LAM SIK SHI v. LAM SIK YING,ADMINISTRATOR OF THE ESTATE OF LAM TIM ALIAS STAN LAM TIM, DECEASED AND ANOTHER

HCA 1605/2004 &
HCA 894/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1605 OF 2004

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 894 OF 2011

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J U D G M E N T

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INTRODUCTION

1. This is yet another litigation amongst siblings over the estate of their deceased father.

2. The protagonists in this action are (i) Lam Sik Shi Tony (“Tony”) and Lam Mo Chu Susie (“Susie”) from one branch of the Lam family on one side and (ii) Lam Mo Lin, also known as Look Mo Lin (“Mo Lin”) and Lam Sik Ying Victor (“Victor”) from another branch of the family on the other.  Their father, the late Mr Lam Tim (“the Deceased”) died intestate in Hong Kong on 6 January 1983.  Victor currently is, and at all material times was, the sole administrator of the estate (“the Estate”) of the Deceased.

3. One of the properties left by the Deceased on his death was No 6 Sharp Street East, Hong Kong (“the Property”).  On 8 February 2007, Victor in his capacity as the administrator of the Estate sold and assigned the Property to Advance Property Holding Limited (“APH”), a company owned by Mo Lin and his son Look Che Wei, Gigo (“Gigo”).

4. By their respective actions in HCA 1605/2004 and HCA 894/2011, Tony and Susie challenge the propriety of the purported sale of the Property by Victor to APH.

5. In HCA 1605/2004, commenced by Tony against Victor as the 1^st defendant and APH as the 2^nd defendant on 9 July 2004, Tony alleges that:-

(1) there was no binding or enforceable agreement reached in May 2003/August 2003 for the sale and purchase of the Property between Victor (acting as administrator of the Estate) and APH;

(2) Victor, in breach of fiduciary duties owed to the Estate or the beneficiaries of the Estate, offered to sell and allegedly sold the Property:-

(a) in an improper manner, resulting in the Property being sold –

(i) at an undervalue; and

(ii) on terms detrimental to the Estate;

(b) for the purpose of favouring one branch of the Lam family to the detriment of the another branch of the family; and

(3) APH was not a bona fide purchaser for value without notice of Victor’s impropriety, and dishonestly assisted Victor in his breach of fiduciary duties.

6. In HCA 894/2011, commenced by Susie against Victor as the 1^st defendant and APH as the 2^nd defendant on 27 May 2011, Susie alleges that:-

(1) APH purchased the Property as Victor’s nominee, and thus the sale of the Property was a sale of trust asset by a trustee to himself;

(2) Victor breached his fiduciary duties as administrator of the Estate in relation to the sale of the Property to APH, in that –

(a) he failed to present the Property in the best light to potential purchasers;

(b) he failed to secure proper competition to get the best price;

(c) he failed to investigate higher offers;

(d) he advanced one beneficiary’s interest at the expense of another; and

(e) he sold the Property at an undervalue.

7. In HCA 894/2011, Victor has raised a counterclaim against Susie, alleging that she wrongfully occupied the property known as 1/F, No 15 Li Kwan Avenue, Hong Kong (“the Li Kwan Property”) belonging to the Estate without paying any rent for the period between January 1990 and June 2005.  Victor claims the total sum of HK$2,522,271.46, including HK$2,235,000.00 as loss of rental from January 1990 to June 2005, and other miscellaneous expenses and costs.

8. By an order of Poon J (as he then was) dated 24 October 2013, the two actions were ordered to be tried immediately one after the other.  The trial of the two actions commenced on 20 April 2015.  In addition to Tony, Susie, Victor and Mo Lin who all gave evidence at the trial, the following witnesses were called to give evidence:-

(1) on behalf of Tony -

(a) Ms Marian S K Ming (expert on Illinois law);

(b) Mr Francis F C Choi (expert on real estate marketing); and

(c) Mr Li Chi Ho (expert on valuation);

(2) on behalf of Susie - Ms Sat Wei Ling (expert on valuation);

(3) on behalf of Victor -

(a) Mr Liu King Tong (expert on real estate marketing); and

(b) Mr Alan W K Lee (expert on valuation); and

(4) on behalf of APH - Mr Edward J Underhill (expert on Illinois law).

9. On 15 May 2015, in the middle of the cross examination of Mo Lin by Mr Nelson Miu (Susie’s counsel), APH submitted to judgment being entered against it in each of the two actions.

10. In HCA 1605/2004, the amended judgment against APH as re-filed on 8 July 2015 provides (inter alia) as follows:-

(1) the sale and purchase of the Property between Victor as administrator of the Estate and APH be set aside;

(2) an account be taken of the rent and other income (if any) received by APH from the Property from 8 February 2007 less (a) the government rent and rates, property tax, and other expenses and out-goings (if any) discharged by APH in respect of the Property and (b) the purchase monies paid by APH for the Property;

(3) APH do pay the Estate any sum found to be due upon the taking of such account; and

(4) APH do pay to Tony the costs of the action on a common fund basis, to be taxed if not agreed (with certificate for two counsel).

11. In HCA894/2011, the judgment entered against APH dated 15 May 2015 is to the like effect.

12. The trial against Victor continued and was adjourned part heard on 15 May 2015 in view of the fact that the original dates allotted for the trial of the two actions proved to be insufficient.  The trial resumed on 4 May 2016 and was concluded on 10 May 2016.

13. In paragraph 1 of Mr Miu’s closing submissions dated 9 May 2016, Mr Miu submits that, in view of the consent judgment entered against APH in HCA 894/2011, all that remains for the court to determine in relation to Susie’s claim in that action is the question of costs as between Susie and Victor, in particular:-

(1) whether Victor should be held liable, jointly and severally with APH, for Susie’s costs; or

(2) whether Susie should be held liable for Victor’s costs of her claim.

In addition, Victor’s counterclaim against Susie remains outstanding for determination by the court.

14. On the other hand, in paragraph 5 of the closing submissions of Mr Adrian Bell SC (for Tony) dated 9 May 2016, it is said that in view of the consent judgment entered against APH in HCA 1605/2004, what is left to be considered is whether Victor was in breach of trust and/or fiduciary duties as the administrator of the Estate which would be relevant to the question of consequential accounts, inquiries and damages.

15. In the course of the trial, the parties have raised a large number of factual and/or legal issues.  In this judgment, I do not propose to resolve all those issues, save what I consider to be essential for a proper determination of the remaining claims in the HCA 1605/2004 and HCA 894/2011 and the counterclaim in the latter action.

BASIC FACTS

( i)   General background

16. The Deceased had:-

(1) a wife, Chan Yuk Mui (“Madam Chan”), who passed away on 4 February 1970; and

(2) a concubine, Wong Kwan Ying (“Madam Wong”), who passed away on 7 June 1999.

17. The Deceased had the following children:-

(1) Lam Mo Ching, Mary (“Mary”) - adopted daughter of the Deceased;

(2) Mo Lin - daughter;

(3) Lam Mo Chun (who emigrated to the United States in 1994 and passed away on 23 January 2003) - daughter of the Deceased and Madam Chan;

(4) Tony - son of the Deceased and Madam Chan;

(5) Susie - daughter of the Deceased and Madam Chan; and

(6) Victor - son of the Deceased and Madam Wong.

18. Although there is no agreement on whether Mo Lin was Madam Chan or Madam Wong’s daughter, the affirmations of Lam So and Tse Lam Sin Man (the Deceased’s sisters) affirmed on 29 August 1986 and 6 September 1986 respectively, as well as the joint affirmation of Madam Wong and Tony affirmed on 18 January 1999, all stated that Mo Lin was the daughter of the Deceased and Madam Wong.  On the other hand, according to Mo Lin’s birth certificate, Madam Chan was her mother.  That birth certificate was dated 28 October 1952, and Mo Lin’s date of birth was stated to be in 1943.

19. In Mo Lin’s first witness statement dated 15 October 2012, she said that it was then too late to confirm her blood relationship with either Madam Chan or Madam Wong. However, in her supplemental witness statement dated 24 February 2015 and in her oral evidence, she confirmed that Madam Wong was her mother.  For the purpose of this judgment, I find as a fact that Mo Lin was the daughter of the Deceased and Madam Wong, notwithstanding the contents of Mo Lin’s birth certificate.  In other words, Mo Lin and Victor are from the same branch of the Lam family.

20. On 25 July 1964, the Property was acquired by the Deceased.

21. In 1967 or 1968, Victor emigrated to Canada, followed by Madam Wong in 1974. In 1982, Mo Lin and her family emigrated to Chicago, USA.

22. As earlier mentioned, on 6 January 1983, the Deceased died intestate in Hong Kong, survived by Madam Wong and his aforesaid children.

23. On 24 March 1999, Letters of Administration of the Estate was granted to Madam Wong and Victor.  As can be seen from the provisional schedule of property attached to the Letters of Administration, both the Property and the Li Kwan Property formed part of the Estate.  On 7 June 1999, Madam Wong passed away. Henceforth, Victor became the sole administrator of the Estate.

(ii)  Proposed sale of the Property

24. There is a dispute on whether Tony had been had been in occupation of the Property since around 1983 after the death of the Deceased.  For the purpose of this judgment, it is not necessary to resolve that issue.  What is not in dispute is that Victor obtained possession of the Property in around mid to September 2001.  According to Victor, when he took possession of the Property, it was in a dangerous and deplorable state and subject to a building order, and he had to incur considerable expenses to carry out extensive renovation works to render it safe for occupation and to comply with the building order.

25. Prior to that time, Victor had received, through his former solicitors (Messrs Ho, Tse, Wai & Partners), an offer in writing dated 20 February 2001 made by City Realty Consultants (HK) Ltd on behalf of an intended purchaser to purchase the Property at the price of HK$16,000,000.

26. By a letter dated 18 May 2002 from Messrs Fan Wong & Tso (“FWT”), also Victor’s former solicitors, to each of Tony, Mo Lin and Susie, FWT stated, inter alia, as follows:-

(1) Victor had received an offer to purchase the Property at the price of HK$16,000,000 in February 2001;

(2) Victor had been advised by professional valuers that the current market value of the Property was HK$15,000,000;

(3) in view of the fact that a significant amount of estate duty and interest thereon were still outstanding and payable to the Inland Revenue Department, it was in the interest of the Estate and the beneficiaries thereof to sell the Property as soon as possible;

(4) they were instructed that Victor would like to see that the Property could be kept within the family;

(5) in the premises, Victor would first invite the beneficiaries to acquire the Property at the price of between HK$15,000,000 and HK$16,000,000, before putting it up for sale in the open market;

(6) Victor would be prepared to consider an offer from Tony/Mo Lin/Susie for the purchase of the Property provided that the offer would contain (inter alia) an undertaking that the Property would not be sold outside of the family for at least 7 years; and

(7) if they did not hear from Tony/Mo Lin/Susie within 21 days, it would be assumed that they had no interest in acquiring the Property, and Victor would put the Property up for sale in the open market without further reference to them.

27. In a valuation report by Dudley Surveyors Limited dated 21 May 2002 prepared upon Victor’s instruction, the valuer expressed the opinion that the current open market value of the Property was HK$15,000,000.

28. By a tenancy agreement dated 12 June 2002, Victor (as administrator of the Estate) let the ground floor of the Property to Big Glory International Limited (“Big Glory”) for a term of 2 years commencing on 3 June 2002 at the monthly rent of HK$95,000.  However, Big Glory did not stay long.  It repudiated the tenancy agreement and vacated the leased premises in or about November 2002.

