WU SHUK CHUN v. KWONG OI LIN AND OTHERS

HCMP 2301/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2301 OF 2006

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BETWEEN

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J U D G M E N T

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1.  This case concerns the estate of the late Woo Kin Hang who died on 5 December 2001. The 1^st and 2^nd Defendants are the co-executors of his last will made on 28 October 1997 [“the Will”]. Probate was granted on 30 October 2003. The administration of the estate has a chequered history. The principal asset in the estate is a six-storey building [“the Building”] erected on the piece of land known as No.277 Castle Peak Road, Kowloon.

2.  Under the Will, the Building was bequeathed to different persons: the Ground Floor to his three sons (the 2^nd to 4^th Defendants); the First Floor to his concubine (the 1^st Defendant); the Second Floor to the 5^th Defendant, one of his daughters; the Third Floor to 6^th defendant, another daughter; the Fourth Floor to the Plaintiff, another daughter; and the Fifth Floor to the 7^th Defendant, yet another daughter.

3.  Notwithstanding the grant of probate and the provisions in the Will, the co-executrix has not been able to complete the administration of the estate. In particular, the title in the respective floors of the Building has yet to be passed to the specified devisees. Dissatisfied with the progress of the matter, the Plaintiff commenced the present proceedings. In the two decisions dated 23 October 2007 and 16 December 2008 respectively, Master Jack Wong referred to some of the problems in respect of the administration of the estate. In summary, the principal problems revolve around the following questions,

(a)   whether it is necessary to have a Deed of Mutual Covenants [“DMC”] and if it is necessary, what should be terms of the DMC in the absence of agreement between all the parties;

(b)   how to deal with the common entrance, roof, staircase and other common areas shared between the Building and the adjacent building erected on No.279 Castle Peak Road;

(c)   the effect of Clause 10 of the Will.

4.  As early as 23 October 2007, Master Jack Wong had pinpointed that in order to have a smooth and early resolution of the matter, the parties should engage in positive discussion to achieve some consensus. At para.20 of his Decision on that date, the Master said,

“It suffices for me to say that all beneficiaries should put their heads together the soonest possible and discuss with their legal advisors as to how each individual floors of the Building are to be conveyed separately in order to complete the administration.”

5.  And then in his Decision of 16 December 2008, the Master said these at para.12,

“I can also see that everybody wants to see the administration being completed. How is it going to be done then? It is primarily the job of the Executors to be co-operated by all the beneficiaries.”

6.  With a view to assist the Co-executors, the Master drew up a preliminary timetable and gave directions on how the matter should proceed. In a nutshell, the Master directed the Co-executors to obtain an opinion from a Senior Counsel as to how the conveyance of the titles could be achieved.

7.  The Co-executors did not proceed to obtain the opinion because they mistakenly believed that the estate could not use the rental income from the Building for that purpose. After a lack of progress for some time, the Plaintiff took out a summons on 27 October 2009 seeking removal of the Co-executors and appointment a solicitor to act in their place.

8.  At the hearing on 12 November 2009, whilst this court shared the concern as to the apparent lack of progress, I also had reservations about whether removal of the Co-executors was called for. The court also pointed out that until the completion of the administration, the rental income should be regarded as the income of the estate which could be used to cover the administration expenses, including legal costs. Directions were given for making progress in terms of obtaining the legal opinion.

9.  Further directions were given at another hearing on 26 November 2009. By that stage, the Plaintiff no longer pursued the application for removal of the Co-executors.

10.  An opinion from a Senior Counsel was obtained on 29 December 2009. By reason of the fact that some of the parties act in person, they had difficulties in understanding the counsel opinion. In accordance with the advice in the counsel opinion, solicitors for the Co-executors also prepared a draft Composite Deed and a draft Deed Poll for the parties’ consideration. Letters were sent to the parties together with the drafts to solicit their views.

