PETER YOUNG v. LO WAI YEE, JAFFE

HCMP2441/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2441 OF 2008

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J U D G M E N T

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1.  This is an application by the plaintiff as the beneficiary and specific legatee under the will of the late Madam Lam Wai Yuen for an order directing the defendant, as executrix and trustee of the will, to administer the estate by giving assent of the specific gift devised to him under the will.  

The factual background

2.  Madam Lam Wai Yen (“the Deceased”) died on 16 December 1997, leaving her last will dated 14 October 1997 (“the Will”).  

3.  The defendant was appointed the sole executrix and trustee under the Will.  She did not apply for probate until 2007.  On 23 August 2007, probate with the Will annexed was granted to her.

4.  By paragraph 2 of the Will, the Deceased gave and devised to the plaintiff the property situated at Flat C7 on 3^rd Floor of Kwan Yick Building, Phase II, No.343 Des Voeux Road West, Hong Kong (“the Property”) subject to the payment of the estate duty payable in respect thereof. 

5.  By paragraph 3 of the Will, the Deceased gave, bequeathed and devised to the defendant the remainder of her estate upon trust for sale with power in her absolute discretion to postpone the sale.  By paragraph 4 of the Will, the Deceased further directed the defendant, as trustee, to hold the proceeds of sale and the unsold property and ready money upon trust to pay debts, funeral and testamentary expenses.

6.  Previously, based on the affidavit made and lodged by the defendant as executrix and trustee, the Commissioner of Estate Duty had granted an exemption for estate duty and issued a Schedule of Property of the estate of the Deceased dated 28 November 2001.  According to the Schedule of Property, the estate of the Deceased as at her death comprised the following:

	Items		Amount (HK$)
(1)	Balance in bank account		3,475.79
(2)	Safe deposit box		36,020.00
	(a)	key deposit	$ 420
	(b)	cash	$15,600
	(c)	contents	$20,000
(3)	The Property (estimated value)		900,000.00
	Less:
(4)	Deductions		50,000.00
	Net principal value of estate:		889,495.79

7.  After the death of the Deceased, the Property was occupied by an old lady called Madam Wong Wah until some time before July 2007.  It is the defendant’s case that Madam Wong had been living with the Deceased in the Property for more than ten years and had always taken care of the deceased.  The defendant claimed that Madam Wong was entitled to occupy the Property after the Deceased’s death because the Deceased had orally promised Madam Wong that the latter was allowed to live in the Property for as long as she wished.  The plaintiff does not accept Madam Wong was entitled to occupy and live in the Property after the deceased’s death.  More importantly, the plaintiff disputes that the estate should be responsible for the utility expenses incurred during Madam Wong’s stay in the Property.

Correspondence before the action

8.  Since September 2007 and until the commencement of these proceedings, there had been exchange of correspondences between the defendant through her former solicitors, Messrs Ellen Au & Co (“EA”), and the plaintiff initially personally and subsequently through the plaintiff’s present solicitors. 

9.  It started with a letter dated 12 September 2007 from EA, seeking the plaintiff’s agreement to sell the Property and to discharge out of the proceeds of sale, debts owed by the estate to the defendant and interest thereon totalling HK$500,000.  The plaintiff, who was then not legally represented, did not agree to the debts and interest, contending that several sums had already been paid to the defendant for discharging funeral and medical expenses.  He, however, offered to settle the matter by making a payment to the defendant, the figure for which was subsequently increased to $300,000.  The defendant, on the other hand, was only prepared to accept a payment of no less than $400,000. 

10.  Then by letter to EA dated 21 November 2007, the plaintiff’s present solicitors requested the defendant to expedite the execution of the assent for the transfer of the Property to the plaintiff.  By reply dated 28 November 2007, EA provided a handwritten statement of account showing a total debt of HK$380,554 was due to the defendant by the estate.  The defendant’s position as indicated in the letter, is that she would only deliver to the plaintiff the title documents and vacant possession of the Property upon being paid a sum of HK$500,000, made up of the debt of HK$380,554 and interest thereon.

11.  The defendant did not agree.  By letter dated 25 February 2008 to EA, the plaintiff’s solicitors referred to section 66 of Probate and Administration Ordinance, cap.10, and pointed out that the defendant was not entitled to postpone the giving of assent merely by reason of the subsistence of debts due to her by the estate.  The letter also reiterated the plaintiff’s doubts over the debts and requested for documents to support them.  Subsequently, on EA’s request, the plaintiff’s solicitors paid $660 as charges for copies of documents to be provided by the defendant, but no documents were ever provided and the money was later refunded.  It was said that EA had lost the relevant file.  

