RE TYL

HCMP 1840/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1840 OF 2006

____________

and

____________

_____________________________________

R E A S O N S  F O R  D E C I S I O N

_____________________________________

1.   On 30 July 2009, I appointed the Official Solicitor to replace Madam Mak as committee for the estate of TYL with some consequential directions. I now give reasons for the decision to replace the committee.

2.   This court appointed Madam Mak as committee on 22 September 2006. She is the god-daughter of TYL. In 2005, TYL was found to be suffering from significant cognitive impairment following a cerebral vascular accident. Since November 2005 she has been living at nursing home. The doctor certifying her medical condition said it is unlikely that she would return to live in her own flat.

3.   TYL has a flat at Yuk Sau Mansion in Happy Valley. When this court appointed Madam Mak as committee, the order authorized her to let out the property and to renovate the same for such purpose.

4.   It had taken some time before Madam Mak completed the renovation. There were extensive renovation and a total of more than $300,000 was spent on the same. After renovation, instead of letting out the property, Madam Mak and her family moved to live at the property since February 2008. That was done without any authorization from the court. She started to pay an occupational rent since May 2008.

5.   Madam Mak explained that since she had difficulties in finding a tenant and her family had a need for residence when her own flat (also in Happy Valley) was decorated, she decided to take her family as a tenant of TYL’s flat. But she did not move back to her own property after its renovation. Instead, starting from August 2008 she leased her property to a tenant at a rent higher than the one she paid to TYL’s estate. Madam Mak said her own flat was bigger, but it has to be observed that TYL’s flat was newer and it is served by lift facility unlike Madam Mak’s flat.

6.   This state of affairs came to light in the course of the Registrar’s consideration of the estate’s accounts. The matter was brought to this court’s attention.

7.   In an affirmation of 14 April 2009, Madam Mak requested the court to permit her to stay at TYL’s flat until her family has sufficient financial ability to purchase the same. She did not specify when that would be. She also asked the court to grant her priority in purchasing the flat.

8.   I am afraid in so handling the property of TYL Madam Mak has put herself into a position of serious conflict of interest which a fiduciary in the position of a committee should avoid. In the first place, Madam Mak should not move into the flat without seeking sanction from the court. Without any prior specific approval from the court, a committee should not be a party to a transaction with the estate. This flows from the principle against self-dealing. The rationale is to avoid conflict of interest. Given the mental incapacity of TYL, it is important that decisions as regards the disposal or dealings with her property were undertaken by someone who can properly consider the matter on her behalf solely with her interest in mind. If the decision maker were also influenced by his or her own personal interest, the interest of TYL would be compromised and the court would not allow that.

9.   By obtaining a higher rental from the leasing of her own flat, Madam Mak also infringed the rule that a committee should not make a profit out of his or her dealings with the estate.

10.   This is the reason why even in cases where the court considers a committee could have remuneration for his or her service (and normally the court will not allow a relative or friend to charge remuneration in acting as committee), it is regarded as an exception to the rule against profit and such remuneration has to be assessed by the court instead of a sum fixed by the committee, see Re M HCMP 25 of 2005, 7 April 2006.

11.   Coming back to the question of Madam Mak’s occupation of TYL’s flat, if an application for sanction were made before she moved into the flat, the court would have to consider,

(a) Given the current state of affairs, whether it was in the interest of TYL to let the property or to sell it;

(b) If the property were to be let out, what was the fair rental for such letting and what other terms should be included in the lease, including what furniture and fittings should be provided at such level of rental;

(c) If the property were to be sold, what was the fair price for such sale;

(d) On either case, whether it was in the interest of TYL to let or to sell to Madam Mak, bearing in mind the potential difficulties stemming from conflict of interest.

12.   To deal with these issues, the court should be assisted by an impartial person acting solely in the interest of TYL. Madam Mak, by reason of her personal interest in the matter, was not in a position to provide such assistance.

13.   By moving into the flat without any sanction from the court, the court was deprived of the opportunity to consider these issues and Madam Mak aggravated the conflict of interest between herself and TYL. Such action on her part, even assuming it was only due to her ignorance of the law, is a serious breach of the fiduciary duty of a committee. The court has to consider what has to be done to remedy the situation. In some cases (and I hope this would not be such a case), the court may have to direct the committee to take legal action against the wrongdoer. But this cannot be done if the committee is the wrongdoer.

14.   In my judgment, the situation has developed to an extent that it is no longer possible for Madam Mak to continue to act as the committee. I have therefore ordered her replacement by the Official Solicitor.

15.   Having heard submissions from Madam Mak and the Official Solicitor, I further decided that in the circumstances TYL’s flat should be sold by the Official Solicitor as committee for TYL and I authorized the Official Solicitor accordingly. Madam Mak’s family is given three months to vacate from the flat and in the meantime she is required to pay a monthly occupational rent of $16,000 for the use of the same. This does not imply the court ratifies any tenancy to her. The court is not minded to ratify such tenancy. This is just a condition for granting her indulgence in terms of time given to her to vacate from the property.

16.   Madam Mak is free to negotiate with the Official Solicitor if she or her family wants to purchase the property. But it is up to the Official Solicitor to consider what is the fair price for sale and whether Madam Mak’s offer (if any) reaches that level. Further, the Official Solicitor is free to negotiate with other potential purchasers and Madam Mak does not enjoy any priority.

17.   Having so decided, I also wish to say I do not want this judgment to be read as a condemnation of Madam Mak. The court appreciates she has done a service for TYL in the past and it is hoped that she would continue to visit TYL even though she is no longer the committee. The court has tried to facilitate that by giving the appropriate directions. However, it is imperative that the court should not compromise the interest of TYL by retaining a committee with a conflict of interest. In the circumstances, there is no alternative but to order a replacement.

18.   Those appointed as committee should be mindful of the need to avoid putting himself or herself in a position of conflict. If there is a potential problem in that regard, the committee should apply for directions from the court. For the benefit of other persons who are or might be appointed as committees, I shall release this judgment for circulation.