce his 2^nd affirmation.  He explained that he had missed a point in his earlier affirmation.  He sought to clarify that the sum of $300,000 land premium was paid by him to the bank account of his brother. 

14.  Having heard submissions from both counsel, to avoid wasting of time and costs, I allowed the application on a de bene esse basis.  Upon thought, by the present decision, I will dismiss it.  

(a)  The application is late.  

(b)  Tark Wing admitted that he only missed it.  Hence, it was something that could have been mentioned in his earlier affirmation.  

(c)  By allowing the 2^nd affirmation to be relied upon by him at the taking of account, Matthew would be prejudiced to pursue the matter further (by checking with the bank) and make a reply.  

(d)  Last but not least, the evidential value of the such piece of evidence is on the low side.  Tark Wing was not producing evidence (copy cheque or confirmation obtained from the bank) showing that the payment of land premium of $300,000 in question did come from him. Instead, he was only telling what he remembered.  

ISSUES TO BE DISPUTED

15.  From the written submissions of both counsel, they following arguments could be deduced.  

(a)   What are the applicable legal principles regarding taking of account? 

(b)   How did Tark Wing and the Grandmother deal with the Sale Proceeds, and subject to it, how much they should repay the estate of the Father? 

(c)   How much gross rental proceeds were received by Tark Wing, Caba and/or Wing Hing?  Apart from the Construction Costs, how much expenses were spent by them in earning them?  How did they deal with the Rental Proceeds?  Subject to it, how much they should repay the estate of the Father and Matthew? 

(d)   What is the appropriate period and rate of the Interest for the sums determined in (b) and (c) above? 

(e)   How much Construction Costs were spent?  Have the Father and/or Matthew paid them?  If yes, how and when?  If not, they are to be deducted from the sums payable to them. 

APPLICABLE LEGAL PRINCIPLES

16.  Both counsel made a number of submissions and referred me to a number of authorities.  I set out my view as follows. 

17.  First, the present taking of account exercise was ordered by the trial judge.  There has been no appeal against any of the rulings or decisions.  Hence, the Uncle cannot maintain any defence which had been rejected by the learned judge.  

18.  Second, it is trite law that a defaulting trustee shall restore the lost property to the trust together with an account of profit.  After provision of an account by the trustee, the beneficiary can falsify or surcharge it.  Headnotes no. (3) and (6) of the CFA judgment in Libertarian Investments Ltd v. Hall (2013) 16 HKCFAR 681 summed up the principles clearly. 

“(3)  The basic duty of a trustee or fiduciary who had misappropriated assets or otherwise caused loss or damage to the trust estate in breach of his duty was to restore the lost property to the trust (together with an account of profits if applicable). Where restoration in specie was not possible, the court might order equitable compensation instead. The court was entitled to assess compensation with the full benefit of hindsight. Consequently, loss was assessed at the time of judgment, taking into account any post-breach changes affecting the value of the lost trust property. Where the plaintiff provided evidence of loss flowing from the relevant breach of duty, the onus lay on a defaulting fiduciary to disprove the apparent causal connection between the breach and the loss…

(6) (Lord Millett NPJ, Ribeiro, Chan PJJ and Bokhary NPJ agreeing) Account and equitable compensation were not alternative and inconsistent remedies that a plaintiff must elect between them.  An account was not a remedy for wrong.  Once a trust or fiduciary relation was established the beneficiary or principal was entitled to an account as of right.  Further, an order for an account did not in itself provide the plaintiff with a remedy; it was merely the first step in a process which enabled him to identify and quantify any deficit in the trust fund and seek the appropriate means by which it might be made good.  Once the plaintiff had been provided with an account he could falsify and surcharge it.  At every stage the plaintiff could elect whether or not to seek a further account or inquiry, though the court would always have the last word…” 

19.  Third, both counsel referred me to paragraph 174 of the judgment of Lord Millett NPJ in Libertarian (supra) at p734.  I bear the same in mind throughout the present exercise.

“Where the absence of evidence is the consequence of the fiduciary’s own breach of duty the court is not without resource, for it can have resort to three principles. First, it may be able to take the fiduciary at his own word and use his falsehoods to establish the facts as if they were true even though they are known to be untrue. Secondly the court is entitled to make every assumption against the party whose conduct has deprived it of necessary evidence. And thirdly the court is entitled to be robust and do rough and ready justice without having to justify the amount of its award with any degree of precision.”

SALE PROCEEDS

20.  At the trial, regarding the claim that the Father never received the Sale Proceeds, Tark Wing raised a number of defences.  All were rejected by the judge.  The Arrangement[2] failed.  The suggestion that the Father agreed that the same could be applied to the Construction Costs was rejected.  The payment of it to the Grandmother also constituted a breach.  The defence of limitation did not succeed. Hence, Tark Wing should account.  

21.  By his affirmation filed for the purpose of the taking of account, Tark Wing repeated that the Sale Proceeds were passed to the Grandmother.  He had no record except that he knew it was used by her for constructions of houses.  Mr Leung reiterated the same.  

22.  With respect, such argument is no longer available to Tark Wing.  In my view, he is fully liable to repay to Matthew, as executor for the estate of the Father, the sum of $1,084,617 together with interest to be determined.  

RENTAL PROCEEDS

23.  Mr D’Souza told me to ignore the accounts prepared by Tark Wing in relation to rental proceeds.  They contained numerous inaccuracies and generalised propositions.  They were defective as they did not provide any information on what the rental proceeds were used for or applied to.  The necessary inference was that they were used by Tark Wing and his companies for their own purposes.  The court should adopt the calculations put forward by Matthew.  