The present application

12.  On 3 December 2008, the plaintiff commenced these proceedings against the defendant as executrix of the estate, pursuant to Order 85, rule 2 of Rules of the High Court. In the Originating Summons, the plaintiff seeks an order directing the defendant to administer the estate by giving assent of the Property to him. 

13.  In her first affirmation in opposition, the defendant exhibited a typed statement of account together with various bills and receipts (exhibit LWYJ-1).  After taking into account an income of $3,000 received by the defendant, the debts due to the defendant and expenses incurred by her was said to be $381,984.70.  However, some of the items listed in the typed statement of account were not supported by bills or receipts.  These include items 1, 2 (hospital expenses) and 7.  Further, in relation to the hospital expenses of Hong Kong Sanatorium & Hospital (item 4), rates for the Property (item 18), utility expenses (items 19 to 21) and the safe deposit box expenses (item 22), there are discrepancies between the amounts set out in the typed statement of account and the bills and receipts exhibited to the defendant’s affirmation. 

14.  Mr Cheung, who appeared for the plaintiff, had helpfully conducted an analysis of the bills and receipts exhibited by the defendant.  According to the analysis, the debts / expenses claimed and their amounts are as follows:

	Items		Amount (HK$)
A.	Medical expenses		226,459
B.	Funeral expenses		34,300
C.	Donation in the Deceased’s name		2,000
D.	Columbarium niche fee		2,600
E.	Plumber’s charge		330
F.	Change of lock		480
G.	Rent & expenses for safe deposit box		4,770
H.	Death record search fee		280
I.	Legal fees		3,000
	(1)	Preparation and execution of the Will
	(2)	Application and grant of probate ($9,000+$6,000)	15,000
	(3)	In connection with the dispute with the plaintiff ($1000 + $4,000)	5,000
J.	Government rates for the Property [1]		23,887
K.	Management fees of the Property [2]		37,950
L.	Electricity fees of the Property		9,273
M.	Gas charges of the Property		3,942.70
N.	Telephone charges of the Property		7,446
	Total :		376,717.70

15.  It does not appear that the defendant disputes the analysis made by Mr Cheung.  In fact, Mr Ko, who appears for the defendant, had based his submissions on the analysis.  The defendant’s case, as appeared by Mr Ko’s submissions, is that items A and I(1) in the preceding paragraph are debts owed by the Deceased/ the estate to her whereas the rest of the items are funeral, testamentary and administrative expenses.

The parties’ position

16.  The defendant’s position is that she does not oppose to the relief sought by the plaintiff, but she asks that the assent of the property be made on condition that the plaintiff pays to her the debts owed by the Deceased / the estate and also her expenses in administering the estate. 

17.  The plaintiff’s position, as appeared by Mr Cheung’s submission, is that he is prepared to reimburse the defendant those expenses that are properly incurred for the benefit of the estate.  Specifically, the plaintiff agrees to pay the defendant items B to H, I(2), J and K as set out in paragraph 14 above. 

18.  It is also the plaintiff ‘s position that the defendant is not entitled to interest on the expenses incurred, referring to Foster v. Spencer [1996] 2 All ER 672, 678 and Snell’s Equity, 31^st edition (2005) para.7-70.  At the hearing, Mr Ko indicated that the defendant no longer pursue the claim for interest.

19.  It is further the plaintiff’s position that the defendant has to give credit for the value of the remainder of the estate held on trust by her as well as the $3,000 received from the plaintiff’s friend on account of his brief stay in the Property.  The defendant accepts this.  However, she says out that the current balance of the money in the bank account is $315.59.  This is as a result of payment of utility expenses from the bank account plus a $5,000 deposit made by the defendant.  I agree with Mr Cheung that, in order to avoid double counting, we should take the balance in the bank account as at the death of the Deceased (i.e. the amount as stated in the Schedule of Property).  Accordingly, the total amount that the defendant should give credit for is $42,495.79  (i.e. $3,475.79 + $36,020 + $3,000).

Items in dispute

20.  The plaintiff, however, disagrees that the estate should be liable for the medical expenses, part of the legal fees and utility expenses, being items A, I(1) & (3) and L to N set out in paragraph 14 above.  He therefore does not agree that the assent of the Property to him should be subject to the payment of these sums or the giving of security for these sums. 