11.  This court also gave several directions on papers. One of those directions was a direction on 8 February 2010 that the Co-executors shall take out a construction summons to deal with Clause 10 as suggested in the counsel opinion.

12.  The Co-executors took out the construction summons on 9 March 2010. The construction summons was first heard on 12 April 2010. At that hearing, the unrepresented parties intimated to the court their lack of understanding as regards the counsel opinion and the draft documents. The court therefore directed the Co-executors to hold a meeting with all the beneficiaries and to arrange for its solicitor to explain to them the counsel opinion, the issues to be dealt with under the construction summons and the draft documents. Directions were also given as to the filing of written answers by the beneficiaries to a questionnaire seeking comments on the construction summons and the draft documents.

13.  The Co-executors duly complied with such directions and a meeting was held on 14 May 2010. Counsel previously acting for the Co-executors (not Mr Hu who appeared for the first time at the hearing of 19 July 2010 on short notice) explained the relevant documents to all the beneficiaries (except the Plaintiff who has all along been legally represented and the 7^th Defendant). I do not know the reason why the 7^th Defendant did not attend but she did not appear to have difficulties in responding to the questionnaire.

14.  On 2 July 2010, the Co-executors filed a fresh construction summons. In addition to dealing with the construction of Clause 10 of the Will, a new paragraph 3 seeks relief concerning the draft Composite Deed and the draft Deed Poll, in particular,

(a)   The number of undivided shares attached to each specific gift;

(b)   The number of management shares attached to each specific gift;

(c)   The common area of the Building;

(d)   The third party rights that the Building is subject to.

15.  At the hearing on 19 July 2010, after considering the submissions (written as well as oral) from the parties, I intimated that I could not deal with the relief sought under the new paragraph 3 and I shall concentrate on the construction of Clause 10.

16.  The reasons why I cannot deal with the new paragraph 3 are as follows. First, the matters raised are not matters of construction. These issues cannot be resolved by construction of the Will. The Will does not contain any provisions pertaining to these issues.

17.  Second, whilst the court can give directions or determine questions for the administration of estate under the Order 85 procedure, the Co-executors must ensure all the necessary information is placed before the court before they can expect this court to give the necessary guidance. In this connection, I wish to remind the Co-executors of their duty as set out by Lord Oliver in Marley v Mutual Security Merchant Bank [1991] 3 All ER 198 at p.201d to g,

“In the first place, there has always to be borne in mind the position and duties of a trustee who applied to the court for directions. A trustee who is in genuine doubt about the propriety of any contemplated course of action in the exercise of his fiduciary duties and discretions is always entitled to seek proper professional advice and, if so advised, to protect his position by seeking the guidance of the court. If, however, he seeks the approval of the court to an exercise of his discretion and thus surrenders his discretion to the court, he has always to bear in mind that it is of the highest importance that the court should be put into possession of all the material necessary to enable that discretion to be exercised. It follows that, if the discretion which the court is now called upon to exercise in place of the trustee is one which involves for its proper execution the obtaining of expert advice or valuation, it is the trustee’s duty to obtain that advice and place it fully and fairly before the court, for it cannot be right to ask the judge in effect to assume the burdens of a trustee without the information which the trustee himself either has or ought to have to enable him to carry out his duties personally. The court ought not to be asked to act upon incomplete information and, if it is so asked, the proper course is either to dismiss the application or to adjourn it until full and proper information is provided.”

18.  On the question of allocation of shares to different floors, the opinion of Senior Counsel was that it could be quite contentious and expert valuation report would be necessary. He also raised a query as regards whether the Ground Floor is larger in area as compared with the other floors. From the responses to the questionnaire, there are different views as to the allocation of shares. No expert valuation report has been placed before this court and there is no information about the size of each floor. Apart from saying that the Co-executors adopt a neutral stance, I do not receive much assistance from them as to how the conflicts could be resolved. When this court queried whether I have the power to impose a determination as to the shares allocation on the parties, neither counsel for the Co-executors nor Mr Lam for the Plaintiff could pinpoint a satisfactory basis for such jurisdiction.

