LILY DOROTHY CHAN (personal representative of the estate of CHAN Michael Yiu-Hee) AND ANOTHER v. CHAN ORLANDO YIU-KUI (sole surviving executor of the estate of Madam Chan Lam Yat Wah, deceased)

HCMP 1043/2018

[2020] HKCFI 1095

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1043 OF 2018

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D E C I S I O N
(On Appointment of Replacement Administrator)

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Introduction

1.  On 5 March 2020, this Court handed down a judgment and ordered, upon the plaintiffs’ application as beneficiaries of the Estate, that the defendant, the sole surviving executor, is to be removed and such to take effect upon the appointment of a professional accountant as replacement administrator of the Estate (“Judgment”).  I further directed that the matter of the appointment and choice of the replacement administrator appointment be dealt with on paper.  In this decision, I shall continue to adopt the abbreviations in the Judgment, unless otherwise indicated, save that for easy reference, the plaintiffs will be collectively referred to as Ps and the defendant simply as D.  

2.  As seen in the Judgment, Ps’ original proposed candidate named in the originating summons was previously involved in the matter as Ps’ expert/advisor.  Before the then hearing before this Court, Ps’ solicitor Ms Hung Yuk Kwan had filed an Affidavit of Fitness on 16 October 2019, and 2 professional accountants were proposed as the alternative candidates (“Hung’s 1^st Affidavit”).

3.  On behalf of D, his new solicitor, Mr Lau Chun Ho Edward, filed an affirmation on 6^th April 2020 (“Lau’s Affirmation”) proposing D’s candidate for the replacement administrator. Ms Hung then filed a 2^nd affidavit on 20^th April 2020 on behalf of Ps in reply (“Hung’s 2^nd Affidavit”).

4.  Although Ps had initially proposed two candidates, in Hung’s 2^nd Affidavit, Ps decided to only put forward only one candidate, namely Mr Mat Ng, whereas D proposed Mr Frank Yuen. 

Legal principle

5.  The guiding principle is that in exercising its discretion to choose a replacement executor, the Court will act in the best interests of the estate and apply common sense to the facts of the case: Mak Mei Ki Angela v Chan Wai Fong [2017] 2 HKLRD 515 and [2017] HKCU 589[1].

Major assets of the Estate and main issues

6.  As set out in the Judgment, the major assets of the Estate are held in trust by corporations in Canada and BVI (at paragraphs 6-13 of the Judgment) and the value of the assets is substantial (at paragraph 28 of the Judgment).  

7.  Further, as seen in the Judgment, there were/are Canadian tax plans in relation to the administration of Estate or the distributions of the assets of Canterra.  There was the Original Plan, and later the Tax Plan put forward by BLG a firm Canadian lawyers (at paragraphs 84-95 of the Judgment), but there had been objection from Rosalind and also a lack of support from the other Beneficiaries to the Tax Plan, save for D.  Then due to the changes in the Canadian income tax legislation, there was the Revised Plan. 

8.  It appears that notwithstanding the views of Rosalind and/or the other Beneficiaries, D had proceeded with the tax plans as advised by BLG, but the exact present position is not clear. 

9.  As further seen in the Judgment, the Court has found that there are justifiable concerns on part of Ps that there may be a conflict of interest on the part of D in continuing to administer the Estate due to Ps’ allegations of misappropriation and/or conversion of the assets of the Estate for D’s own use (paragraph 78 of the Judgment).

Professional qualifications/experience

10.  It can be seen in on the CV produced, Mr Ng is a Partner of Ernst & Young’s Transaction Advisory Services team in Hong Kong, specializing in restructuring and insolvency administration, and he has more than 25 years of experience in the practice of Corporate Restructuring and Insolvency Services.  In the CV, he has set out his experience to include being appointed as an administrator by the Securities and Futures Commission in one case in relation to administering properties of a Hedge Fund and in another case in relation to confiscated funds of a former managing director of an investment bank.  He has been appointed a bankruptcy trustee for a corrupt government official and also founders of an insolvent airline with substantial US assets.  In Hung’s 2^nd Affidavit, she had further produced a letter from Mr Ng who set out his experience in 3 cases in each of which he was appointed one of the joint and several administrators for the estate of a deceased person and also one case in which he was appointed one of the joint and several trustees of a bankrupt couple.