21.  In respect of the medical expenses, the plaintiff’s objections are threefold.  First, the plaintiff doubts whether these expenses, which were incurred shortly before the Deceased’s death, were owed to the defendant.  He refers to the Schedule of Property issued in 2001 by the Commissioner of Estate Duty, which only recorded deductions in the amount of $50,000, but made no reference to any debts, let alone debts in the tune of over $220,000.  The plaintiff also points out that despite several requests for copy of the defendant’s affidavit to the Commissioner of Estate Duty, based upon which the Schedule of Property was issued, the defendant never produced the document and gave no explanation for the refusal.  Second, the plaintiff observes that the debts were incurred in 1997 and argues that they would have become time-barred by now.  Third, the plaintiff says the defendant comes under a position of conflict in that her personal interest as creditor of the estate conflicts with her role and duty as executrix and trustee of the estate to protect the interest of the estate and the beneficiary.  As such, she ought to pursue her claim against the estate in separate proceedings and she should for that matter step down from executorship or trusteeship.  Reliance is placed on the case of Monty Financial Services Ltd v. Delmo [1996] 1 VR 65 and Lewin on Trusts, 18^th edition (2008), para.13-54. 

22.  In the case of the legal fees for the preparation and execution of the Will, the plaintiff says that it is not an administration expense as it was incurred during the Deceased’s lifetime. The plaintiff does not accept that the estate should be liable for it.

23.  As for the utility expenses, they relate to the period after the Deceased’s death up to April / May 2007.  During this period, the Property was occupied and used by Madam Wong Wah.  The plaintiff says there is no basis for the estate to be liable for these expenses.

The relevant law

24.  The relevant part of section 66 of the Probate and Administrative Ordinance provides:

“(1) A personal representative may assent to the vesting in any person who (whether by devise, bequest, devolution, appropriation or otherwise) may be entitled thereto, either beneficially or as a trustee or personal representative, of any immovable property to which the testator or intestate was entitled or over which he exercised a general power of appointment by his will and which devolved upon the personal representative. (2) …

(3) …

(4) … (5) … (6) A personal representative may, as a condition of giving an assent or making a conveyance, require security for the discharge of any such duties, debt or liability, but shall not be entitled to postpone the giving of an assent merely by reason of the subsistence of any such duties, debt or liability, if reasonable arrangements have been made for the discharging of the same, and an assent may be given subject to any legal estate or charge by way of legal mortgage.”

25.  In light of section 66(6), the question for the court’s determination is whether the assent should be given on condition that the plaintiff pays or gives security for the items in dispute.  

Reasons for decision

26.  In terms of the first item in dispute, namely, medical expenses of $226,459, the defendant’s affirmation had exhibited two bills issued by Hospital Authority (relating to hospitalization in Queen Mary Hospital) and several statements of account issued by Hong Kong Sanatorium & Hospital.  Mr Ko argues that with these documentary evidence and as the defendant had stated under oath that she had paid the bills, she had made out a prima facie case and the plaintiff should at least be ordered to give security for these medical expenses. 

27.  The essence of the dispute, however, relates not only to whether the defendant had paid for these medical bills, but also whether she paid with her own money so that she is entitled to be repaid by the estate.  In my view, the plaintiff has raised substantial challenge to the estate’s liability to reimburse the defendant for the medical expenses. In the first place, none of the documents adduced by the defendant indicates who, let alone the defendant, paid for the hospital bills.  At the same time, in correspondence before these proceedings and in the affidavit filed herein, the plaintiff had stated that the hospital expenses were paid out of the defendant’s own pocket.  It is suggested that several sums had been paid to the defendant by the plaintiff and other relatives to meet the medical expenses.  Notwithstanding the clear stance of the plaintiff, the defendant has not provided any document to substantiate her case that the hospital bills were paid by her own money.  I would also observe that the two bills from Hospital Authority seem to relate to the same expense (i.e. for hospitalization from 11 to 14 September 1997) for while one of them is a bill, the other is a reminder for payment.   But as the plaintiff has taken no issue on this and the amount is small ($204), I need not take this further.

28.  Secondly, the absence of any reference to debts or liabilities for these medical expenses in the Schedule of Property issued by the Commissioner of Estate Duty suggests strongly that the defendant had not mentioned them in her affidavit lodged with the Estate Duty Office.  I note also that in her affirmations filed herein, the defendant had not sought to contend otherwise.  Also of significance is that the defendant had offered no explanation on why the Schedule of Property did not show a debt or liability for the medical expenses if indeed the estate owes her these sums.  

