WONG POH GEAK AND OTHERS v. CHIN LAN HONG AND OTHERS

HCMP 3956/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3956 OF 2002

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AND

HCMP 5186/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 5186 OF 2003

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BETWEEN

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REASONS  FOR  DECISION

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1.  On 29 January 2004 I ordered that there be a determination of the following matters:-

(1)	the legal and beneficial ownerships of Worldcup, Doran and Profit-taking (the 3 companies) and their assets; and,
(2)	the validity of debts of $19.4 million; $22.7 million and $76.5 million (the disputed debts) alleged to be due from the Estate to one or other of the 3 companies.

As noted in my 29 January 2004 Decision, there was no dispute among the parties that I should order the determination which I did.

2.  I left it to the parties to agree directions on how the determination should proceed.  The parties could not agree.  The matter was therefore restored for further directions.

3.  At the start of the hearing, I indicated that, having read the parties' skeleton arguments, my thinking was as set out in §§4-16 below.

4.  The determination should proceed by separate proceedings, rather than under the present Originating Summons (HCA No.3956) or under the parallel Originating Summons (HCA No.5186) brought by a different (albeit overlapping) set of parties. 

5.  The determination should proceed through pleadings, witness statements, discovery and trial. 

6.  The parties essentially fall into 2 factions.  One faction (represented by the Plaintiffs) contends that the 3 companies and their assets belong to the Estate and queries the validity of the disputed debts.   The other faction (including the Executors in their capacity as beneficiaries) contends that 2 companies under their control, Four Pillars and Megabest, have beneficial interests in the 3 companies.  That faction maintains that the disputed debts were valid, although it accepts that a substantial part of those debts are now time-barred and no longer enforceable by the 3 companies.

7.  At present, the 2 factions' contentions are dispersed over a variety of affidavits in various proceedings.  It would be helpful to the Court to have a succinct statement of each faction's case.   Hence, I felt that a conventional process by way of statement, counter-statement and reply was required.  It would also assist to have composite witness statements, rather than factual evidence to be gleaned from numerous affidavits.

8.  The following seemed to be relevant parties to the determination proceedings:-

(1)	The Plaintiffs in HCA Nos. 3956 and 5186.
(2)	Four Pillars and Megabest, both of which claim (contrary to the Plaintiffs' contentions) to be beneficial owners in the 3 companies.
(3)	The 3 companies.
(4)	The Executors of the Estate in their capacity as  Executors (as opposed to their parallel capacity of beneficiaries of the Estate).

In referring to “relevant parties”, I do not preclude the possibility of other persons being joined (or intervening to be joined) as parties.

9.  The 3 companies, Four Pillars and Megabest should be joined to be bound by the Court's finding.  The beneficiaries behind those corporate entities were already before the Court as parties in HCA No. 3956 and 5186.  There should therefore be no difficulty (as Mr. Edward Chan SC representing the Executors as beneficiaries later confirmed) in formally joining the corporate entities to the determination. 

10.  The Executors should be parties to the determination for 2 reasons, namely:-

(1)	so that the Estate can be bound by the Court's determination; and,
(2)	so that the Estate can make discovery of relevant documents.

On the latter reason, I thought that there might well be relevant documents which were not in the hands of the 3 companies, Four Pillars or Megabest, but which were in the possession, custody or control of the Estate.

11.  I was prepared to reserve the hearing of the determination and any interlocutory matters arising in connection with it to myself.

12.  The parties should, as much as possible, adhere to a strict timetable which I was prepared to set out at the hearing on 1 June 2005.  The dispute has been around for some time.  It should be resolved expeditiously.

13.  All questions of costs in relation to the directions hearing on 1 June 2005 should be reserved.  As far as I could see, questions of cost at this stage would only needlessly raise the already frayed tempers of the rival factions of beneficiaries.

14.  I would not dismiss either HCA Nos. 3956 or 5186 at this stage (as the Executors apparently invited me to do).  It seemed to me that one or other or both of those proceedings might usefully be retained to deal with routine or other questions arising in the administration of the Estate.