29. On 14 June 2002, Horvath & Giles (“HG”), Tony’s former solicitors, sent a letter to FWT stating that Tony was discussing the contents of FWT’s aforesaid letter dated 18 May 2002 with other beneficiaries of the Estate and would revert in due course.  In a further letter dated 17 July 2002, HG asked FWT to explain why the Property had been left vacant since Victor took possession of it in 2001.

30. On 14 January 2003, Victor (as the administrator of the Estate) entered into a lease (“the Onluck Tenancy”) to let the Property to Onluck Corporation Limited (“Onluck”) for a term of 7 years commencing on 1 April 2003 and expiring on 31 March 2010 at the rent of HK$140,000 per month.  The Onluck Tenancy also provided that Onluck was to pay to the landlord the following sums upon the signing of the lease: (i) HK$1,680,000, being the rent for the period from 1 May 2003 to 30 April 2004, and (ii) HK$420,000 as rental deposit .

31. By a letter dated 1 March 2003, HG on behalf of Tony again asked FWT to explain why the Property was still left vacant, having regard to the fact that the Property was located in a prime commercial area and their client had personally received enquiries from estate agents about leasing and sale of the Property. It was stated that Tony took issue with the loss of potential income by the Estate.  Apparently, neither HG nor Tony was at that time aware of the existence of the Onluck Tenancy.

32. By a letter dated 20 March 2003 from FWT to each of Tony, Susie and Mo Lin:-

(1) FWT referred to their previous letter of 18 May 2002 and stated that so far no reply to that letter had been received.

(2) FWT informed Tony, Susie and Mo Lin that Victor had entered into a tenancy agreement with a commercial tenant in respect of the ground floor of the Property last November, it being Victor’s intention to apply part of the rental income towards the repayment of estate duty and interest on a monthly basis.  However, the tenant had failed to pay rent and further repudiated the tenancy in December 2002 by vacating the premises.  Pausing here, it may be noted, as earlier mentioned, that the tenancy agreement that Victor had entered into with Big Glory in respect of the ground floor of the Property was dated 12 June 2002.

(3) FWT further stated that due to the tenant’s failure to pay rent, Victor was rendered unable to make repayment of estate duty and interest, despite repeated reminders from the Estate Duty Office urging Victor for early repayment.

(4) FWT said that in view of the foregoing matters, it had become necessary, and indeed quite pressing, for the Property to be sold and realised as soon as possible. Accordingly, they were instructed to once again extend the invitation to the beneficiaries of the Estate to purchase the Property at the same proposed price, namely, HK$15,000,000, upon (inter alia) the following essential terms:-

(a) the sale of the Property should be to the beneficiary (including Victor) who made the highest offer;

(b) the Property should not be resold out of the family for at least 7 years; and

(c) an initial deposit of HK$1,000,000 was required to be paid by any beneficiary making an offer to purchase the Property.

(5) Lastly, FWT stated that if they did not receive any written objection to the proposed sale of the Property within 7 working days from the date of the letter, Tony, Susie and Mo Lin would conclusively be deemed to approve and consent to the sale of the Property to the beneficiary who made the highest offer for the purchase of the Property.

There was no mention of the Onluck Tenancy in FWT’s letter of 20 March 2003.

33. By a letter in reply dated 26 March 2003, HG objected to the deadline imposed by FWT for Tony to indicate his objection to the proposed sale of the Property and raised, inter alia, the issue of Victor’s fiduciary duty as administrator of the Estate in relation to “self-acquisition of assets”.  HG also asked FWT to provide (inter alia) the tenancy agreement referred to in FWT’s letter of 20 March 2003.

34. On 4 consecutive days from 1 to 4 April 2003, Victor placed an advertisement (each about 1 inch x 1.5 inches in size) in Sing Tao Daily for the sale of the Property.  The advertisement gave the address, with a brief description, of the Property, and stated that it would be sold to the person making the highest offer.

35. By a letter dated 3 April 2003, FWT responded to HG’s letter of 26 March 2003.  In particular, FWT refused to provide the documents sought by HG unless Tony was prepared to bear the charges of producing those documents, which Victor estimated to be at least HK$4,000.  FWT stated that “… it need not be [Tony’s] concern whether [Victor] will purchase the Property or not.  It is [Victor’s] firm belief that it will be good for the Estate and the family if the parties are able to keep the Property within the family, both for the sake of unity as well as maintaining the goodwill of their late father, Mr Lam Tim and his business.”  FWT further stated that Victor had so far paid expenses amounting to about HK$1,600,000 on behalf of the Estate, there was still due and owing an estimated sum of HK$700,000 in respect of outstanding estate duty, and that the proceeds of sale of the Property would be applied towards payment of all outstanding debts, including estate duty and costs and expenses, of the Estate, as well as the costs incurred by Victor in a previous court action against Tony in 1987.

36. On or about 4 April 2003, Victor received a “Letter of Intent” marked “Subject to Contract” from Property Investment Centre Ltd confirming its client’s interest to purchase the Property, subject to the existing tenancy agreement, at the price of HK$10,800,000.

37. By a letter dated 9 April 2003 to each of Tony, Susie and Mo Lin:-

(1) FWT informed them that Victor had recently advertised in Sing Tao Daily for 4 consecutive days for the sale of the Property, but had so far only received 4 verbal inquiries which had not resulted in any concrete offer and 1 written offer, namely, the aforesaid Letter of Intent, a copy of which was enclosed with FWT’s letter.

(2) FWT referred to the offer price of HK$10,800,000 which, it was said, illustrated three main points:-

(a) the valuation report previously obtained by Victor in May 2002, which valued the Property at HK$15,000,000, no longer reflected the current market value of the Property, and that judging from the effective price offered, the prevailing market value of the Property was unlikely to exceed HK$10,000,000 by any substantial margin;

(b) the significant low number of enquiries or offers clearly showed that there was very little demand for the Property; in other words, it was highly doubtful if the Property was marketable; and

(c) the economic outlook for Hong Kong was not likely to improve in the near future.

(3) FWT stated that Tony would therefore like to reiterate his proposal for the sale of the Property to the beneficiary who made the highest offer, save that the originally proposed base price of HK$15,000,000 would no longer be applicable.

(4) Lastly, FWT stated that any such offer should be made in writing within 14 days from the date of their letter.

Pausing here, it is Susie’s case that she never received FWT’s letter of 9 April 2003.

38. On or about 16 April 2003, Victor received a written offer from one Mr Suen offering to purchase the Property at the price of HK$3,800,000.  The authenticity of this letter is not admitted by Tony.

39. By a letter dated 28 April 2003 to each of Tony, Susie and Mo Lin:-

(1) FWT stated that Victor had not received, during the 14-day period stipulated in their earlier letter of 9 April 2003, any written offer to purchase the Property from any beneficiary (save and except from Victor), nor any objection whatsoever from any of the beneficiaries to the proposed sale of the Property at the suggested price of HK$10,800,000.

(2) FWT also referred to the aforesaid written offer to purchase the Property at the price of HK$3,800,000, a copy of which was enclosed with their letter of 28 April 2003.

(3) FWT stated that Victor, being one of the beneficiaries of the Estate, had made an offer to purchase the Property at HK$10,900,000.

(4) FWT therefore sought Tony, Susie and Mo Lin’s confirmation of their agreement to the proposed sale of the Property to Victor at the price of HK$10,900,000.  It was stated that if no objection in writing was sent by any beneficiaries within 14 days from the date of the letter, the beneficiaries would conclusively be deemed to have agreed to the proposed sale and/or to have waived his/her right of protest and objection.

40. By a letter dated 9 May 2003 from Susie to FWT, Susie expressed the view that the price of HK$10,900,000 offered by Victor was on the low side.  She also raised a number of queries relating to the Property (including its latest valuation) and other matters, and stated that she could only decide whether to consent to the proposed sale of the Property to Victor after she had received FWT’s reply to her queries.

41. By a letter dated 12 May 2003 from Victor to Mo Lin, Victor confirmed that he had withdrawn his offer to purchase the Property because he did not have “enough qualification to apply for mortgage loan in Hong Kong to back up the purchase”. The authenticity of this letter is not admitted by Tony.

42. By a letter (mistakenly) dated 14 March 2003 (it is common ground that the date should be 14 May 2003) from HG to FWT, HG again objected to the deadline imposed by FWT in their letter of 28 April 2003 for Tony to indicate his objection to the proposed sale of the Property to Victor and reiterated his request for the production of documents.

43. By a letter dated 15 May 2003 from FWT to Susie, FWT stated that Susie had neither agreed nor disagreed to the proposed sale of the Property and she was therefore taken to have agreed to the proposed sale of the Property to Victor for HK$10,900,000.

44. By a letter dated 15 May 2003 to Victor, Mo Lin offered to purchase the Property via a company called “Advance Property Holding Limited” (which it was said would be set up in Hong Kong shortly) at the price of HK$10,810,000.  That offer letter was apparently notarized by one Fay Y Lee Shimizu (“Ms Fay Shimizu”) with an official seal having a stated expiry date of 23 September 2007.  I shall explain the relevance of the expiry date of this seal later in this judgment.  In that offer, Mo Lin also stated that she would inform her bank, CIBC, to transfer all her money from mutual funds into Victor’s account after which they could be converted into cash.  She further agreed that Victor could deduct HK$1,000,000 as deposit for the purchase of the Property and retain the balance as part payment towards the purchase of the Property. The authenticity of this written offer is not admitted by Tony.

45. In a “Confirmation of Balance” issued by CIBC dated 22 May 2003, it was stated that Mo Lin’s account maintained at the bank had a balance of CAD590,000.  The authenticity of this document is not admitted by Tony.

46. By a letter dated 24 May 2003 from Mo Lin to CIBC, Mo Lin instructed CIBC to transfer all her mutual funds holdings from her account (#57353480) to Victor’s bank account (to be provided by Victor).  This letter was apparently notarised by Ms Fay Shimizu with the aforesaid seal.  Again, the authenticity of this letter is not admitted by Tony.

47. In another “Confirmation of Balance” issued by CIBC dated 26 May 2003, it was stated that Victor’s account maintained at the bank had a balance of CAD590,000.  The authenticity of this document is not admitted by Tony.

48. By a letter dated 26 May 2003 from Victor to Mo Lin, Victor confirmed that Mo Lin’s money had been successfully transferred into his account.  It was further stated that the transfer of CAD590,000 was equivalent to HK$3,628,500.  The authenticity of this letter is not admitted by Tony.

49. By a “Provisional Agreement for Sale” signed by Victor and Mo Lin and dated 26 May 2003 (“the May 03 Provisional Agreement”), it was stated that Victor, the administrator of the Estate, had agreed to sell the Property to Mo Lin and her family.  It was further stated as follows:-

“The selling price of the property is HK$10,810,000.00, it is completed with the rental lease and the agreement of tenancy. I confirm to receive her HK$1,000,000.00 (One Million Hong Kong Dollars) for the down payment of the mentioned property purchase. I also agree with her that she pay off the balance of payment within thirty days after I confirm what is her shares of our late father’s estate.

Lam Mo Lin agrees to pay HK$80,000.00 monthly until the completion of the estate of Mr. Lam Tim. She also agrees to keep the mentioned property for at least seven years without any resale.”

50. There is another document (“the Amended May 03 Provisional Agreement”) which is identical to the May 03 Provisional Agreement save that it contained two additional terms, acknowledged by Victor’s signature, as follows:-

“Note:

1/ The purchaser is entitled to receive the rental income from the current tenant when the buyer begins paying the monthly instalment.

