NG, ROSE KAI CHING AND OTHERS v. LIANG YUM SHING HOWARD (in his personal capacity and as the executor and trustee of the estate of LIANG TING SEN THOMAS, deceased) AND ANOTHER

HCMP 2013/2018

[2024] HKCFI 3168

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2013 OF 2018

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R E A S O N S    F O R    D E C I S I O N

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1.  These proceedings, which have continued as if begun by writ, concern the administration of the rather substantial estate of the late Mr Liang Ting Sen Thomas (respectively “Father’s Estate” and “Father”) who passed away on 12 September 2009. The net value of Father’s Estate as in August 2019 was said to be around HK$1,024 million.

2.  The 1^st, 2^nd and 3^rd Plaintiffs (respectively “Rose”, “Lucy” and “Christopher”, together “Ps”) and the 1^st Defendant (“Howard”) are siblings. The 2^nd Defendant was their mother (“Mother”) who passed away on 2 December 2019, about a year after these proceedings were commenced. Howard was the eldest son of the family and the sole executor and trustee of the last Will of the Father dated 19 August 2008 (“the Will”). Howard was granted probate of the Will on 14 December 2009. In the Will, Father bequeathed the residuary estate to the trustee to hold upon trusts as to 5% to Mother, 63% to Howard, 11% to Rose, 17% to Lucy and 4% to Christopher (collectively “Residuary Beneficiaries”).

3.  After a 9-day trial and by her 96-page judgment handed down on 18 July 2023 (“the Judgment”), Madam Justice Bebe Chu gave judgment for Ps and ordered that Howard be removed as the executor and trustee of Father’s Estate upon an independent professional administrator (“IA”) being appointed in Howard’s place. Her Ladyship then said that she would direct the parties to submit proposed directions as to such appointment and for further administration of Father’s Estate and (if such directions could not be agreed), that a hearing be fixed in which the question of the costs of the action would also be heard.

4.  Save I am referring to the subject estate as “Father’s Estate” instead of “Estate”, I am adopting in these Reasons the same abbreviations used in the Judgment, which include the abbreviations mentioned above. For the purposes of these Reasons, I will not recount here the background matters, the assets which formed part of Father’s Estate, the various transactions having taken place relating to “the Plan” (as found in the Judgment), the issues and findings by her Ladyship and such, which are all set out in the lengthy Judgment.

5.  Now before me for determination are:

a.  Paragraphs 3, 4 and 5 of Ps’ summons dated 27 May 2024 (“Ps’ May Summons”) seeking

i.  An order that the costs of these proceedings be paid by Howard to be taxed on indemnity basis with certificate for 2 counsel; and

ii.  An order that Mr Yuen Tsz Chun, Frank (“Frank Yuen”) of Frank Forensic and Corporate Recovery Limited be appointed as the IA of Father’s Estate, with further directions relating to the appointment and the administration of Father’s Estate; and

b.  Ps’ summons dated 19 June 2024 (“Ps’ June Summons”) seeking an order that until the determination of Ps’ application for the appointment of the IA, Mrs Liang Lok Ho Ling (“Luanna”), the surviving wife of Howard, whether in her personal capacity or in her capacity as the personal representative of the estate of Howard, be restrained from acting as the executor of Father’s Estate and from taking any steps or exercising any right as such executor.

6.  At the hearing, Ps were represented by Mr Lam SC (leading Mr Chow and Mr Ng) and Luanna, in her personal capacity and as executor of the estate of Howard, was represented by Mr Man SC (leading Mr Wong and Mr Sik). This Court is grateful for counsel’s assistance in reaching agreement on a number of matters and confining the disputes to the remaining, as will be alluded to.