11.  Mr Yuen is the Managing Director of Frank Forensic and Corporate Recovery Limited, a company with a registered share capital of HK$10,000.  An affirmation of fitness has been provided for Mr Yuen by Mr Wong Wing Hang Henry, a partner of a solicitors firm, who has known Mr Yuen for over 15 years, and according to this affirmation of fitness, Mr Yuen is an experienced insolvency practitioner and also experienced in acting as administrator of the estate of a deceased person and managing assets held under trust.  Mr Yuen has also set out that he has been appointed by the Court as administrator upon removal of a former administrator in respect of an estate which had assets in Hong Kong, Isle of Man and Singapore, and that he has been appointed as sole trustee to a trust to hold amongst others forestry assets in Mainland China of book value of over USD 4 billion.  He has also been appointed as an expert accountant to investigate the funds allegedly being misappropriated by a director of 3 private companies. Further, he has been appointed by the Court as liquidator of a charitable organisation.

12.  It is not disputed that both Mr Ng and Mr Yuen have over 20 years of accounting experience, and there is no suggestion that either of them does not possess the necessary experience in the administration of estates.

13.  By comparison, it appears that Mr Ng specializes in corporate restructuring and insolvency administration, whereas Mr Yuen seems to have a much wider area of experience. 

14.  Mr Shum pointed out that Mr Yuen has very limited experience, if any, in dealing with trusts or tax issues in foreign jurisdictions other than the Mainland, and that his firm is established only a year ago.

15.  On the other hand, Mr Ng is a partner/principal of Messrs Ernst & Young, which is one of the largest accounting firms in the world and the firm has extensive international experience and exposure.  Mr Shum submits that with the support of the firm’s experience and exposure, it will be easier for Mr Ng to handle the complex tax issues and trust established in Canada and to investigate into D’s conduct in the past administration of the Estate.

16.  However, Mr Ng does not profess to be a tax expert, not to say a Canadian tax expert.  In fact, when it comes to the Canadian tax issues, if there are still such issues, whether Mr Ng or Mr Yuen, he will probably have to seek separate legal and tax advice in Canada.

17.  As pointed out by Mr To, the appointment of an administrator is a personal appointment, and that it is not Ernst & Young which will be appointed, and rather Mr Ng is personally appointed and I accept it is whoever appointed who will be ultimately responsible and accountable for the Estate.  Mr To has further submitted that if Mr Ng is appointed, as a fiduciary, he cannot pre-suppose that the overseas branch of Ernst & Young has to be appointed to provide overseas services, without having regards to its quoted fee, and that the matter also needs to be dealt with in a sensitive way to avoid any conflict of interest.  I agree with Mr To’s submission in this respect.

18.  As to the experience of the candidate as ‘trustee’, as Mr To has pointed out, the replacement administrator is not going to be required to run the Terra Unit Trust in his capacity as a trustee, although one of the major assets of the Estate is its shares in Terra Unit Trust but the Estate has not acted as the trustee of the Terra Unit Trust.

19.  As seen in his CV, Mr Ng has experience as bankruptcy trustee.  On the other hand, Mr Yuen has experience of being appointed as sole trustee to a trust set up to hold, amongst others, forestry assets in Mainland China to manage and realise the assets therein, the total book value of which were said to be over USD 4 billion.  Further, the two staff members of Mr Yuen who will be assisting him in the course of administration both have experience in managing assets in trust, namely, Mr Lui Chan and Ms Ada Wong.

Rate of charges

20.  The initial table produced in Hung’s 1^st Affidavit indicated that Mr Ng’s rate of charges was HKD 10,150 per hour.  It was only after Mr Yuen’s rate of charges was disclosed in Law’s Affirmation that in Hung’s 2^nd Affidavit, a letter dated 17 April 2020 from Mr Ng was produced indicating that he was willing to offer a 50% discount, to HKD 5,075 per hour.  Mr Yuen’s discounted hourly rate is HKD 3,674 per hour.