2/ The purchaser has the right to decide when the monthly instalment commences.”

51. By a letter dated 27 May 2003 from FWT to HG, FWT stated that Victor had already received the agreement from 4 beneficiaries to the proposed sale of the Property to him, which it was said represented “a majority view and approach”. It may be noted that there was, in that letter, no mention of Victor’s decision to withdraw his offer for the purchase of the Property, or Mo Lin’s offer to purchase the Property at the price of HK$10,810,000.

52. In HG’s reply dated 27 May 2003 to FWT, HG stated, inter alia, that as regards the proposed purchase of the Property by Victor, Tony merely wanted to understand why the Property had to be sold instead of being used to generate income, especially when they were given to understand that the proceeds of sale would be applied towards making payments, and it was likely that Tony would not be obtaining much from the proceeds, if at all.  It was further said that in light of those matters, HG must examine the proposed purchase very seriously for Tony’s protection.

53. By a letter dated 27 May 2003 from Victor to Mo Lin, Victor informed Mo Lin of his agreement to sell the Property to her company for HK$10,810,000.  Victor also stated that he had received HK$3,628,500 (CAD590,000) through the banker, and asked her how she wanted him to handle the balance of HK$2,628,500 (after deducting HK$1,000,000 as initial deposit for the purchase of the Property). The authenticity of this letter is not admitted by Tony.

54. By a letter dated 28 May 2003 from Chong & Yen (“CY”) to FWT, CY stated that they acted for Mo Lin and her husband, and were given to understand that there was an agreement with Victor for the purchase of the Property at the price of HK$10,810,000 and the initial deposit of HK$1,000,000 had been paid by their clients.  CY further stated that they had been instructed that their clients would use a shelf company to hold the Property.  CY asked FWT to let them have the draft documentations together with the relevant title deeds in respect of the Property.

55. By a letter dated 30 May 2003 from FWT to each of Tony and Susie, FWT informed them that Victor had withdrawn his offer to purchase the Property as he had not been able to arrange for mortgage financing in Hong Kong to enable him to complete the purchase of the Property, and that an offer to purchase the Property had been received from Mo Lin and her family.  A copy of CY’s aforesaid letter was enclosed with FWT’s letter of 30 May 2003.  FWT further stated that Victor had accepted the offer from Mo Lin and her family and received the initial deposit of HK$1,000,000, and would proceed with the necessary actions for the sale and purchase of the Property.

56. By a letter dated 2 June 2003 from Victor to Mo Lin, Victor referred to a telephone conversation between them on 29 May 2003 and stated that Mo Lin had consented to his keeping the balance of HK$2,628,500 “until [the] entire legal documents of the property sale and purchase of No 6, Sharp Street East in Hong Kong [have been] finished”.  The authenticity of this letter is not admitted by Tony.

57. By a letter dated 3 June 2003 from HG to FWT, HG stated that they had been instructed that FWT had written to Susie informing her of the purchase of the Property by another beneficiary (ie Mo Lin).  Apparently, HG was not aware of FWT’s letter to Tony dated 30 May 2003 but had been informed about FWT’s letter to Susie dated 30 May 2003.  HG referred to FWT’s previous letters dated 3, 9 and 28 April and 27 May 2003 respectively in which it was stated that there had been no offer from any of the beneficiaries (except Victor) to purchase the Property.  HG further pointed that in FWT’s letter of 27 May 2003, it was said that there was an offer by Victor to purchase the Property and there was agreement by four unnamed beneficiaries to the proposed sale of the Property to Victor.  HG stated that they were still examining Victor’s proposal to purchase the Property, but they were now informed of a sudden “reversal” (ie a change of the identity of the purchaser) which undoubtedly raised concerns in any estate administration.  HG asked FWT for clarification of the matter.

58. By a further letter dated 12 June 2003 from HG to FWT, HG raised a number of issues arising out of various letters and documents (some of which I shall further discuss below) and cautioned FWT not to proceed with the sale of the Property until those issues had been satisfactorily clarified.

59. By a letter dated 13 June 2003, FWT referred to HG’s letters of 3 and 12 June 2003 and stated that they did not have instructions to reply to those letters.

60. By a letter dated 13 June 2003 from HG to CY, HG stated that Tony had concerns about the proposed sale of the Property (to Mo Lin and her husband) and asked to be provided with records and details of the agreement for the purchase of the Property and payment of the deposit of HK$1,000,000.

61. By a letter signed by Mo Lin and dated 16 June 2003 to HG, Mo Lin stated that she wished to file a complaint against Ms Stella Lam (a consultant of HG whom she believed had sent the aforesaid letter of 13 June 2003 to CY) for interfering with her business.  Mo Lin alleged that the procedures used by Ms Stella Lam to investigate her purchase of the Property were “illegal” and had already invaded her privacy, and reserved all her rights to take action against HG and Ms Stella Lam for any damage or loss which might be suffered by her.

62. By a letter dated 19 June 2003 from CY to HG, CY referred to HG’s letter of 13 June 2003 and stated that they were no longer acting for anyone in respect of the sale and purchase of the Property, and therefore were unable to reply to HG’s inquiries.

63. By a letter dated 13 July 2003 from Victor to Mo Lin, Victor stated that he understood that Mo Lin and Gigo would not be able to return to Hong Kong to set up a corporate bank account that year, and asked Mo Lin whether she could “afford an extra HK$1,540,000.00 for the deposit in order to delay the completion date”.  The authenticity of this letter is not admitted by Tony.

(iii)  Sale of the Property to APH

64. APH was incorporated in Hong Kong on 29 August 2003.  Mo Lin and Gigo were the original subscribers to one share each in the capital of APH, and were at all material times the only directors and shareholders of APH.

65. By a “Provisional Agreement of Sale” dated 30 August 2003 (“the Aug 03 Provisional Agreement”) signed by Victor as vendor and Mo Lin and Gigo for APH as purchaser, Victor (as administrator of the Estate) agreed to sell the Property (subject to existing tenancy) to APH at the price of HK$10,810,000. It was stated that the deposit of HK$1,000,000, plus an extra deposit of HK$1,540,000 for the “delayed completion date”, had been paid by the purchaser, and that the balance of the purchase price in the sum of HK$8,270,000 was to be paid on the completion date, which was to be on or before 3 September 2004, with the proviso that “the completion date can be extended if it is necessary”.  Both Tony and Susie do not admit that this document was actually executed on 30 August 2003.

66. In any event, the assignment of the Property to APH was not executed until February 2007, some 3.5 years later.  During that period of time, APH instructed many different law firms to act for it in the proposed purchase of the Property.  In what follows, I shall briefly describe some correspondence passing between FWT on behalf of Victor and APH’s solicitors, omitting some letters and draft agreements which it is not necessary to set out in detail for the purpose of this judgment.  I should also point out that during the period from August 2003 to February 2007, the parties were apparently arguing over a number of requisitions on title in respect of the Property.

67. By a letter dated 19 September 2003 from Messrs D S Cheung & Co (“DSC”) to FWT, DSC stated that they had instructions to act for APH, the purchaser of the Property, and asked FWT for the title deeds and documents relating to the Property and the draft agreement for sale and purchase for their approval on behalf of APH.

68. On 29 September 2003, FWT sent two cheques in the amounts of HK$612,083.90 and HK$3,151.10 on behalf of the Estate to the Inland Revenue Department in payment of estate duty and interest thereon, and stated that all outstanding estate duty and interest had by that stage been fully settled.

69. By a letter dated 19 November 2003, DSC asked FWT whether the estate duty papers had been cleared and whether Victor was able to effect the transfer of the Property shortly.  DSC also chased FWT for the title deeds and documents relating to the Property and the draft agreement for sale and purchase of the Property.

70. Under cover of a letter dated 2 February 2004, FWT sent a draft agreement for sale and purchase of the Property to DSC.  In that letter, FWT also stated that if the draft agreement for sale and purchase met with DSC’s approval without amendment, the same should be returned duly signed and attested together with “[DSC’s] cheque drawn in favour of LAM SIK YING for the sum of HK$80,000.00 being the first monthly instalment of the balance of purchase price payable by [APH]”.

71. In a letter dated 20 February 2004 from DSC to FWT, DSC stated that “[p]ursuant to the notes to the provisional agreement, our client is entitled to receive the rental income from the current tenant when our client starts making the monthly payment of HK$80,000.00 as part payment of the purchase price of the Property”.  The letter went on to state as follows:

“Our client is given to understand that the rent payable by the current tenant of the Property is HK$130,000.00[1] and the relevant tenancy agreement is not yet expired nor terminated. Based [on] the aforesaid, our client proposes to make payment of HK$80,000.00 with retrospective effect on 1 July 2003 and thus, our client shall be entitled to the rental payment of HK$130,000.00 per month accordingly. Our client further proposes that the accumulated sum for the balance of HK$50,000.00 (HK$130,000.00 – HK$80,000.00) shall be used towards settlement of the purchase price of the Property upon completion.”

72. By a letter dated 1 March 2004 to DSC, FWT referred to DSC’s letter of 20 February 2004 and stated that they had been instructed that APH’s proposed arrangements regarding the payment of purchase price and the rental for the Property were agreeable to Victor.

73. In DSC’s letter dated 20 May 2004 to FWT, DSC stated, in relation to the payment of the balance of the purchase price for the Property, as follows:-

“Reference is here made to the 3^rd paragraph of the Provisional Agreement for Sale signed by the Vendor on 26 May 2003 wherein it is expressly stated that [Victor] ‘agrees that the Purchaser shall pay off the balance of payment within thirty days after the Vendor shall confirm what is the Purchaser’s shares of the deceased’s estate.’ In this connection, please kindly confirm the entitlement of the Purchaser’s interest in the estate to enable the Purchaser to calculate the balance of purchase price payable upon the date of completion.”

74. In FWT’s letter to DSC dated 24 May 2004, FWT stated as follows:-

“We are instructed that your client’s share of the deceased’s estate cannot yet be ascertained for the time being due to pending litigation by our client on behalf of the estate for inter alia intermeddling acts and damages. In the premises, we are instructed that our respective clients have agreed to complete the transaction on or before 1^st June 2004 whereupon the balance of purchase price shall be paid. Please confirm.”

75. On or about 25 May 2004, HSBC informed FWT that APH had recently approached the bank for a mortgage loan facility for the acquisition of the Property, and that its appointed solicitors, Messrs Allen & Overy (“A&O”), would approach FWT for the property title deeds.

76. By a letter dated 25 May 2004 to FWT, A&O stated that they acted on behalf of APH and asked for the draft agreement for sale and purchase and all relevant title deeds and documents in respect of the Property.

77. In FWT’s reply to A&O dated 27 May 2004, it was stated that until the formal agreement for sale and purchase had been signed, “the Provisional Agreement dated 26^th May 2003 shall continue to govern the relationship between the parties.”

78. By a “Memorandum of Sale and Purchase” dated 8 June 2004 (“the Jun 04 Memorandum”) entered into between Victor (as administrator of the Estate) as vendor and APH as purchaser, it was agreed (inter alia) that:-

(1) The purchase price of the Property was to be HK$10,810,000.

(2) A deposit of HK$2,540,000 was to be paid by the purchaser to the vendor upon the signing of the Jun 04 Memorandum, and the balance of the purchase price in the sum of HK$8,270,000 was to be paid on the completion date.

(3) The completion date was to be on or before 3 September 2004.