7.  At the conclusion of the hearing, and upon the continuation until further order of the undertaking given by Luanna at the hearing on 26 June 2024 and upon Ps’ undertaking to use their best endeavours to agree to the draft appeal bundle index and joint checklist, I ordered

(1)  That Frank Yuen be appointed as the IA in terms of, and with the directions contained in, §§ 1 to 5 of Ps’ draft order, but added wordings to the effect that he is so appointed in place of Luanna and insofar as the vesting of assets and property belonging to Father’s Estate to him is concerned, excluding the vesting of Father’s shares in the 5 Companies, which is reserved for further consideration;

(2)  That Luanna do provide to Ps and the IA, and to verify them by affirmation, in terms of §§9-11 of Ps’ draft order,

a.  within 56 days, a true and perfect inventory and account of Father’s Estate for the periods (i) from date of the Father’s death up to 25 October 2023, being the date of Howard’s passing (“1^st Period”), and (ii) from 25 October 2023 to the date of this order (“2^nd Period”); and

b.  within 28 days, (i) the audited financial statements of a number of entities including the 5 Companies, or where no such existed, an explanation as to why no such existed, and management accounts be provided, (ii) true and complete copies of the ledger known as “G/L Account Activity Detail Report” (“the Activity Ledgers”) for each of the said entities for the entirety of the 1^st and 2^nd Periods, and (iii) copies of all loan agreements and security documents entered into by each of the entities in the 1^st and 2^nd Periods;

(3)  There be liberty to apply;

(4)  There be no order on Ps’ June Summons with its costs be made costs in the cause of this action[1] with certificate for 2 counsel; and

(5)  Costs so far incurred in respect of Ps’ May Summons, including its costs today, be reserved.

8.  Counsel for both sides were agreeable to the further conduct as per the below directions, which I gave at the hearing by consent:

(1)  With respect to further orders / directions to be sought by Ps in respect of the appointment of the IA and administration of Father’s Estate:

a.  Ps do lodge and serve a draft order / directions within 21 days, which should, among others, include a list of the transactions that were entered into relating to the Plan (as found in the Judgment) or relating to Father’s Estate that Ps would seek to avoid (if any);

b.  Luanna do lodge and serve her draft order / directions 21 days thereafter after which should, among others, respond to Ps’ draft as to whether she agrees that the transactions listed by Ps (or any of them) should be avoided;

c.  within 14 days thereafter, parties do attempt to agree to a set of directions for resolving the differences and report to the Court the results and the Court will give further directions.

(2)  The question of the costs of this action be reserved for decision by Madam Justice Bebe Chu on papers, and directions therefor in terms of §§9 to 12 of Luanna’s draft order.

9.  I said written reasons would be provided, which I now do.

Relevant events after the Judgment was handed down on 18 July 2023

10.  In the month after the Judgment was handed down, there were correspondence between the parties’ solicitors, each putting forth their/his proposed costs order and directions for the appointment of IA. Howard’s stance was that the role of the IA was limited in that in the Judgment it was held that Mega Best held the 5 Companies on trust for Ps and Howard, and therefore the only matter of administration of Father’s Estate left outstanding was the completion of the donations as bequeathed in the Will. Ps disagreed with Howard’s stance.

11.  On 14 August 2023, Howard filed his Notice of Appeal against the Judgment.

12.  On 23 August 2023, Ps’ solicitors wrote to her Ladyship, enclosing the parties’ correspondence, to seek clarification on the effect of the Judgment and further directions on the appointment of an IA.

13.  On 28 August 2023, her Ladyship wrote to the parties stating:

“1. The Court confirms the Plaintiffs’ understanding set out under item 4 of the letter dated 23 August 2023 from Edmund W.H. Chow & Co. is correct.

2. In light of [Howard]’s appeal and subject to any further submissions being made, it may be premature to fix any hearing for directions.”

14.  Despite her Ladyship’s invitation, no submission was filed by the parties.

15.  On 4 September 2023, Ps filed a Respondents’ Notice.

16.  On 25 October 2023, Howard passed away.

17.  Ps complained that in the correspondence exchanged since Howard’s passing, Luanna was secretive and did not divulge any information concerning the application for probate of Howard’s estate. In December 2023, Ps filed a Caveat in respect of the probate of Howard’s estate, which was later withdrawn on 28 May 2024, one day after Ps’ May Summons was issued.

18.  It is now common ground that Luanna is the executor of the last Will of Howard and that upon Howard’s passing and pending and until the IA is appointed, Howard was not yet removed as the executor of Father’s Estate and therefore pursuant to s.34 of the Probate and Administration Ordinance, Luanna, as Howard’s executor, would automatically become the executor of Father’s Estate.