15.  I would not appoint a Judicial Trustee to replace the Executors at this stage.  Such appointment presupposes that the Executors are guilty of some breach of duty.  Although repeatedly alleged by the Plaintiffs, no such breach has so far been established.

16.  Nor was I minded to direct that forensic accountants be appointed to investigate the Estate's finances and assets.  If the rival factions saw fit, they could adduce expert evidence on specifically defined issues at the hearing of the determination. No precise issues have yet been defined in any pleadings.  It was unclear to me just what forensic accountants would be investigating, apart from conducting some vague, open-ended inquiry into all the Estate's finances.  That would be undesirable in terms of time and expense.

17.  I briefly adjourned the hearing for the parties to take instructions on the proposals set out above.

18.  Upon resumption of the hearing, Ms. Gladys Li SC (appearing for the Plaintiffs) submitted that my proposals were "bizarre".  She argued that the Plaintiffs were being forced to commence adversarial proceedings against persons who were not parties to the present proceedings.  This (Ms. Li thought) was wrong in principle.

19.  The Plaintiffs (Ms. Li contended) would have imposed on them a burden of proving a negative, when all they were seeking was the due administration of the Estate.  In any case, how could the Plaintiffs conduct their case (Ms. Li asked rhetorically) when they were not in possession of relevant documents relating to the Estate. 

20.  Ms. Li instead suggested that the determination should initially proceed by way of an investigation into the validity of the disputed debts.  She pressed for the appointment of forensic accountants in connection with the same.  Ms. Li thought that whether or not the ownership of the 3 companies and their assets had to be determined, would depend on the outcome of the inquiry into the disputed debts.

21.  I was not persuaded by Ms. Li's submissions.

22.  One cannot escape the fact that the determination here is adversarial in nature.  The Plaintiff's faction contends one thing, the other faction contends the contrary.  The Plaintiffs may be right or wrong.  My proposed directions do not transform the dispute between the parties into something other than it has already been all along.

23.  Ms. Li complained that effectively the proposed directions amounted to compelling the Plaintiffs "to put up [with the costs of bringing their dispute] or shut up".  She submitted that this was unfair to the Plaintiffs.  I do not see how this can be the case. 

24.  If the Plaintiffs are right, barring special circumstances, they will no doubt have their costs at the end of the day as in conventional litigation.

25.  Now assume that one proceeds as Ms. Li suggested by the appointment of forensic accountants.  Assume further that, after lengthy and costly investigation, the accountants conclude that the Plaintiffs' faction was wrong in its allegations.  If so, as a matter of first impression, why should the Estate bear the expense of the forensic accountants?  The Plaintiffs would presumably have to bear the wasted costs of any auditing exercise.

26.  I do not understand how the mere fact that the determination proceeds by way of a separate action number and by pleadings means that the Plaintiffs become more exposed to costs than they would otherwise be even on Ms. Li's suggested procedure.

27.  Ms. Li suggested that the Plaintiffs may just not be sure that the 3 companies and their assets were entirely owned beneficially by the Estate.  The beneficiaries may simply want the matter to be "investigated".  The directions which I proposed would force the beneficiaries to take the driving seat.

28.  I do not think that it is the function of the Court to order "investigation" for the mere sake of investigating.  There must be some "lis".  It is not enough vaguely to allege "suspicions".  Both factions agreed that I should order a determination into the 3 companies, their assets and the disputed debts.  I assume that this is because there was (and remains) a difference between the parties on these issues. 

29.  As I pointed out to Ms. Li at the hearing, a party must have the courage of his convictions.  One cannot blow hot and cold as to his case.  If one has no real case, there is no point to a determination.  If one has a case, he should state clearly what it is.  He cannot avoid responsibility for the consequences of his act by merely alleging that "the evidence is unclear".