79. Receipt of the deposit of HK$2,540,000 was acknowledged by the vendor in the Jun 04 Memorandum.  Further, a handwritten note on the Jun 04 Memorandum specifically provided as follows:-

“The purchaser shall be entitled to receive the total monthly rent of … HK$140,000.00 from 1 June 2004 up to completion, which shall be set off against the balance of the purchase price upon completion.”

80. The formal agreement for sale and purchase of the Property between Victor (as administrator of the Estate) as vendor and APH as purchaser was dated 11 June 2004 (“the Jun 04 Formal SP”).  The following provisions thereof are of note:-

(1) The purchase price was HK$10,810,000, a deposit of HK$2,540,000 had been paid, and the balance of the purchase price of HK$8,270,000 was to be paid on completion.

(2) The completion date was on or before 3 September 2004.

(3) By clause 14.8, APH was entitled to receive the monthly rent of HK$140,000 from 1 June 2004 up to completion which was to be set off against the balance of the purchase price upon completion.

(4) By clause 25 -

“The Purchaser specifically covenants with the Vendor that he will not sell or in any other way dispose of the said Premises or any part thereof within seven (7) years from the date of this Agreement without the prior written consent of the Vendor…”

81. On 9 July 2004, Tony commenced HCA 1605/2004 against Victor and APH and obtained an interim injunction from Tang J (as he then was) to restrain them from carrying through the Jun 04 Formal SP.  That interim injunction was subsequently continued until 24 September 2004 when it was discharged by an order of Reyes J.

82. In or about November 2004, Messrs Wong & Poon (“WP”) was instructed by APH to act in the purchase of the Property.

83. By a letter dated 29 November 2004 to FWT, WP put on record that their respective clients had mutually agreed to complete the sale and purchase of the Property on 1 February 2005.

84. In or about December 2004, Victor and APH agreed to amend clause 25 of the Jun 04 Formal SP by deleting the words “without the prior written consent of the Vendor”.

85. By a letter dated 23 December 2004 to A&O, the Collector of Stamp Revenue, in reference to APH’s application for deferring payment of stamp duty on the Jun 04 Formal SP, stated that the Commissioner of Rating and Valuation had advised that the assessed value of the Property as at 8 June 2004 was HK$21,000,000.  That assessment was objected to by WP on behalf of APH on 19 January 2005.  Eventually, the Collector of Stamp Revenue accepted that the stated consideration (HK$10,810,000) was adequate for stamp duty purpose as at 27 May 2003.

86. In the meantime, on or about 24 December 2004, Hang Seng Bank agreed to advance a mortgage loan of HK$5,000,000 to APL for the acquisition of the Property.

87. By a letter dated 22 March 2005, FWT asked WP to confirm APH’s intention to purchase the Property.

88. On or about 6 May 2005, APH paid to WP (inter alia) the sum of HK$3,270,000 being the “balance of the purchase price on account”.

89. By a letter dated 13 June 2005 from Messrs Marie Tsang, Dustin Chan & Co (“MTDC”) to FWT, MTDC stated that they had instruction to act for APH in the purchase of the Property in place of A&O, and that notwithstanding the passing of the contractual completion date of 3 September 2004, their respective clients had agreed to postpone the completion date to 15 July 2005.  MTDC also stated that they had been instructed that APH had paid the total sum of HK$3,628,500 as deposit to the vendor.

90. By a letter dated 16 June 2005 from FWT to MTDC, FWT confirmed that:-

(1) their respective clients had agreed to postpone the completion date to 15 July 2005;

(2) the total amount of deposit that had been paid by MTDC’s client was HK$3,628,500.

91. By a letter dated 28 August 2006 from FWT to MTDC, FWT stated (inter alia) that:-

“… the [Jun 04 Formal SP] ought not [to] be interpreted in such a way as will entitle your client to continue receiving the rental income from the Property, when the sale and purchase of the Property has up to this date still not been completed. We are instructed to stress that it was and is the intention that your client may only receive the rent from the Property after signing the said Agreement for Sale and Purchase up to completion on 3 September 2004. It certainly is and was not the intention of the said Agreement that your client may continue to receive such rent when completion did not take place as scheduled.”

92. In that letter, FWT also asked APH to elect whether to proceed with the completion of the sale and purchase of the Property upon certain terms which it is not necessary to set out in this judgment.

93. By a letter dated 12 September 2006 to MTDC, FWT again asked APH to confirm whether or not it would proceed with the completion of the purchase of the Property. 

94. On or about 11 October 2006, APH changed its solicitors, this time to Messrs Fong Yin Cheung & Co (“FYC”).

95. By a letter dated 17 November 2006 to FWT, FYC stated that APH was prepared to complete the sale and purchase of the Property on 30 November 2006 on condition that should the court rule that Victor was not entitled to sell the Property to APH, Victor would undertake to indemnify APH for the total sum of HK$10,810,000 in his capacity as the personal representative of the Estate.

96. By a letter dated 9 December 2006 from FWT to FYC, FWT stated that Victor was agreeable to pay interest on the rental income received from 1 June 2004 up to the date of completion at the same interest rate as Victor would charge APH on the balance of the purchase price (for the period from 4 September 2004 to 30 November 2006 in the total sum of HK$248,978.49).

97. By a letter dated 19 December 2006 to FWT, FYC stated that APH would charge interest on the rental income from 1^st June 2004 to 31 December 2006 in the total sum of HK$121,948.90.

98. Eventually, on 8 February 2007, Victor as administrator of the Estate assigned the Property to APH.  In the Completion Statement prepared by FYC which referred to the completion date of 29 January 2007, it was stated that the balance payable by APH to Victor on completion would be HK$2,715,309.09, credit having been given to APH for (i) rental deposit of HK$420,000, (ii) rental income (from 1 July 2004 to 31 January 2007) in the total sum of HK$4,340,000, and (iii) interest on rental income in the sum of HK$121,948.90.

COURT’S APPROACH IN CONSIDERING EVIDNECE OF WITNESSES

99. The court’s approach in assessing the oral evidence of a witness is well settled. In Esquire (Electronics) Ltd v Hong Kong and Shanghai Banking Corp Ltd [2007] 3 HKLRD 439 at 481, Stock JA (as he then was) stated as follows:-

“ …… I do not say that an assessment of the character of a witness plays no part in the fact-finding process, but it is a task that may sometimes be elusive even to the best trained eye and ear, and I would venture to suggest that the truth, in so for as one is able to reach it or, as is sometimes the case, to reach a version of it that is more likely to be correct than not, can best be tested by reference to contemporaneous documentation where it exists, or to its absence where one could expect it to have been created, as well as to inherent improbabilities (though bearing in mind that there may be occasions where the truth may run against that particular grain) having regard to all the facts that are known … This is not to say that the documentation should have been treated as if it stood on its own, not to be explained, contradicted or supported by oral testimony. It is however to say that in this case the approach adopted to assessment of the facts placed far too much emphasis on character impression and too little upon what was suggested by the documentation and by the inherent improbabilities in their historical context. That documentation, as well as conflicts within the evidence, inherent probabilities, and a study of how matters were originally pleaded and asserted in witness statements – these are the factors which in a trial such as this, so long removed from the time of the events in question, were likely to be of particular use in assessing the facts …”

100. In other words, when assessing a witness’s evidence, the court should pay particular attention to:-

(1) the inherent probabilities, or improbabilities, of the events put forward by the witness;

(2) the consistency, or inconsistency, of the witness’s evidence with undisputed background facts or documents; and

(3) the consistency, or inconsistency, of the witness’s evidence with his/her previous statements and pleadings.

101. When considering serious allegations that have been raised against Tony and/or Mo Lin such as the allegation that they created or used false or backdated documents, or the allegation that APH was Tony’s nominee in the purchase of the Property, the court should bear in mind that although the standard of proof is still the civil standard of preponderance of probability, as stated in the judgment of Bokhary PJ (with whom the other members of the the Court of Final Appeal agreed) in Solicitor (24/07) v Law Society of Hong Kong (2008) 11 HKCFAR 117 (adopting the Re H approach, [1996] 2 WLR 8), the more serious the act or omission alleged, the more inherently improbable must it be regarded.  And the more inherently improbable it is to be regarded, the more compelling would be the evidence needed to prove it on a preponderance of probability.  Solicitor (24/07) v Law Society of Hong Kong was a case concerning disciplinary proceedings in a professional field, but the same approach is applicable to an allegation of fraud or other serious wrongdoings in an ordinary civil action (see ADS v Brothers & Others (2000) 3 HKCFAR 70 at 78F-G per Lord Hoffmann NPJ).

GENERAL CONSIDERATION OF VICTOR AND MO LIN’S RESPECTIVE CASE AND EVIDENCE

102. As summarised in the closing submissions of Mr Kenneth Chan (for Victor) dated 10 May 2016, Victor’s case, in gist, is as follows:-

(1) Before the Estate successfully obtained possession of the Property in 2001, Tony had occupied the Property wrongfully for years without paying any rent to the Estate.  Tony failed to maintain the Property and, at the time when he gave up possession of the Property it was in such a dilapidated state that it was classified as a “dangerous building” with 4 building orders being registered against it by the Buildings Department.

(2) The Estate was under huge potential and imminent liabilities and urgently needed cash to pay legal costs, maintenance expenses, renovation expenses, estate duty and interest thereon.  The Estate was also substantially indebted to Victor for the expenses which he had paid on behalf of the Estate.  According to his affirmation filed on 15 August 2005, at paragraph 31, as at August 2004, the Estate was indebted to him in the amount of HK$2,850,503.37.

(3) Accordingly, on 20 March 2003, he invited the beneficiaries to purchase the Property from the Estate with the 7-year “non-alienation” condition.  No objection to the proposed sale was received within the period of 7 days as stipulated in FWT’s letter dated 20 March 2003.

(4) To ascertain the market value of the Property, Victor invited the public to purchase the Property by advertising in a newspaper.  The highest offer solicited was HK$10,800,000 on 4 April 2003.

(5) Victor therefore offered to sell the Property to the beneficiaries, but no offer to purchase was received from the beneficiaries within the period of 14 days stipulated in the offer letter (ie FWT’s letter dated 9 April 2003).

(6) Hence, Victor offered to purchase the Property at the price of HK$10,900,000 subject to the non-alienation condition.  Such offer was withdrawn by Victor later.

(7) On the other hand, on 15 May 2003, Mo Lin, alerted of the risk that if no offer was made by any other beneficiary Victor would have to sell the Property to outsiders which would be contrary to their wish to retain the Property within the family, offered to purchase the Property at the price of HK$10,810,000.  Mo Lin’s offer was accepted by Victor on or about 26 May 2003, and Tony and Susie were informed of the same by FWT’s letter dated 30 May 2003.

(8) On 30 August 2003, the Aug 03 Provisional Agreement was entered into.  An initial deposit of HK$1,000,000 and a further deposit of HK$1,540,000 were paid by Mo Lin.  The completion date of 3 September 2004 was set due to the problems faced by the Estate in obtaining the title deeds of the Property from the IRD for not having settled the estate duty and the fact that Mo Lin, being a US resident, would require more time to make arrangements for the sale and purchase.

(9) The Jun 04 Memorandum and the Jun 04 Formal SP were subsequently entered into between Victor (as administrator of the Estate) as vendor and APH as purchaser.

(10) On 9 July 2004, Tony obtained an ex parte injunction to restrain the proposed sale and purchase of the Property.

(11) Eventually, the sale of the Property to APH was completed on 8 February 2007.

(12) In all, Victor’s case is that he acted in good faith and in the best interest of the Estate in the sale of the Property to APH.