19.  On 27 May 2024, Ps’ May Summons was issued. On 19 June 2024, Ps’ June Summons was issued.

20.  In the meantime, her Ladyship retired and Ps’ 2 summonses were listed before this Court.

21.  At the call-over hearing on 26 June 2024, by consent this Court ordered in terms of §1 of Ps’ May Summons appointing Luanna to represent Howard’s estate in these proceedings. Luanna on that occasion also gave an interim undertaking essentially that pending the determination of Ps’ summonses, she would not sell or otherwise deal with or dilute the value of the shareholding or assets of Mega Best and its subsidiaries outside of the established usual course of their businesses without giving Ps 14 days’ advanced notice.

Appointing the IA

22.  As it has been adjudicated in the Judgment that Howard be removed and that an IA be appointed, and despite an appeal against the Judgment having been lodged but the execution of the Judgment is not stayed pending appeal, Ps are entitled to obtain orders and reliefs consequential upon the Judgment.

23.  In the affirmation evidence filed by Luanna, she did not challenge the suitability of Frank Yuen as the IA to be appointed, nor did she propose another competing candidate.

24.  Mr Man on behalf of Luanna opposed the appointment of the IA and asked that Ps’ such application be dismissed. He raised a number of grounds.

25.  First, Mr Man submitted that because there was this very substantial dispute over the effect of the Judgment, and that dispute would be one of the main matters to be ventilated in the coming appeal, further, as the outcome of the dispute would determine the scope of the work and duty of the IA in no small way, therefore the IA should not be appointed until this dispute has been resolved by the Court of Appeal.

26.  The gist of the dispute over the effect of the Judgment raised by Luanna is conveniently set out in §§4(1) to (3) and 5 of the letter of Howard’s solicitors dated 4 August 2023:

“4. …

(1) As noted in the Judgment, B Chu J (“Judge”) accepted that the parties did agree to a Plan (as found by the Judge).

(2) The effect of the Plan (as found by the Judge) is set out in various parts of the Judgment (including §§110, 118-119, 123, 135 and 141), namely that Father's shares in the 5 Companies were transferred to Mega Best, whereby Mega Best held such shares on trust for the Residuary Beneficiaries.

(3) Accordingly, on these findings, the 5 Companies (and the subsidiaries) no longer form part of the Estate. Instead, they are legally owned by Mega Best as trustee with the Residuary Beneficiaries as beneficiaries, under the trust established pursuant to the Plan as found by the Judge (“Mega Best Trust”).

5. Therefore, the only matter left for the IA would be to complete the donation as per the Will.” (original emphasis)

27.  Mr Man submitted that:

a.  There was no suggestion that the assets of Father’s Estate were in jeopardy;

b.  Luanna was prepared to continue the interim undertaking given on 26 June 2024; while

c.  On the other hand, if the IA was appointed, much costs would be incurred which might very well turned out to be wasted should Luanna prevail in her appeal and there was no assurance that such costs would be borne by Ps and not Father’s Estate; and in the latter case, it would mean that Howard would bear the majority, namely 63%.

28.  Mr Lam referred to the findings in the Judgment, that save Howard, other family members had little or no knowledge of involvement in the handling of Father’s business and wealth (§158), and that there was no full disclosure by Howard of all the assets of Father’s Estate even in the Inventory he provided in purported compliance of the order of Chung J dated 17 July 2019 (§185).

29.  Mr Lam also referred to Ps’ complaints (as recorded in §191 of the Judgment) that there had been dissipation by Howard of the assets of Father’s Estate in that there were substantial increases of liabilities in Mega Best’s current account and also in Howard’s own current account, in particular in Golden Fook and also the substantial increase of liabilities owed to banks since the date of Father’s death. Mr Lam substantiated such complaints at the hearing by referring to the part of Activities Ledgers for Gooden Fook for the calendar year 2013 under the heading “3008 DIRECTOR’S C/A – HOWARD” which recorded a net debit of about HK$90 million in that year by Howard. I also note that in §159 of the Judgment, her Ladyship found that “any Updates provided by Howard in relation to the transfers into Mega Best could only be in very broad and brief terms, and would not have included information such as any estimated valuations and details of Father’s shareholdings in the 5 Companies and their underlying assets, the full extent assets of the Estate and the full extent of Father’s indebtedness”.