29.  Thirdly, these medical expenses were incurred and paid nearly 12 years ago.  As the plaintiff points out, there are serious doubts as to whether any debt or liability arising from them would have now become time-barred and not recoverable from the estate. 

30.  In view of the substantial challenge put up by the plaintiff, I am of the view that the court should not order the payment by the plaintiff of the medical expenses as a condition for the execution of the assent over the Property.  If the defendant were minded to pursue her claim as a creditor against the estate, the issue of whether the estate is liable to her ought to be investigated in separate proceedings with the estate represented by someone other than the defendant, as she is plainly in a position where her personal interest conflicts with that of the estate. 

31.  I am further of the view that it is inappropriate to order the plaintiff to give security for the medical expenses.  It must be apparent to the defendant from the outset (and latest by 2001 when she filed the affidavit and obtained the Schedule of Property) that the remainder of the estate is insufficient to meet the liabilities allegedly owed to her.  As a reasonable and prudent executrix and trustee, she should have promptly taken out administration proceedings under Order 85, rule 2 of Rules of the High Court to seek directions on the further conduct of the administration.  And at the latest, when the plaintiff indicated objection to her claims for medical and other expenses, the defendant should have immediately sought the court’s directions on the dispute. However, the defendant took no such step and only insisted that the defendant paid her personal claims as a pre-condition to executing the assent over the Property.   

32.  As a matter of fact, other than obtaining the Schedule of Property, the defendant had done nothing to administer the estate.  She did not proceed to obtain probate until 2007.  Mr Ko explained that this was because Madam Wong was living in the Property and the defendant did not wish to act contrary to the Deceased’s promise by disturbing Madam Wong’s occupation.  It seems the defendant takes the view that the plaintiff’s interest as a beneficiary and specific legatee under the Will is subject to Madam Wong’s alleged right to remain in the Property for as long as she liked.  Such a view has no proper foundation.  It is unclear how a mere oral promise made by the Deceased can as a matter of law confer upon Madam Wong an entitlement to occupy or use the Property. The Will, which is the Deceased’s last will, did not give Madam Wong any interest in the Property or a right to occupy or use it.  On the other hand, there is nothing in the Will that reduces or restricts the plaintiff’s interest or rights under the specific gift over the Property.  The explanations offered for the defendant’s inaction or failure to discharge her duties as executrix and trustee of the Will are simply untenable in law.

33.  The long and short of it is that the plaintiff’s entitlement to the gift over the Property and his right to have an assent of the Property to him has been unduly deferred.  It will be unfair to further delay his entitlement by subjecting him to the burden of putting up security for a liability that is under serious challenge.

34.  As for the legal fees for the preparation and execution of the Will, the position is similar to that of the medical expenses. For the reasons stated in the preceding paragraphs, the plaintiff should not be ordered to pay or give security for this part of the legal fees as a condition to the defendant executing an assent of the Property to the plaintiff.

35.  In relation to the legal fees incurred for the dispute with the plaintiff, these are costs of these proceedings and fall to be dealt with by the costs order to be made herein.  I shall deal with this in the latter part of the Judgment.

36.  Turning finally to the utility expenses, as noted above, the legal basis for Madam Wong’s occupation and use of the Property after the Deceased’s death is very much in doubt.  Even if Madam Wong were so entitled, it must still be shown that the estate had to be responsible for utility expenses in connection with her occupation and use.  The evidence filed by the defendant does not show that the Deceased had promised Madam Wong that she could stay in the Property without having to be responsible for the utility expenses.  The defendant has therefore failed to prove that the estate comes under a liability to pay for the utility expenses.  Given that these expenses were incurred without authority and without consent of the beneficiary, and that the liabilities do not in any way benefit the estate, the defendant is not entitled to indemnity: Lewin on Trusts, apra.21-32 and Snell’s Equity, para.7-71.  There is no basis to order payment of or giving security for the utility expenses as a condition to the execution of the assent.

37.  In short, I hold that the plaintiff should reimburse the defendant the amounts under items B to H, I(2), J and K as set out in paragraph 14 above, which comes up to a total sum of  $121,597.  At the same time, the defendant should give credit for the value of the remainder of the estate held on trust by the defendant and the $3,000 received by the defendant, totaling $42,495.79.  The net balance to be paid by the plaintiff to the defendant is therefore $79,101.21. Upon receiving the reimbursement, the defendant should execute an assent over the Property in favour of the plaintiff.