103. In so far as APH’s case is concerned, as earlier mentioned, it consented to judgments being entered against it in the middle of the cross examination of its director and shareholder (Mo Lin).  Hence, APH did not make any closing submissions. However, as one can gather from the opening submissions of its counsel, Ms Lisa Wong SC, APH’s case, in gist, is as follows:-

(1) The agreement for the sale and purchase of the Property between Victor and APH was made in late May 2003.

(2) APH was not Victor’s nominee, nor did it (whether by itself or through its shareholder and director, Mo Lin), collude with Victor in purchasing the Property.  In the purchase of the Property, APH acted in its own right and independently of Victor.

(3) Mo Lin received FWT’s letters dated 18 May 2002, 20 March 2003, 9 April 2003 and 28 April 2003 respectively.  She was informed by those letters that Victor, not having received any objection from any beneficiary to the proposed sale of the Property at HK$10,800,000, himself offered to purchase the Property at HK$10,900,000.

(4) On or about 12 May 2003, Victor informed Mo Lin, firstly in a telephone conversation and then by letter, that he had withdrawn his offer to purchase the Property because he could not obtain a mortgage loan.

(5) On 15 May 2003, Mo Lin offered to purchase the Property (through a company to be set up in Hong Kong) at the price of HK$10,810,000.  An initial deposit of HK$1,000,000 was paid on or about 26 May 2003.

(6) A binding and enforceable agreement for the sale and purchase of the Property was entered into:-

(a) on 26 May 2003 when Victor issued an acknowledgement of receipt of the initial deposit of HK$1,000,000;

(b) alternatively, on 27 May 2003 when Victor sent a letter confirming the Estate’s agreement to sell the Property to Mo Lin’s  ; or

(c) in the further alternative, on 30 August 2003 when the Aug 03 Provisional Agreement was entered into.

(7) In or around July 2003, upon Victor’s representation that the Estate still had substantial outstanding liabilities, including unpaid estate duty, so that the IRD was still holding onto the title deeds of the Property, thereby preventing him from completing the sale and purchase of the Property, Mo Lin agreed to, and did, pay a further deposit of HK$1,540,000 with a view to enabling Victor to pay off part of the Estate’s liabilities.

(8) On 29 August 2003, APH was incorporated.

(9) On 30 August 2003, the Aug 03 Provisional Agreement was entered into between Victor and APH.  By that stage, Victor had already received HK$2,540,000 from APH as deposits and was still holding HK$1,088,500 (the remaining balance of the CAD590,000), which totalled over one-third of the agreed purchase price of HK$10,810,000.

(10) Against these circumstances, the parties agreed that APH should receive rental deposit of the Property (HK$140,000 per month) from 1 June 2004 up to completion (then scheduled for September 2004) as a form of interest on the deposits and that this was to be set-off against the balance of the purchase price payable on completion.

(11) Victor and APH later executed the Jun 04 Memorandum on 8 June 2004, and the Jun 04 Formal SP on 11 June 2004.

(12) Completion, however, did not take place until 8 February 2007 despite the parties’ agreement to complete on 1 February 2005 and 15 July 2005 respectively and the grant of a mortgage loan of HK$5,000,000 by Hang Seng Bank in December 2004 due to various reasons beyond APH’s control, namely -

(a) The injunction obtained by Tony in July 2004 (which was discharged on 24 September 2004 after the scheduled completion date of 3 September 2004);

(b) the lis pendens registered against the Property by Tony which led to protracted arguments on title;

(c) the lack of an occupation permit for the Property and the issues raised thereby as to whether the Property was constructed in compliance with all the requirements of the building laws and regulation;

(d) the issue raised by Victor as to APH’s entitlement to the rental income of the Property after August 2004;

(e) the issues raised by Victor as to outstanding property tax liability and outstanding property tax return; and

(f) the issue raised by Victor as to whether APH should pay interest on the balance of the purchase price.

(13)   On completion, on top of the sum of HK$1,088,500 retained by Victor, APH paid Victor the net balance of the purchase price in the sum of HK$2,715,309 after -

(a) giving the Estate credit for (i) interest on the balance of purchase price; and (ii) the property tax that had been paid by Victor on the rental income for which APH had been given credit; and

(b) giving APH credit for (i) the rental deposit transferable to APH; (ii) the rental income for the 31 months from 1 June 2004 to 31 January 2007 to which APH was entitled under clause 14.8 of the Jun 04 Formal SP; and (iii) interest on such rental income.

(14) APH denied that there was any breach of fiduciary duties by Victor.  In any event, even if there was any breach of fiduciary duties by Victor, APH was a bona fide purchaser for value of the legal estate in the Property without notice.

104. Four factual witnesses gave evidence at the trial, namely, Tony, Susie, Victor and Mo Lin.  In view of the nature of Tony and Susie’s respectively claims against Victor and APH, which focus on (i) the conduct of Victor as administrator of the Estate in the sale of the Property to APH, and (ii) APH’s knowledge of the alleged breach of fiduciary duties on Victor’s part, the critical evidence which I have to consider would be the evidence of Victor and Mo Lin.  The evidence of Tony and Susie is relatively less significant.

105. Victor made two witness statements dated 3 October 2012 and 13 March 2015 respectively, and a number of affirmations in these proceedings, the contents of which he adopted as his evidence in chief.  He was subject to lengthy cross examination by Mr Bell and Mr Miu.  In paragraph 10 of Mr Bell’s closing submissions, it is submitted that “[m]ost (if not all) of what he said in court is inherently improbable. His oral testimony is inconsistent with his own witness statements, his previous affirmations as well as the documents provided.  On numerous occasions, whenever there was any inconsistency or inexplicable matter, he would shift the blame to his then solicitors.”  Having considered the totality of Victor’s evidence, I consider that there is much validity in Mr Bell’s submission regarding Victor’s evidence.  I shall highlight, without seeking to be exhaustive, some of the more obvious problems or difficulties in Victor’s evidence below.  The upshot is that I do not consider Victor to be a reliable witness, and I am generally not prepared to accept his oral testimony unless the matter in question is not controversial or is independently supported by contemporaneous document(s) the authenticity of which is not in dispute.

106. Mo Lin also made two witness statements dated 29 July 2003 and 5 May 2007 respectively, and a number of affirmations in these proceedings, the contents of which she adopted as her evidence in chief.  Like Victor, Mo Lin was subject to lengthy cross examination by Mr Bell and Mr Miu.  She came across as a witness who was either ignorant, or had no recollection, of most matters which were relevant.  She was a hesitant witness and there were often long pauses in her evidence.  Mo Lin admitted in her evidence that although her first witness statement was under her name and signed by her, it was in fact prepared by her husband.  As in relation to Victor’s evidence, I do not feel able to place reliance on Mo Lin’s oral testimony unless the matter in question is not controversial or is independently supported by contemporaneous document(s) the authenticity of which is not in dispute.

107. Before I turn to consider the specific allegations of breach of fiduciary duties raised by Tony and Susie against Victor, I shall first deal with a number of issues which are relevant to the final assessment of those allegations.

THE MAY 03 PROVISIONAL AGREEMENT AND AMENDED MAY 03 PROVISIONAL AGREEMENT

108. One week before the commencement of the trial on 20 April 2015, APH disclosed the May 03 Provisional Agreement and Amended May 03 Provisional Agreement.  The following matters arising from the two documents are of note:-

(1) In Mo Lin’s letter dated 15 May 2003 to Victor offering the purchase the Property, she expressly stated that she represented APH, a company to be set up in Hong Kong, for the purpose of the purchase of the Property.  Victor confirmed the receipt of funds from Mo Lin by letter dated 26 May 2003, and the sale of the Property to Mo Lin’s company by his letter dated 27 May 2003.  On the face of these documents, it would appear that both Victor and Mo Lin intended that the purchase of the Property would be by a specific, named, company to be formed.  However, in both the May 03 Provisional Agreement and Amended May 03 Provisional Agreement, it was stated that Victor agreed to sell the Property to Mo Lin and her family, and there was no mention of APH.

(2) More significantly, in both the May 03 Provisional Agreement and Amended May 03 Provisional Agreement, it was stated that Victor had agreed with Mo Lin that the balance of the purchase price would be paid within 30 days after Victor had confirmed what was Mo Lin’s share of the Estate, and that Mo Lin had agreed to pay HK$80,000 monthly to Victor until the completion of the administration of the Estate.  These matters were never mentioned in Mo Lin’s letter of 15 May 2003 or Tony’s letter of 27 May 2003.

(3) Also, in the Amended May 03 Provisional Agreement, as earlier mentioned, there were two handwritten notes to the effect that:

(a) the purchaser was entitled to receive the rental income from the current tenant upon commencement of the monthly payment of HK$80,000; and

(b) the purchaser had the right to decide when the monthly instalment should commence.

(4) The provisions mentioned in (2) and (3) above were very favourable to the purchaser, in that:-

(a) the purchaser did not have to complete the purchase, and therefore did not have to pay the balance of the purchase price, until administration of the Estate had been completed (which administration had been on-going for some years and could take many more years before its completion); and

(b) in the meantime the purchaser would receive the rental income of HK$140,000 per month whilst paying only HK$80,000 per month to the vendor which would be set off against the purchase price of the Property eventually payable by the purchaser to the vendor.

109. Victor and Mo Lin’s evidence regarding the May 03 Provisional Agreement and Amended May 03 Provisional Agreement is unsatisfactory and non-convincing:-

(1) Victor objected to the production of those agreements because (according to him) they were “obsolete” and irrelevant to the proceedings.  He said that he did not know about the production of those documents and considered that they should not be included in the hearing bundles, in obvious disregard of his duty to make discovery of all relevant documents.

(2) Victor said that the documents were prepared in the morning of 26 May 2003 when Mo Lin, on her way to Vancouver (in British Columbia), passed by and paid him a visit at his home in Edmonton (in Alberta).  The May 03 Provisional Agreement was prepared (in type-written form) and signed by both parties. Apparently, a photocopy of the document was then made.  Afterwards, Mo Lin said to him that she wished to add something, and the notes were then written down on the 03 May Provisional Agreement (either on the original document or the photocopied document).  The amended document was signed by Victor (underneath the two notes) and became the Amended May 03 Provisional Agreement.

(3) Victor was unable to recall when those documents had allegedly become obsolete, although he claimed that he had sought advice from his solicitors on those documents and found out that there was some problem with the notes in the Amended May 03 Provisional Agreement. He therefore declined to accept the additional terms in the notes, and informed Mo Lin that they had become obsolete.  He also said that both he and Mo Lin considered the May 03 Provisional Agreement/Amended May 03 Provisional Agreement to be obsolete by the time that the Aug 03 Provisional Agreement was signed. 

(4) Mo Lin confirmed that she signed the two documents in Edmonton, but could not recall when it was that she and Victor agreed that the May 03 Provisional Agreement / Amended May 03 Provisional Agreement should be regarding as having been “cancelled”.  She could not add much else of significance.

(5) It is apparent from the exchange of letters between FWT and DSC in February to May 2004 relating to the preparation of the formal sale and purchase agreement that the additional terms in the Amended May 03 Provisional Agreement were still regarded as forming part of the bargain between the vendor and purchaser.  In this regard, it is of note that on 1 March 2004, FWT wrote to DSC stating that, having taken instructions from their client (ie Victor), APH’s proposal “to make payment of HK$80,000 with retrospective effect on 1 July 2003” was agreeable to Victor.