19.  In the questionnaire, it was proposed that undivided shares would be distributed to each floor plus the roof and the common area. When this court queried why a distinction was drawn between the roof (which most if not all the beneficiaries agree should be for common use) and the common area, there was no satisfactory explanation.

20.  In his legal opinion, Senior Counsel suggested some management shares be allocated to the common areas or common parts or common facilities. Such management shares were to be allocated equally amongst the owners of each floor. At paragraph 66 of the opinion, counsel explained the purpose of such allocation: to anticipate the appointment of manager by agreement or upon incorporation under the Building Management Ordinance [“BMO”].

21.  Yet in the questionnaire, in addition to undivided shares allocated for the roof and the common area, there was another category of shares called management shares, again to be divided between the floors, the roof and the common area.  When the court enquired with counsel for the Co-executors as regards why it was necessary to have this separate category, counsel relied that it might not be necessary. Counsel further said that it might not even necessary to have any shares allocated to the roof and the common area.

22.  All in all, I do not think the mechanism as to the future management of the Building has been thought through carefully. It is not clear to me whether the parties intend to appoint a management committee and to set up an Incorporated Owners under the BMO. In some answers to the questionnaire, some beneficiaries seem to work under the assumption that the owners of the Building together with the owners at the adjacent lot could form one Incorporated Owners. At the hearing the handling partner of the solicitor firm acting for the Co-executors seemed to labour under the same assumption. I am doubtful whether this is legally viable in the light of the definition for “owner” and the overall scheme of the BMO.

23.  On the question as to common areas, again there were confusions in the responses regarding common facilities shared with the adjacent lot and the common areas for the Building only. The common facilities shared with the adjacent lot could be party structures governed by the Second Schedule to the Buildings Ordinance and the law of easement. The precise rights and obligations regarding such structures as between the owners of the two buildings cannot be unilaterally decided by the terms of a document executed by the owners of one building only. I was however told that there has not been any discussion with the owners of the adjoining building concerning the common entrance and staircase.

24.  On the other hand, the roof appears to be a common area for the Building only.

25.  In such circumstances, this court cannot give any useful guidance as regards the matters raised in the new paragraph 3. I appreciate that the parties would like to resolve all outstanding issues and get on with the assignment of the individual floor to the respective beneficiary named under the Will. However, they have to understand for some outstanding issues, unless they can reach a consensus, much works need to be done before the court is in a position to determine such issues, if at all. And such process would inevitably take time and costs money.  Further counsel opinion may have to be obtained.  The estate would have to fund the same as part of the costs of administering the estate. Take the allocation of shares as an example, if there were disagreement, surveyor’s evidence is necessary before the court can decide which allocation is a fair one (assuming the court has jurisdiction to make such decision). At the hearing, there was an indication that the parties may reach agreement on this issue: each floor would be allocated one share. In the light of that, the Co-executors should try to have such agreement confirmed and take things forward from there.

26.  In respect of the construction of Clause 10, senior counsel was of the view that the clause was peremptory and had legal effect. It created a personal right that lapses or expires upon death. The obligation ceases upon the demise of the beneficiary concerned.

27.  Clause 10 reads,

“It is my wish that after the vesting of my interests in the properties known as No.277 Castle Peak Road to my said concubine and children as detailed in Clauses 4 to 9 hereof, if any of my said concubine and/or children shall be desirous of disposing of the property so vested in him or her, priority shall be given to the other named persons under Clauses 4 to 9 hereof at the price to be agreed by the parties or at the then market price. In case of any disagreement on the market price of such property, an independent surveyor shall be appointed by the parties for the purpose of deciding the market price of the property or properties in issue. In default of agreement on such appointment within 3 months of the indication of the desire of disposing of the property by any of the named persons as aforesaid, any party interested in the transaction shall be entitled to request the President for the time being of the Hong Kong Institute of Surveyors to appoint an independent surveyor to determine the market price and whose decision shall be final and binding on the parties thereto.”