30.  Both in her skeleton and orally before me, Ms. Li seemed to be attempting to turn the determination into something which I had not ordered.  She repeatedly stressed that the Plaintiffs had a prima facie case that the Executors had breached their fiduciary duties.  The Executors (she said) were in an impossible position of conflict since they were both beneficiaries and executors.  The determination (Ms. Li believed) should effectively be into whether the Executors had duly administered the Estate.

31.  It is not unusual for a person to be both fiduciary and beneficiary in respect of an estate.  A trustee, for example, may hold on behalf of himself and others.  The Court cannot deduce a fatal conflict of interest in the trustee from that mere circumstance alone. 

32.  The Executors here may or may not have duly administered the Estate.  They may or may not too readily have taken a particular view as to the beneficial ownership of the 3 companies or as to the validity of the disputed debts.  I cannot decide such questions now.  Nor is the forthcoming determination the proper forum in which to consider such questions or any analogous question as to the due administration of the Estate and any alleged breach of fiduciary obligation.

33.  The determination which I have directed is a straightforward inquiry into the beneficial ownership of shares and assets and the validity of debts.  It is nothing more and nothing less.  I have not ordered any determination of the bona fides or otherwise of the Executors.  It would be wrong for the Court now to include that very different latter issue into the determination which has actually been ordered.

34.  I do not think that Ms. Li's argument about reversing the burden of proof is valid.  The form that proceedings take cannot dictate the burden of proof which is a question of substance, not procedure. Further, I indicated to Ms. Li at the outset that I did not regard the burden of proof as necessarily being on the Plaintiffs, even if (for convenience) I was inviting the Plaintiffs to initiate the determination by stating their case.  I made it clear that I was directing the Plaintiffs to state their case without prejudice to questions of onus.  Burden could be addressed in submissions during the determination itself.

35.  I do not think that Ms. Li's argument about the Plaintiffs' lack of access to documents is valid either.  The whole point of joining the Executors is precisely to ensure that discovery of relevant documents is made.  Discovery will give access to documents.  If the Executors fail in their obligation to make proper discovery, applications for further and specific discovery can be made.

36.  I do not think that Ms. Li's alternative procedure is workable.  She handed up a long list of matters which forensic accountants were to investigate.  But nowhere did the list make clear what specific issues the accountants were meant to be addressing.  The list appeared to be little more than a pretext to have accountants conduct an extensive audit of the Executors' administration of the Estate.  As pointed out, that is not the purpose of the determination.

37.  Ms. Li's suggested process requires cross-examination by the Plaintiffs of identified witnesses.  But again what is the cross-examination to be about?  How are the issues to be defined?  Indeed, why would not cross-examination turn Ms. Li's suggested proceedings into the very adversarial process to which she objects?

38.  Nor do I understand how, on Ms. Li's proposed scheme, the outcome of an investigation into the validity of the disputed debts may preclude determining the beneficial ownership of the 3 companies and their assets. 

39.  The 3 companies have themselves recently acknowledged that the disputed debts are mostly unrecoverable due to time-bar.  As a result, a substantial part of the so-called disputed debts are no longer in actual dispute.  Ms. Li argues that such "volte-face" on the part of the 3 companies (which are controlled by the faction opposing the Plaintiffs) shows a lack of bona fides on the part of the Executor beneficiaries.  She suggests that this is all the more reason why the disputed debts should be investigated to expose maladministration of the Estate.

40.  I stress that the administration of the Estate is not the subject of the determination which I have ordered.  To the extent that the debts are no longer disputed, there is nothing further to investigate on that score, within the actual determination which I have directed. 

41.  That would leave the ownership of the 3 companies and their as the substantive issue to be resolved.  The issue of the disputed debts would seem to have little or no bearing on that substantive issue of beneficial ownership.  A corollary is that it makes no sense to have the question of the disputed debts as a preliminary issue in the determination, when so little of the debts remains disputed.

42.  For the above reasons, I rejected Ms. Li's submissions. I accordingly proceeded along the lines that I had indicated at the start of the hearing.