Costs

38.  As to the costs of these proceedings, the plaintiff asks that they be borne by the defendant personally.  The defendant on the other hand asks that her costs be paid out of the estate and that there be no order as to the plaintiff’s costs.

39.  In administration proceedings that are not hostile litigation, normally the parties’ costs will be paid out of the estate. In the present case, having regard to the fact that the Property makes up the main and substantial part of the estate and the plaintiff is the sole beneficiary of it, such an order will effectively mean that the costs are paid by the plaintiff.

40.  As to costs incurred by an executor or trustee in legal proceedings, Order 62, rule 6(2) of Rules of the High Court provides:

“Where a person is or has been a party to any proceedings in the capacity of trustee, personal representative or mortgagee, he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by the trustee or personal representative or the mortgaged property, as the case may be; and the Court may otherwise order only on the ground that the trustee, personal representative or mortgagee has acted unreasonably or, in the case of a trustee or personal representative, has in substance acted for his own benefit rather than for the benefit of the fund.”

41.  Henceforth, the defendant’s costs in these proceedings will be paid by the estate unless the court is of the view that she has acted unreasonably or that she has in substance acted for her own benefit rather than for the benefit of the estate as a whole.  As the foregoing analysis shows, the primary contention between the parties relates to what the defendant claims are debts owed to her and incurred during the Deceased’s lifetime (i.e. medical expenses and legal fees for preparation and execution of the Will).  In resisting the plaintiff’s request to have an assent to him over the Property and insisting on discharge of or security for these debts before execution of the assent, the defendant is no doubt advancing her own personal interest and is seeking to subject the interest of the beneficiary to her own.  As mentioned above, the defendant is in a position of conflict of interest.  The conflict is made particularly acute by Mr Ko’s proposition that these debts will not be time-barred because time only starts to run when the defendant makes a demand for repayment to the estate.  Indeed, as observed above, the defendant has taken no or no active step to discharge her duties as executor and trustee. 

42.  In so far as it is argued that the defendant’s conduct is consistent with that of a prudent executor and trustee, who will act to ensure that the estate will be able to meet the claims of its creditors, the submission plainly ignores the essential fact that the debts that the defendant is seeking to make provision for, are debts said to be due to her.  In fact, she is the only one who has claimed to be a creditor of the estate.  I do not accept that the defendant is acting for the benefit of the estate in her dealings with the plaintiff’s request for an assent to transfer the Property, including the conduct of these proceedings.    

43.  In respect of the utility expenses, for reasons canvassed above, the defendant has no basis for demanding payment or security from the plaintiff.  Her approach to and conduct of the matter is in clear contradiction of the terms of the Will, which she is under a duty to faithfully administer.  In my view, the defendant acts unreasonably in, firstly, allowing the estate to assume responsibility for the utility expenses and, secondly, insisting on their payment as a condition to the execution of the assent.  Further, in seeking to have the estate (and in turn the plaintiff) reimburses her for the utility expenses, the defendant is effectively seeking to have the estate pays for her mistakes in administering the estate.  In so doing, she is again advancing her personal interest and acting for her own benefit.

44.  For these reasons, this is a case where the exception should apply such that the defendant should not be allowed to recover her legal costs from the estate.  Accordingly I make no order as to her costs.

45.  As to the costs of the plaintiff, I am of the view that they should come out of the estate and for practical reason, no order should be made.  This is because it is only in Mr Cheung’s written submissions that the plaintiff accepts responsibility for administrative expenses reasonably incurred.  Previously, his position was that, as specific legatee, he is entitled to take the gift over the Property free from the estate’s liability for the reasonable administrative expenses.  Having adopted that attitude, it would be necessary to issue administrative proceedings to resolve the differences.  Hence, the plaintiff is not entitled to seek his costs against the defendant personally.

Conclusion

46.  In summary, I make the following orders:

(2)   The plaintiff shall pay the defendant the sum of HK$79,101.21.

(3)   Within 7 days or such other period as may be agreed between the parties, the defendant shall execute an assent of the Property in favour of the defendant with the legal costs for the assent to be borne by the plaintiff.

(4)   There is liberty to apply.

(5)   There is no order as to the costs of the plaintiff and of the defendant of and incidental to these proceedings.

[1]   Inclusive of the payment for October 2007 to December 2009, which was exhibited in the defendant’s 2^nd affirmation.

[2]   This is up to June 2007. The defendant has not paid the management fee after June 2007, which is at $330 per month.