28.  It can be seen that,

(a)   The priority provision (which gives other beneficiaries an option of first refusal) is in peremptory terms (“priority shall be given”);

(b)   Built into the clause is an elaborate mechanism for settling the price for the exercise of the option if it is not agreed, including the appointment of an independent surveyor for that purpose.

29.  On the other hand, the opening part of Clause 10 refers to the wish of the testator. This might suggest to some that what set out in Clause 10 was a mere wish on his part and the beneficiaries are not bound to observe the same. But it might also be read otherwise. There were cases in the past where the court held that a request expressed by way of wish or confidence was in substance a provision creating binding legal obligations (see Comiskey v Bowring-Hanbury [1905] AC 84; Re Steele’s Will Trusts [1948] Ch 603). At the end of the day, it is a question of construction of the document in question.

30.  The Co-executors took a neutral stance. Whilst the 5^th to 7^th Defendants expressed the view that they did not agree with the implementation of Clause 10, they did not advance any reasoned arguments on the question of construction.

31.  In my judgment, on proper construction, in view of the features referred to in paragraph 28 above, notwithstanding the opening words of Clause 10, it is binding on the beneficiaries. If the testator did not intend that provision to be binding, it is difficult to see why he would have gone to such length as providing for a mechanism for the implementation of the option.

32.  I also agree with senior counsel that the option is a personal right, viz. binding only as between the beneficiaries personally.

33.  Turning next to the matters raised in paragraph 2 of the summons. It follows from my above analysis that a beneficiary is obliged to give priority to the other beneficiaries if the former intends to dispose of his or her own floor. By necessary implication, such a beneficiary must give reasonable notice of his or her intention to dispose of the floor to the other beneficiaries in order to give business efficacy to the option.

34.  The Co-executors referred to some practical aspects on the implementation of the option which Clause 10 does not expressly deal with. At the moment, there has yet to be consensus amongst all the parties on these practical aspects. Subject to what I shall say below, I am of the view that unless parties can agree amongst themselves, the court cannot impose its decision on them and there is no need to include provisions catering for these aspects in the Deeds to be executed. If necessary, when disputes arise in the future, the court will have to resolve them by reference to what is reasonable in the circumstances. This court simply cannot pre-empt what will happen in the future.

35.  On the other hand, I must emphasize that it would be much better if parties can come to agreement in these respects. If parties can achieve that, the terms agreed can then be set out in the Deeds to avoid uncertainties and disputes in the future.  

36.  Since it is an option given to the other beneficiaries, it would be more in line with the spirit of Clause 10 that they should put forward a purchase price rather than leaving it to the beneficiary disposing his or her interest to state an asking price in the notice.

37.  Since Clause 10 does not discriminate between the beneficiaries, a fair opportunity must be given to all the other beneficiaries to exercise the option. Thus, the notice must be sent to them at around the same time and a reasonable period must be given for response.

38.  What if there is more than one beneficiary interested in the exercise of the option? In my view, the selling beneficiary is at liberty to sell to any one of them. Usually it would be the highest bidder but it does not necessary be so. In this connection, I note the senior counsel suggested that the selling beneficiary must sell to all the bidders collectively. I do not accept that construction which proceeds on the assumption that the option is granted to all the other beneficiaries collectively. If that were correct, it should mean that the option can only be exercised when all the other beneficiaries agreed to do so. I do not see any reason why that should be so. So long as the selling beneficiary is selling to one of the other beneficiaries, he or she would have discharged the obligation under Clause 10.

39.  I believe I have decided all questions which I can decide in the context of the construction summons. The Co-executors shall lodge a draft order in the light of my determination for approval within 14 days.

40.  Since paragraph 3 has been adjourned, I shall reserve the question of costs.