21.  Mr Shum submits that considering the size and value of the Estate, Mr Ng’s rates are not high.

22.  However, Mr Ng’s rate at HK$5,075 per hour, after reduction, is still about 40% higher than that of Mr Yuen at HK$3,674 per hour, and as pointed out by Mr To, the differences in charging rate continues down the corporate ladder. 

Statutory cap under section 60 of the Ordinance

23.  Mr Yuen has clearly indicated his agreement that his total remuneration as administrator (exclusive of all disbursements and expenses) shall not exceed the scale costs laid down in section 60(2)(b) of the Ordinance.  He has further agreed that the fees of the staff of his firm (including himself) for services rendered, other than for any times costs for the purpose of any legal action for recovery of assets for the Estate, shall not exceed a cap of HK$1.5 million per year (exclusive of all disbursements incurred by his firm, if any).

24.  On the other hand, Mr Ng has not provided any such indication or agreement.  Mr Shum argues that Mr To’s above submission is misconceived because any replacement administrator would be bound by the statutory provisions and it is not necessary to make express reference to it.   However, if Mr Ng has had experience in being appointed by the Court as administrator under the Ordinance, there is no reason why he has not made his position clear in his letter dated 17 April 2020 to Ms Hung.  

Scope of services 

25.  Mr Yuen seems to have read the Judgment before sending out his letter dated 2 April 2020 setting out the terms of his engagement and he has further set out the scope of his based on the information presently available to him.

26.  On the other hand, Mr Ng has failed to provide any information concerning his scope of services.

Professional indemnity insurance 

27.  The Court has been informed by Mr To that Mr Yuen and his staff are covered by professional indemnity insurance, which would cover their services provided in administering the Estate, and Mr Yuen has undertaken to provide documentary proof of the same.

Discussion and conclusion

28.  Mr Yuen has stated in his letter dated 2 April 2020 that he appreciates that it is important that the administration of the Estate and the distribution should be done expeditiously, economically and in a transparent, fair and an impartial manner.  Although Ps, Cecilia and Belinda have expressed no objection to Mr Ng’s appointment, there is no evidence they have objected to Mr Yuen’s appointment. 

29.  Having considered the best interests of the Estate and all the circumstances of this case, and having weighed up all the above including in particular the experiences of the two candidates and their rates of charges, I have come to the view that the balance tilts in favour of Mr Yuen, subject to his providing the Court within 14 days details of his professional indemnity insurance.  The appointment is also subject to Mr Yuen’s undertaking to abide by the statutory cap and his rate of charge for acting as administrator and trustee of the Estate.

30.  Parties are to submit an agreed draft order for the Court’s approval, including any consequential vesting order.

Costs 

31.  I am of the view that the costs of the matter of appointment of replacement administrator of the Estate should be paid out of the Estate, such costs to be summarily assessed.  Ps and D are to submit their respective statements of costs for this Court’s summary assessment. 

32.  Finally, I must say it was completely unnecessary for Ps or their solicitors to provide the Court with exhibits HYK-1 and HYK-2 of Hung’s 1^st Affidavit which are over 1,000 pages, when the only relevant exhibits for the present matter are exhibits HYK-3 and HYK-4, namely the candidates’ respective CVs and their respective rates of charges. Their Counsel has not referred to exhibits HYK-3 and HKY-4 at all.  It was a complete waste of paper to include a total of some 1312 pages of HYK-1 and HYK-2, not to say that each paginated bundle consists of some 400 odd pages, which are not in compliance with the Practice Direction.  Further HYK-1 and HYK-2 are in the index described as only 2 letters from D’s former solicitors’ firms without any index as to the enclosed documents.  In the circumstances, photocopying charges and any costs in relation to preparation of bundles should be limited to only those for one paginated bundle of 223 pages (ie total of 1535 pages minus 1312 pages).