(6) Also, in FWT’s letter to A&O dated 27 May 2004, it was stated that until the formal agreement for sale and purchase had been signed, “the Provisional Agreement dated 26^th May 2003 shall continue to govern the relationship between the parties.”  It is clear that, contrary to the evidence of Victor and Mo Lin, the May 03 Provisional Agreement / Amended May 03 Provisional Agreement were not regarded by them as having become “obsolete” or been “cancelled” by the time of the making of the Aug 03 Provisional Agreement (if it was signed on 30 August 2003, as to which see further discussion below).

(7) Victor put the blame on the solicitors for wrongly referring to the May 03 Provisional Agreement/Amended May 03 Provisional Agreement, or the provisions therein, in the draft formal sale and purchase agreements exchanged between the solicitors.  In my view, the suggestion that the various firms of solicitors instructed by the parties repeatedly made the same mistake is just inherently improbable.

110. Overall, I conclude that the May 03 Provisional Agreement and Amended May 03 Provisional Agreement were made on or about 26 May 2003 and originally intended to be given effect by Victor and Mo Lin.  However, Victor did not wish to disclose those agreements because he realised that the terms thereof were unduly favourable to APH and could be utilized by Tony and Susie in support of their allegation of breach of fiduciary duties against him.

THE AUTHENTICITY OF THE NOTARISED DOCUMENTS

111. The following documents were apparently notarized by Ms Fay Shimizu, including:-

(1) Mo Lin’s written offer to Victor dated 15 May 2003; and

(2) Mo Lin’s letter to CIBC instructing the bank to transfer funds to Victor’s account dated 24 May 2003.

On the face of those documents, Ms Fay Shimizu certified that they were executed by Mo Lin on 15 May 2003 and 24 May 2003 respectively.

112. As earlier observed, the official seal that Ms Fay Shimizu used to notarize the aforesaid documents had a stated expiry date of 23 September 2007. According to the evidence of Tony’s expert on Illinois law (Ms Marian S K Ming) and various documents relating to Ms Fay Shimizu’s application for a Commission as a Notary Public in Lake County in the State of Illinois, she only made the application on 19 June 2003 and the seal in question only became effective as from 23 September 2003, that being the date of commission of Ms Fay Shimizu as a notary public for a term of 4 years.  Hence, the expiry date of her commission fell on 23 September 2007, as stated on her official seal.  From these, it is argued that Ms Fay Shimizu could not have notarized the aforesaid documents in May 2003 using that seal.

113. There is before the court a “correction note” dated 3 November 2014 signed by Ms Fay Shimizu, which note was notarized by another notary public (Ms Beatrice Rivas), stating that she had made a mistake in using the new seal which only became effective on 23 September 2003 in the notarization of the May 2003 documents.

114. There is also evidence that Ms Fay Shimizu had previously been commissioned as a notary public in Cook County in the State of Illinois between 1 June 1983 and 24 May 2003.  In other words, Ms Fay Shimizu would have some familiarity with the practice and procedure regarding applications for commission as notary public in the State of Illinois.  According to APH’s expert on Illinois law (Mr Edward J Underhill), the seal that Ms Fay Shimizu used in the notarization of the May 2003 documents could possibly have been existence in May 2003 even though it had not yet become effective as at that time.

115. However, Mr Underhill also said that while it is possible for an applicant to request from the State Department for a specific commencement date of the commission, such request would be made at the time of the application for the commission.  Further, in answer to a question posed by the court, Mr Underhill said that any inquiry as regards the commencement date of the commission could only be made after the relevant application had been lodged.  In the present case, the application was made on 19 June 2003.  It is difficult to see how Ms Fay Shimizu could have known or anticipated in May 2003 that her commission would commence on 23 September 2003 and expire on 23 September 2006. 

116. I remind myself that a conclusion that a notary public knowingly makes a false statement regarding the date of notarization is a serious matter which I should not lightly reach.  However, there is no satisfactory explanation regarding the use of the official seal of Ms Fay Shimizu in the notarization of the May 2003 documents when that seal had not even become effective.  Neither Tony nor Mo Lin called Ms Fay Shimizu to give evidence at the trial.  I am not prepared to give weight to the “correction note” which is an unsworn statement.  Overall, I am not satisfied with the authenticity of (i) Mo Lin’s written offer to Victor dated 15 May 2003, and (ii) Mo Lin’s letter to CIBC instructing the bank to transfer funds to Victor’s account dated 24 May 2003. 

AUTHENTICITY OF VARIOUS OTHER DOCUMENTS

117. As stated in Tony’s notice under Order 27 Rule 4 of the Rules of the High Court dated 27 November 2014, Tony does not admit the authenticity of the following documents:-

(1) handwritten letter (in Chinese) dated 16 April 2003 offering to purchase the Property at HK$3,800,000 (enclosed with FWT’s letter to Tony and HG dated 24 April 2003), referred to in paragraph 38 above;

(2) letter from Victor to Mo Lin dated 12 May 2003, referred to in paragraph 41 above;

(3) offer letter from Mo Lin to Victor dated 15 May 2003, referred to in paragraph 44 above;

(4) CIBC’s Confirmation of Balance dated 22 May 2003, referred to in paragraph 45 above;

(5) letter from Mo Lin to CIBC dated 24 May 2003, referred to in paragraph 46 above;

(6) CIBC’s Confirmation of Balance dated 26 May 2003, referred to in paragraph 47 above;

(7) letter from Victor to Mo Lin dated 26 May 2003, referred to in paragraph 48 above;

(8) letter from Victor to Mo Lin dated 27 May 2003, referred to in paragraph 53 above;

(9) letter from Victor to Mo Lin dated 2 June 2003, referred to in paragraph 56 above;

(10) letter from Victor to Mo Lin dated 13 July 2003, referred to in paragraph 63 above; and

(11) the Aug 03 Provisional Agreement dated 30 August 2003, referred to in paragraph 65 above.

118. A number of points have been urged by Mr Bell in support of the submission that the above documents, or some of them, are not authentic.  I would briefly summarise the main points as follows:

(1) In his original defence dated 22 September 2004, Victor made no mention of the fact that Mo Lin had made a written offer on 15 May 2003.  His pleaded case at that time was that Mo Lin made an offer orally on or about 26 May 2003 to purchase the Property (paragraph 41).  The written offer was only raised in subsequent amendments to his defence in 2012. Victor blamed his solicitors for the mistake or misunderstanding of his case, which I am unable to accept.

(2) There was no coherent evidence from Victor or Mo Lin on how Mo Lin’s offer contained in the letter of 15 May 2003 came to be made, in particular, whether there was any prior oral discussion relating to the offer, and how the offer letter was sent.

(3) It was not possible for the name of the 2^nd defendant, Advance Property Holding Limited, to be mentioned in the offer letter of 15 May 2003, when it had not yet been incorporated and there was no certainty that the name would be approved by the Registrar of Companies (eg, on the ground that there already existed another company with the same name).

(4) The notarization of Mo Lin’s offer letter to Victor dated 15 May 2003 and her letter to CIBC dated 24 May 2003 was questionable for reasons stated above.

(5) Victor’s decision to withdraw his offer to purchase the Property as mentioned in his letter to Mo Lin dated 12 May 2003, and Mo Lin’s offer to purchase the Property by letter dated 15 May 2003, were not mentioned in FWT’s letter to HG dated 27 May 2003.

(a) According to Victor, 1 to 2 days after 28 April 2003, he was informed by a bank that he could not get a mortgage loan.  He then informed FWT that he would withdraw his offer to purchase the Property.

(b) In FWT’s letter dated 27 May 2003, FWT stated that they had obtained instructions from Victor in relation to HG’s letter dated 14 March 2003 which they received on 14 May 2003.  It follows that at the time when FWT obtained instructions from Victor, he had already decided to withdraw his offer to purchase the Property.  FWT claimed in that letter that Victor had received the agreement from 4 beneficiaries to the proposed sale of the Property to him, which it was said represented “a majority view and approach”.  The contents of FWT’s letter suggested that the proposed sale of the Property to Victor was still being pursued as at 27 May 2003, which would be wholly inconsistent with the contents of Victor’s letter to Mo Lin dated 12 May 2003.

(c) Again, Victor blamed his solicitors for the mistakes, which I am not able to accept.

(d) Incidentally, there was also no basis for Victor (through FWT) to claim that he had received agreement from 4 beneficiaries to the proposed sale of the Property to him.

(6) The two Confirmations of Balance purportedly issued by CIBC dated 22 May 2003 and 26 May 2003 respectively did not refer to the bank account numbers of Mo Lin or Victor’s bank accounts.

(a) This having been said, there is an affirmation made by Ms Edith Yu, a Senior Financial Services Representative of CIBC’s branch at Edmonton, dated 29 April 2013 confirming that she issued the two Confirmations of Balances, although she did not give oral evidence at the trial.

(b) I pause to observe that the two Confirmations of Balance would at most be evidence of the balances in two bank accounts held in the names of Mo Lin and Victor respectively, but could not show that money had indeed been transferred from Mo Lin’s bank account to Victor’s bank account.

(c) It may also be noted that although Ms Edith Yu confirmed the authenticity of the two Confirmation of Balance in her affirmation, she made no mention of Mo Lin’s letter dated 24 May 2003 instructing CIBC to transfer all her mutual funds holdings from her account (#57353480) to Victor’s bank account, or that there was any transfer of funds from Mo Lin’s account to Victor’s account in May 2003.

(7) In Victor’s letter to Mo Lin dated 26 May 2003, it was stated that Mo Lin’s money had been successfully transferred into his account, and that the transfer of CAD590,000 was equivalent to HK$3,628,500. In other words, the exchange rate applied by Victor was CAD1 to HK$6.15.  However, as pointed out by Mr Bell, the relevant exchange rate in May 2003 was around CAD1 to HK$5.6-5.7.  It did not reach HK$6.15 until September 2004.

(8) In Victor’s letter dated 27May 2003, he informed Mo Lin of his agreement to sell the Property to her company for HK$10,810,000.  That letter was written as if the May 03 Provisional Agreement/Amended May 03 Provisional Agreement were non-existent.  Also, as recorded in those earlier documents, Victor’s agreement with Mo Lin was to sell the Property to her and her family, instead of to her company.

(9) In Victor’s letter to Mo Lin dated 13 July 2003, he asked Mo Lin whether she could “afford an extra HK$1,540,000.00 for the deposit in order to delay the completion date”, the delay being allegedly caused by Mo Lin and Gigo’s inability to come to Hong Kong to set up a corporate bank account that year (for the purpose of obtaining a mortgage loan from Hang Seng Bank to finance the purchase of the Property).

(a) However, according to Mo Lin, she approached Hang Seng Bank for a mortgage loan after APH had been incorporated (which was on 29 August 2003) and it was then that she was told by the bank that an interview in Hong Kong was required.

(b) If what Mo Lin said above is correct, Victor’s letter to Mo Lin could only have been written after 29 August 2003, and not on 13 July 2003.

(c) Incidentally, in support of her evidence, Mo Lin referred to a letter dated “16 August 2004” from Gigo’s employer (Nal’s Auto Repair).  In that letter, it was stated that Gigo had already taken a two week vacation from 5 March 2003 to 24 March 2003 and, due to the business load of the company, Gigo could not be relieved of his work duties for the balance of 2003.  Mo Lin said that letter was shown to Hang Seng Bank but the bank told her that it was a strict rule that both directors of the company (ie APH) had to attend the interview.