30.  Mr Lam thus submitted that essentially, Ps have been kept in the dark by Howard, and now by Luanna, as to the true state of affairs and worth of Father’s Estate and therefore that Ps did not accept that Father’s Estate was not in jeopardy.

31.  For the following reasons, I did not accept that the appointment of the IA should be deferred on the basis of the alleged existence of the dispute or until the resolution of the alleged dispute by the CA:

a.  The removal of Howard as executor and the appointment of the IA was already adjudicated in the Judgment. The present matters are matters concerning the carrying into effect of the Judgment. In my view, therefore and unless there is a stay of the execution of the Judgment pending appeal, and presently there is none, Ps has a right to appoint an IA. It is also right and proper for such consequential matters to be sorted out by the Court of First Instance, and related disputes decided if there are any, so that the whole matter could be brought to the CA for its appellate review.

b.  As another First Instance judge, and not the trial judge, doing the best I can to decide on consequential matters arising from the Judgment, I do not think it was found in the Judgment that there was “the Mega Best Trust”, as now contended for by Luanna. First, her Ladyship has responded by letter dated 28 August 2023 that she confirmed Ps’ understanding as set out under item 4 of Ps’ solicitors’ letter dated 23 August 2023. Second, my own reading of the Judgment is that it was held effectively that Mega Best only held whichever assets of Father’s Estate transferred to it as a bare trustee for the unadministered Father’s Estate under a bare trust, as “the Mega Best Trust” (as now contended for by Luanna) would mean that there had been actual administration by way of distribution of the Residuary Estate in that Father’s shares in the 5 Companies had been distributed by the implementation of “the Plan”, which her Ladyship expressly found against in §§80, 100, 122 and 123 of the Judgment. It seems to me that there are merits in stating my said understanding clearly and expressly so that the correctness or otherwise of it, as I said, could be properly reviewed by the CA at the appeal.

c.  I do not accept the point made on behalf of Luanna, though not hotly pursued at the hearing, that there are no other substantial assets in Father’s Estate for the IA to gather. I accept Mr Lam’s submission that evidently the immediate and expedient step now for the due administration of Father’s Estate is to secure the provision of a full and accurate account of Father’s Estate by Luanna, as executor of Howard’s estate, and for the provision of audited and management accounts and the Activities Ledgers and such of various entities so that the IA could begin to gather and then report on the assets and liabilities of Father’s Estate.

d.  Until the appointment of the IA Luanna would continue to be the executor of Father’s Estate by the operation of s.34 of the Probate and Administration Ordinance. In my view, there is no good reason to let this unintended state of affairs to continue by delaying the appointment of the IA.

e.  If Luanna would like to seek a stay of the execution of the Judgment pending appeal, she should do so by a proper application so that the Court can properly consider the relevant matters on such footing.

32.  The second ground Mr Man contended essentially was that her Ladyship, by her letter dated 28 August 2023 indicating that “it may be premature to fix any hearing for directions”, has made a decision to that effect, and it was an abuse on the part of Ps to re-apply by Ps’ May Summons without any change of material circumstances.

33.  Evidently, and as Mr Man fairly acknowledged, this ground of opposition was premised on her Ladyship having formally made a determination or decision. It seems to me abundantly clear that her Ladyship has not done so. Her Ladyship merely indicated a provisional proposal for the parties to consider and inviting parties’ input. It also seems to me that as a matter of first principle that as Ps has obtained a judgment, the fact that they have not made submissions (for whatever reason) to her Ladyship following her Ladyship’s indication could not per se amount to a proper basis denying them the fruit of the Judgment, or debarring them from seeking the appointment of the IA, or requiring that unless and until a material change of circumstances be shown, they be so denied or debarred. I must therefore, and with respect, reject such as a ground for refusing to appoint the IA or refusing to grant any further directions for administration of Father’s Estate consequential upon the Judgment.