24.  Mr Leung disagreed.  He said that the accounts provided by Tark Wing were sufficient and properly reflected the monies received as rental proceeds.  The assumptions adopted were grounded and sensible.  The accounts therefore provide a realistic and accurate picture.  

25.  Upon consideration, I agree with the submissions of Mr D’Souza.  The rental tables prepared by Tark Wing was unreliable.  On balance, this court accepts the calculations put forward by Matthew.  

(a)  Matthew’s calculations of rental income and expenses are based on the contemporaneous documents having disclosed by Tark Wing herein. 

(b)  Tark Wing’s proposed deduction of expenses are vague and unreliable. They were not supported by documents.  

(i)  A blanket 10% repairs for wear and tear was claimed.  Neither supporting documents nor particulars was provided for. 

(ii)  Another 5% rates and/or government rent was also claimed.  However, with the checking of the exact amount (about $23,000) done by Matthew from the Rating and Valuation Department, one could see how unreliable of the “estimate” of Tark Wing”.  

(iii)  Tax paid by Wing Hing and Caba at 16.5% tax was claimed.  However, this court has not been able to see all the financial statements of these 2 companies and cannot accept on balance that these expenses had been paid.  

(c)  Mr Leung commented that Matthew had been harsh to his client.  The account prepared by Tark Wing was asked to be ignored and something akin to forensic accounting was to be done.  To these, I could only say that the obligation lies squarely on the accounting party and if he fails to do so, the beneficiary can of course either falsify or surcharge him.  

INTEREST

26.  Matthew said that Tark Wing failed to provide accounts or provide proper accounts.  Mr D’Souza relied on the authorities of Wetdeutche Bank v. Lslington L.B.C. [1996] AC 669 and Libertarian (Supra) to pray for compound interest.  

27.  Tark Wing disagreed.  Although Mr Leung agreed that compound interest might be awarded in cases involving breach of fiduciary duty, he submitted that it was entirely inappropriate in the present case.  Parties came from one family.  There was delay on the part of the Father and Matthew.  No fraudulent or greed elements could be found.  The case of Ting Yuk & Ors v. Ting Yee & Ors. was cited.  It was said that only simple interest should be ordered.  

28.  Having ruled against Tark Wing on the provision of his account, as a matter of exercise of discretion, I further agree that he and other defendants should bear compound interest as suggested by Matthew in the circumstances.  

(a)  Tark Wing from time to time still maintain defences having rejected by the trial judge.  

(b)  In my view, Tark Wing has not provided truthful/accurate account.  

(c)  There is no reason why Matthew should not be granted compound interest because it is a right of the beneficiary in case where the accounting party is unable/unwilling to account.  

(d)  The case of Ting Yuk does not assist Tark Wing and his companies.  In the authority, within an assessment of damages (not taking of account), the plaintiffs asked for compound interest.  In the end, the learned master refused to do so because she did not see fit to so order in the particular circumstances of the case. 

CONSTRUCTION COSTS

29.  At the trial, one of the major defences of Tark Wing was that there was an oral agreement (called by the Judge as “the Arrangement”) among all parties.  In short, village houses were to be built and the construction costs would come from the whole family.  They would pool their resources to fund the construction of the houses and related expenses.  

30.  The Judge did not accept such defence.  

31.  However, he also mentioned that:

“40. On the whole, while I believe that there was probably some general discussion amongst the Grandfather, the Grandmother, the Father and Tark Wing on how the construction of the new houses on Lot 3763 and Lot 884 was to be funded, I do not accept that the parties ahd reach any definite, legally binding, Arrangement as alleged by Tark Wing.”

32.  Mr D’Souza said that, notwithstanding the rejection of the defence of “the Arrangement”, the Judge gave a second chance to Tark Wing to prove if any funds from the Father or Matthew did in fact go to the construction of the houses.  However, he relied again on “estimations” without submitting proper documentation.  He also put up a completely different case than what was run at trial.  The state of evidence was highly unsatisfactory.  It was submitted no credit should be given to the construction costs at all.  

33.  Mr Leung asked me to accept the accounts put forward by Tark Wing.  

34.  Upon consideration, I agree with the comments made by Mr D’Souza and conclude that no construction costs are to be deducted from the sums payable to Matthew.  

(a)  Tark Wing was indeed running a different case before me than that before the Judge.  His present case was that only he and the Father (not the whole family) would shoulder the construction costs.  I have not been provided with any explanation of such shift of case and decline to accept it on balance.  

(b)  Tark Wing wasted the chance that the Judge allowed him. He did not adduce evidence to show or to try to show how actually the construction costs were paid and shared. Instead, he relied on the estimates prepared by the expert of Matthew at trial (but not that of his own expert).  

(c)  He purported to add some more expenses to the estimates.  The $300,000 landfill costs and fung shui masters ($20,000 for each house) are bare allegations without documentary proof or sufficient documentary proof.  

(d)  As to the payment of $300,000 land premium, Matthew has been able to find document to show that it came from the Father.  As to the late affirmation or explanation from Tark Wing that such sum in fact came from him, I have decided not to accept such late affirmation and alternatively, it is not accepted on balance. 

35.  As pointed out by Mr D’Souza, one does not forget the Father’s share of other land resumption proceeds totalling about 2.7 million.  Tark Wing has not said anything on it.  

36.  Hence, in my decision, Tark Wing has failed to discharge his obligation to show that any credit should be given for the Construction Costs.  

COSTS

37.  Costs follow event and I see no reason to depart from it.  Hence, there will be an order nisi that all defendants do pay plaintiffs costs of the taking of account, including costs reserved and certificate of counsel for hearing on 23 November 2018, to be taxed if not agreed.  

ORDERS TO BE DRAWN UP

38.  Based upon the above rulings, I will direct the solicitors acting for plaintiffs to submit draft orders within 7 days for approval by this court.