(d) There are two points arising out of Nal’s Auto Repair’s letter that I should mention.  First, Mo Lin has suggested in her witness statement that the letter from Nal’s Auto Repair was wrongly dated as 16 August 2004, and the correct date should be 16 August 2003.  In my view, the contents of that letter suggested that it was written in 2004, because the last sentence of that letter reads “… I was unable to relieve him of his work duties any further during the year 2003”.  If the letter was written in 2003, the employer would presumably say “I am unable to relieve him of his work duties any further during the year 2003”.  Second, the letter from Nal’s Auto Repair was signed by a person called “Allen Shimizu, President”.  The address of Nal’s Auto Repair as stated on the letterhead was “1815 W. Irving Park Road, Chicago, IL 60613”.  The same address appeared in Ms Fay Shimizu’s application for a Commission as a Notary Public dated 19 June 2003.  In that application, “NAL’s Auto Repair Inc” was stated to be the name of the “Business/Employer” of Ms Fay Shimizu.  It would appear therefore that Ms Fay Shimizu and Gigo’s employer were related.

(10)   The Aug 03 Provisional Agreement contained significant omissions when compared with the May 03 Provisional Agreement/Amended May 03 Provisional Agreement (which I have found to be authentic documents).

(a) In particular, there was no mention of Mo Lin’s agreement to pay HK$80,000 per month until the completion of the estate of the Deceased, or her entitlement to receive the rental income when she started to make the monthly payment of HK$80,000, or her agreement to keep the Property for at least 7 years.

(b) The contents of the Aug 03 Provision Agreement were also inconsistent with the draft formal agreements for sale and purchase exchanged between FWT and DSC between February and May 2004 regarding (i) the completion date, and (ii) the deposits paid.

(c) Neither was the Aug 03 Provisional Agreement referred to in the second schedule to the draft formal agreements for sale and purchase exchanged between FWT and DSC; instead reference was made to an agreement made on 26 May 2003.  The same comment applies to the draft formal agreement for sale and purchase sent by A&O to FWT under cover of a letter dated 2 June 2004.

(d) It would therefore appear that up to that stage, the parties regarded the May 03 Provisional Agreement / Amended May 03 Provisional Agreement, instead of the Aug 03 Provisional Agreement as the governing agreement.

119. Neither Victor nor Mo Lin could give any convincing explanations for the aforesaid oddities or discrepancies in relation to the disputed documents.  In all, save in respect items (1), (4) and (6) referred to in paragraph 117 above (ie the handwritten letter dated 16 April 2003 offering to purchase the Property at HK$3,800,000 and the 2 Confirmations of Balance), I am not satisfied with the authenticity of the rest of the documents.

Estate’s indebtedness to victor

120. In paragraph 29 of Victor’s Re-Amended Defence dated 30 July 2012, it is pleaded that all outstanding debts of the Estate came to about HK$2 million by the time that Big Glory repudiated the tenancy agreement dated 12 June 2002 in November 2002.  Those debts would include debts owing to Victor and outstanding estate duty and interest thereon owing to the IRD.

121. In so far as outstanding debts owing to Victor are concerned:-

(1) In his first witness statement dated 3 October 2012, at paragraph 33, Victor said that, after he had recovered possession of the Property in around mid 2001, he lent about HK$1.9 million to the Estate in order to put the Property in a state fit to be leased and to pay off part of the estate duty.  This figure of about HK$1.9 million was also mentioned in paragraph 26 of his 1^st affirmation filed on 26 August 2004.

(2) In FWT’s letter dated 3 April 2003 to HG, FWT stated that Victor had so far paid expenses amounting to about HK$1,600,000 on behalf of the Estate,

(3) The amount of the indebtedness owing by the Estate to Victor remained at about HK$1.9 million as stated in an undated document entitled “Expenses paid by Lam Sik Ying in respect of the estate of Lam Tim, deceased” (“the Expenses Document”) which Victor said was prepared by his lawyer.  Although this document was undated, it referred to a bill no.001182 issued by FWT.  That bill was dated 2 October 2003.  It follows that the Expenses Document must have been prepared on or after 2 October 2003.

(4) In his 2^nd affirmation filed on 15 August 2005, at paragraph 31, Victor said that the Estate’s indebtedness to him had become HK$2,850,503.37 as at August 2004.  In Mr Chan’s closing submissions for Victor, Mr Chan also referred to and relied on paragraph 31 of Victor’s 2^nd affirmation.

122. In so far as estate duty and interest thereon owing to the IRD are concerned:-

(1) As can be seen from the IRD’s letter to FWT dated 20 August 2002, the total amount outstanding as at that date was HK$695,577.90, with further interest accruing thereon at the rate of HK$12.10477 per day.

(2) It would appear from the Expenses Document that there were two further payments of HK$76,000 and HK$8,995 to the IRD made by Victor on behalf of the Estate on 17 December 2002 and 17 June 2003 respectively.

(3) As earlier mentioned, the whole outstanding estate duty and interest thereon, in the amounts of HK$612,083.90 and HK$3,151.10 respectively, were fully settled on 29 September 2003.

123. However, in the further and better particulars of his Amended Defence filed in HCA 1605/2004 on 2 August 2013, Victor said that the total amount of the Estate’s debts by the end of 2002 was CAD1,278,113.36 (equivalent to HK$6,996,187.61), and that by the end of 2003, the total had grown to CAD1,512,028.96 (equivalent to HK$8,296,243.75).  Victor has not attempted to prove, at the trial, strictly the amounts that the Estate allegedly owed him.  It is open to debate how much of the loans and expenses making up the alleged indebtedness referred to in the further and better particulars could be proved and recovered by Victor.  It is not necessary, for the purpose of resolving Tony and Susie’s claim against him in this action, to determine the precise indebtedness owing by the Estate to Victor at the material times, in particular in 2003 and 2004.  I would merely observe that the figures mentioned by Victor (in his witness statements and affirmations) and by his solicitors and counsel (referred to in paragraph 121 above) are more likely to reflect the true state of the Estate’s indebtedness to him.

THE MARKET VALUE OF THE PROPERTY

124. Tony, Susie and Victor each called a valuation expert to give evidence at the trial:-

(1) The evidence of Tony’s expert, Mr Li, is that the market value of the Property was between HK$26,865,000 and HK$28,823,000 during the period from 20 March 2003 to 30 August 2003.

(2) The evidence of Susie’s expert, Ms Sat, is that the market value of the Property was HK$25,600,000 as at 11 June 2004 (being the date of the formal sale and purchase agreement registered in the Lands Registry).

(3) The evidence of Victor’s expert, Mr Alan Lee, is that the market value of the Property was between HK$10,125,000 and HK$11,368,000 during the period from 20 March 2003 to 30 August 2003.

(4) In the joint statement of Ms Sat and Mr Alan Lee dated 23 April 2015, Ms Sat expressed the view that the market value of the Property as at 26 May 2003 was HK$22,930,000 (on vacant possession basis) or HK$22,790,000 (subject to existing tenancy), while Mr Alan Lee expressed the view that the market value of the Property (on vacant possession basis) as at 26 May 2003 was HK$10,690,000.

125. If one focuses on the valuation date of 26 May 2003, the respective valuations of the Property by Mr Li, Ms Sat and Mr Alan Lee are as follows:-

(1) Mr Li – HK$27,878,000 (subject to existing tenancy);

(2) Ms Sat – HK$22,930,000 (on vacant possession basis), or HK$22,790,000 (subject to existing tenancy); and

(3) Mr Alan Lee – HK$10,690,000 (on vacant possession basis).

126. Each of the valuers has considered separately the value of the G/F, 1/F, 2/F and 3/F of the Property.

127. In so far as the G/F of the Property is concerned, I do not accept Mr Alan Lee’s valuation and prefer the valuations carried out by Mr Li and Ms Sat, for the following reasons:-

(1) Mr Alan Lee disregarded the yard on the G/F of the Property on the ground, unjustifiably in my view, that he was not sure whether it might have been a common yard.

(2) Mr Alan Lee took into account only two comparables, “A” and “B”.  Comparable “B” is plainly inappropriate as a comparable, because it is much smaller than the ground floor of the subject property (about 1/8^th in area) with a vastly different value.  The transacted price of this comparable was only HK$720,000.

(3) When making time adjustment for comparable “A”, Mr Alan Lee departed from the normal practice of using the date of the provisional sale and purchase agreement, but used instead the date of the formal sale and purchase agreement.

(4) Mr Alan Lee did not take into account three other comparables considered by Ms Sat, on the ground that the relevant transactions took place prior to the outbreak of SARS in Hong Kong.  I accept the evidence of Ms Sat that those comparables could be used with appropriate time adjustments.  Two of them were also used by Mr Li in his valuation of the G/F of the Property.

(5) Mr Alan Lee did not take into account the Onluck Tenancy in his valuation on the ground, again unjustifiably in my view, that the tenant was a limited company without a reliable guarantor and there was a risk that it might default or ask the landlord for a reduction of the rent during the term of the tenancy, and also because sometimes a landlord would agree a higher rent with the tenant in order to give a false impression to potential buyers that the property represented a good investment.  All these seem to me to be speculative, particularly having regard to the fact that in the present case, Onluck paid one year’s rent in advance and 3 months’ rent as deposit to the landlord.

128. In so far as the valuations of 1/F to 3/F of the Property are concerned, I prefer the traditional “comparative” approach used by Mr Li and Mr Alan Lee to Ms Sat’s approach which was based on the application of “conversion factors” to the G/F unit rate.  More particularly, Ms Sat assumed that the unit rate of the 1/F was 10% of the G/F, and applied a further successive discount of 20% per upper floor.  I consider that, in general, the comparative approach should be used unless no suitable comparables can be found.

129. In so far as Mr Li and Mr Alan Lee’s respective valuations of the 1/F to 3/F of the Property are concerned, I do not accept Mr Lee’s valuation and prefer the valuation carried out by Mr Li, for the following reasons:-

(1) Mr Alan Lee valued them as domestic premises, while Mr Li valued them as commercial premises.  There is no clear evidence that the 1/F to 3/F could not be used for commercial purposes.  It appears that the 1/F to 3/F have in fact been used as commercial premises for many years without objection by any Government authorities.  Moreover, under the Onluck Tenancy, their use for domestic purpose was expressly forbidden.  Mr Alan Lee said that the upper floors of the Property should be for domestic use by reference to a book published by the Hong Kong Architectural Society which showed photographs of typical pre-war domestic (or partly domestic) buildings in the Central and Sheung Wan areas.  I do not consider that the book and photographs provide a good foundation for coming to the conclusion that the 1/F to 3/F of the Property could only be used for domestic purpose.  In my view, Mr Li was correct to value the 1/F to 3/F of the Property as commercial premises.

(2) Mr Alan Lee applied a successive discount of 2% only per each upper floor, while Mr Li applied a successive discount of appropriately 6-7% per each upper floor.  In my view, the discount applied by Mr Alan Lee is insufficient.

130. The evidence before me does not permit me to make a finding on the precise market value of the Property on 25 May 2003 or on any other specific date. However, it is not necessary to do so because I am not dealing with a compensation case.  Taking a broad view of the matter, I find that the market value of the Property was well above HK$10,810,000 in May 2003, and probably exceeded HK$20,000,000.

WHETHER BINDING AGREEMENT FOR SALE AND PURCHASE IN MAY/AUGUST 2003 NOT IMPORTANT

131. The question of whether Victor and Mo Lin/APH had entered into any binding agreement for the sale and purchase of the Property in May/August 2003 is not important, because there was undoubtedly a binding contract between them by the time of the making of the Jun 04 Memorandum dated 8 June 2004.  What seems to me to be important is whether Victor acted in breach of his fiduciary duties owed to the Estate in his sale of the Property to APH.  This is the issue which I shall now consider.