Conduct for seeking further directions and in the meantime reserving the question concerning the vesting of shares in the 5 Companies in the IA

34.  Save the general direction that the assets and property of the Father’s Estate be vested in the IA, Ps and Luanna have not canvassed in their written submissions the question of whether Father’s shares in the 5 Companies (which had been transferred to be held by Mega Best in around 2011) should form part of the assets of Father’s Estate and be vested in the IA.

35.  It will be recalled that in the Judgment, her Ladyship found that there was an agreement between the parties relating to “the Plan”, but essentially only to the extent of using Mega Best as a corporate structure and not “instead of” distribution of the Residuary Estate. Moreover, and as have mentioned, Ps complained that Howard has made substantial drawings of the funds belonging to the 5 Companies, particularly Golden Fook. There were also complaints that Howard had encumbered the assets of the 5 Companies by borrowing loans for his personal use secured by assets of the 5 Companies, again particularly those of Golden Fook. Also, and as recorded in the Judgment at §§101-114, there were the 2013 Transfers consisting of a number of buy-outs by Howard of Ps’ respective shares in Mega Best.

36.  In light of such complaints by Ps, the question would be of some practical importance (quite apart from the IA’s duty to gather and protect the assets of Father’s Estate) in that, with those shares vested in the IA, the IA may vote himself in as one of the directors of the 5 Companies, thereby obtaining access to information and documents in relation to the assets and liabilities of the 5 Companies and their subsidiaries.

37.  Evidently, the question could be a complicated one and called for further consideration and submissions by the parties.

38.  In the course of the hearing, this Court also raised with the parties that in light of her Ladyship’s finding (§161) that “… there was no “informed consent” to the alleged Plan as pleaded by Howard, and Howard had fallen foul of the fair-dealing rule” with the consequence following being that transactions falling foul of the fair-dealing rule are voidable or liable to be rescinded at the instance of the affected beneficiaries, whether it would be part of the consequential matter to identify and decide in this action, and then directions be given to the IA, as to which (if any) specific transactions fell foul of that rule that Ps would seek to rescind, so that the appropriate consequence could be attached to that particular transaction.

39.  Evidently, parties need time to consider the matter and their respective positions. Having discussed with counsel for both sides, it was agreed that the most appropriate arrangement was for Ps to lodge a draft order of the directions / orders they would be seeking, which would include listing out the transactions they would seek to be avoided, if any, and for Luanna to respond as well as proposing her directions / orders by way of a proposed draft. In the meantime, the parties can also consider the question concerning the vesting into the IA of the Father’s such shares. Thus, the directions set out in paragraph 8 above were given by consent.

Ordering Luanna to provide the Activities Ledgers, loan agreements and security documentations entered into by the entities in the 1^st and 2^nd Period

40.  At the hearing, Luanna did not oppose the provision of a true and perfect account of Father’s Estate in terms of §9 of Ps’ draft order or the provision of the audited financial statements and such in terms of §10 of Ps’ draft order and their verification by an affirmation in terms of §11 of Ps’ draft order, save that the provision of the Activities Ledgers of various entities and copies of loan agreements and security documentation as provided for in §10(c) and (d) of Ps’ draft order was opposed.

41.  Having heard both counsel, I ordered them to be provided for the reasons that (a) as said, I do not accept that there is a dispute on the effect of the Judgment, as now contended for by Luanna, such that it should logically follow that Father’s shares in the 5 Companies essentially are still part of the assets of Father’s Estate, and as such, the requested ledgers and agreements and documentations should be provided to the IA, (b) the information pertaining to the 5 Companies, particularly their underlying assets has not been provided to Ps (§158 of the Judgment), such that there was no informed consent by the beneficiaries (§161 of the Judgment), and (c) the amounts involved as recorded in the Activities Ledgers and the loan agreements were very substantial.

42.  For these reasons, I gave the above-mentioned orders and directions.

43.  I thank Mr Lam and Mr Man and their junior counsel for their helpful assistance.