VICTOR’S BREACHES OF FIDUCIARY DUTIES

132. The guiding principles applicable to a sale of property by trustees were conveniently summarised in paragraph 16 the judgment of Mr Jeremy Cousins QC, sitting as a deputy judge of the Chancery Division, in Killearn v Killearn [2011] EWHC 3775 (Ch), as follows:-

“(i) It is the overriding duty of a trustee when selling a trust’s property to do so under every possible advantage to his beneficiaries. Authority for that is the case of Downes v Graysbrook (1817) 3 Mer. 200; see also Re Cooper and Allen's Contract (1876) 4 Ch D 802.

(ii) The duty includes a duty to secure by every means in the trustees’ power a proper competition for the trust property in order to obtain the best price; see Harper v Hayes (1862) Gif 210.

(iii) The duty requires the trustee to investigate a higher offer after the stage at which an ordinary vendor might consider himself morally bound by a lower offer; see Buttle v Saunders [1952] 2 All ER 193.

(iv) The trustee must not make a sale with a view to advancing the particular purposes of one party interested in the execution of the trust at the expense of another; see Ord v Noel (1820) 5 Madd 438.

(v) Where a trustee exercises a power vested in him such as a power of sale, the burden of proof lies on him to show that it is a fit and proper exercise of the power; see Norris v Wright (1851) 40 Beav 291.

(vi) Finally, a trustee in breach of duty is personally liable for any loss caused to the beneficiary; see Taylor v Taylor (1833) 6 Simons 281.”

133. In the present case, the evidence before the court clearly demonstrates that Victor acted in breach of the fiduciary duties which he owed to the Estate in relation to the sale of the Property to APH, in the following aspects.

134. First, Victor failed to properly advertise the Property for sale.  His only effort was to place a very small advertisement in Sing Tao Daily on 4 consecutive days in early April 2004 that the Property was available for sale.  The information given in the advertisement relating to the Property was woefully inadequate.  The size, or salable/usable area, of the Property, was not mentioned, no asking price was stated, and the only means of contact with the vendor was a fax number in Canada.  Also, it failed to mention that the Property had been leased to a tenant for a term of 7 years commencing on 1 April 2003 at the attractive rent of HK$140,000 per month.  It is the evidence of Mr Liu (Victor’s expert on real estate marketing) that in marketing an investment property, the terms of the existing tenancy would be important features which should be made know to the potential purchasers.  Bearing in mind that the Property represented the major remaining asset of the Estate and its substantial value, it seems to me to be obvious that Victor ought to have exposed the Property to the market more extensively, eg by engaging professional estate agents to actively market and sell the Property.

135. Second, Victor failed to obtain any updated valuation of the Property from a professional valuer prior to entering into the May 03 Provisional Agreement/Amended May 03 Provisional Agreement with Mo Lin or the Jun 04 Memorandum with APH.  I find that the latest valuation that Victor had obtained was from Dudley in May 2002 which gave a valuation of HK$15,000,000.  Victor considered that the prevailing market value of the Property was unlikely to exceed HK$10,000,000 by any substantial margin because he had received an offer from Property Investment Centre Ltd on or about 4 April 2003 for the purchase of the Property at HK$10,800,000.  It is, I believe, a matter of common sense that an offer from an interested purchaser of a property may not quite reflect the true market value of the property.  The other offer that Victor received on or about 16 April 2003 for the purchase of the Property at HK$3,800,000 plainly could not be given any credence.  It seems to me that any reasonable administrator, before he sells a valuable property belonging to the estate, ought to have obtained an updated valuation from a professional valuer to inform himself of the open market value of the Property.

136. Third, Victor insisted on putting in a 7-year non alienation condition in the sale of the Property, which would likely depress the value that he could obtain from selling the Property, whether to an outsider or to a beneficiary of the Estate.  According to the surveyor’s report prepared by Dudley dated 16 August 2004, such re-sale restriction would have had a negative effect on the marketability of the Property, and a discount of say 20% would be reasonable to be applied to the open market value to reflect the lack of flexibility for disposal.  I pause to observe that this consideration was also put forward in the submission sent on behalf of APH to the Commissioner of Rating and Valuation Department on 27 January 2010 in support of its objection to the stamp duty assessment in respect of the Jun 04 Formal SP.  That the re-sale restriction would have this effect is, I believe, a matter of common sense which Victor must have been aware of.  Unless he had received the unanimous agreement of all the beneficiaries of the Estate, I do not consider that Victor was entitled, as administrator, to insist on the imposition of such re-sale restriction when selling the Property.

137. Fourth, the sale of the Property to Mo Lin/APH was on terms which were unduly favourable to the purchaser, in particular:-

(1) Although Victor and Mo Lin had already reached agreement for the sale and purchase of the Property in May 2003, he agreed with Mo Lin that she did not have to pay the balance of the purchase price until 30 days after he had confirmed what was her share of the Estate, which could be years after the date of the agreement.

(2) In the Amended May 03 Provisional Agreement, he agreed that Mo Lin could receive the rent of HK$140,000 per month payable by the existing tenant, while needing to pay only HK$80,000 per month to Victor which would be counted towards the balance of the purchase price eventually payable by the purchaser to Victor.

(3) As it was, Mo Lin did not in fact make any monthly payment HK$80,000 to Victor. On the other hand, in the Jun 04 Memorandum and Jun 04 Formal SP, Victor agreed that APH was entitled to receive the monthly rent of HK$140,000 from 1 June 2004 to the date of completion.

(4) As a matter of fact, completion did not take place until 8 February 2007, and APH was given credit for 31 months of rent (from 1 July 2004 to 31 January 2007) in the total sum of HK$4,340,000, notwithstanding FWT’s letter to MTDC dated 28 August 2006 in which it was stated, inter alia, that “it was and is the intention that [APH] may only receive the rent from the Property after signing the said Agreement for Sale and Purchase up to completion on 3 September 2004.  It certainly is and was not the intention of the said Agreement that [APH] may continue to receive such rent when completion did not take place as scheduled.”

(5) Ultimately, APH only paid HK$2,715,309 as the balance of the purchase price on completion of the purchase of the Property.  Taking into account the CAD590,000 allegedly paid by Mo Lin and received by Victor in May 2003, the total consideration received by Victor for the sale of the Property was substantially less than the sale price of HK$10,810,000.

138. Fifth, although I am not satisfied, on the evidence, that APH purchased the Property as Victor’s nominee, I believe it to be clear that Victor sold the Property on advantageous terms to APH because he was motivated by (i) a desire to favour Madam Wong’s branch of the Lam family (as shown by the fact that the favourable terms on which Victor was prepared to sell the Property to Mo Lin or her company were never offered to Tony or Susie), and (ii) his wish to recover the outstanding indebtedness which he considered the Estate to be owing to him (as admitted by Victor himself).

139. Sixth, Victor sold the Property to APH at an undervalue, which I find to be the result, or at least partly the result, of his breaches of fiduciary duties mentioned in paragraphs 134, 135, 136 and 138 above.

140. Seventh, there were other instances of breach of fiduciary duties on the part of Victor in relation to the sale of the Property even though they might not have caused any direct loss to the Estate, including:-

(1) failing to disclose, in FWT’s letter dated 20 March 2003, the existence of the Onluck Tenancy at the monthly rent of HK$140,000 and the fact that Onluck had agreed to pay one year’s rent in advance in the total amount of HK$1,680,000;

(2) informing Mo Lin first of his decision to withdraw his offer to purchase the Property;

(3) failing to disclose, in FWT’s letter dated 27 May 2003, his decision to withdraw his offer to purchase the Property and the agreement he had reached with Mo Lin for the sale of the Property at the price of HK$10,810,000; and

(4) failing to disclose the May 03 Provisional Agreement / Amended May 03 Provisional Agreement until shortly before the commencement of the trial.

141. Before I end this part of the judgment, I should briefly mention three other matters raised by Victor.

142. First, one of the main points raised by Mr Chan on Victor’s behalf was that, given the outbreak of SARS in Hong Kong in or about April 2003, Victor was entitled to take a pessimistic view of the property market in Hong Kong and that the offer of HK$10,800,000 made by Property Investment Centre Ltd for the purchase of the Property in April 2003 more or less reflected the then market value of the Property, and thus sell the Property for HK$10,810,000 in order to pay off the Estate’s debts and liabilities.  I readily accept that the outbreak of SARS in Hong Kong in early 2003 had an adverse impact on the property market in Hong Kong (although the price indices produced by the Rating and Valuation Department suggest that the effect was more severe on the residential sector than the retail sector), and that it was primarily a matter for Victor as administrator to decide on the timing of the sale of the Property.  However, once he had decided to sell the Property, he was, in my view, under a duty to take all reasonable steps to obtain the best price reasonably obtainable in the circumstances.  For the reasons given above, I consider that Victor failed to do so.

143. Second, in paragraph 54 of Victor’s re-amended defence in HCA 1605/2004 filed on 16 August 2012, reliance is placed on section 60 of the Trustee Ordinance, Cap 29.  It is pleaded that Victor had acted honestly and reasonably, and ought fairly to be excused for any breach of trust if found by the court.  Section 60 of the Trustee Ordinance states as follows:-

“If it appears to the court that a trustee, whether appointed by the court or otherwise, is or may be personally liable for any breach of trust, whether the transaction alleged to be a breach of trust occurred before or after the commencement of this Ordinance, but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same.”

144. In view of the findings above, I cannot see how it can be said that Victor acted honestly or reasonably, or ought fairly to be excused for his breach of fiduciary duties owed to the Estate in relation to the sale of the Property to APH.  Section 60 of the Trustee Ordinance plainly has no application to the present case.

145. Third, in paragraph 79 of Victor’s re-amended defence in HCA 894/2011 filed on 30 August 2012, it is contended that Susie’s claim is barred by the operation of the limitation period and the doctrine of laches.  It is also said that, in light of Tony’s action in HCA 1605/2004, Susie’s action is frivolous and vexatious.  It is not clear how far these defences are still maintained by Victor.  Anyhow, I accept Mr Miu’s submission that since the assignment of the Property was only executed in February 2007 and Susie’s action was commenced in 2011, there can be no question of her claim being time barred.  Neither is there, in my view, any basis for the contention that her claim is barred by the doctrine of laches, or should be regarded as being frivolous or vexatious by reason of the existence of Tony’s action in HCA 1605/2004.

VICTOR’S COUNTERCLAIM AGAINST SUSIE

146. As earlier mentioned, Victor’s counterclaim against Susie is based on her alleged wrongful occupation of the Li Kwan Property between January 1990 and June 2005 without any payment of rent or mesne profits.

147. Susie’s evidence, which I accept, is that she moved into the Li Kwan Property in around 1991, and moved out on 27 May 2005.  The date of her moving out from the Li Kwan Property is confirmed by an invoice issued by Superior Removal & Transportation Limited to Susie dated 27 May 2005.  Her main defence to Victor’s counterclaim is that it is time barred.

148. In answer to the limitation defence, Mr Chan on behalf of Victor relies on the doctrine of relation back under section 35 of the Limitation Ordinance. In reply, Mr Miu on behalf of Susie argues that the court has a discretionary power to order that the counterclaim be struck out or tried in a separate action under Order 15, rule 5(2) of the Rules of the High Court, and the court may do so in an appropriate case even if it means that the defendant may be deprived of the advantage of relation back under section 35 of the Limitation Ordinance.  In my view, if Susie wishes to apply either to strike out the counterclaim or for an order that the counterclaim be tried separately, she should have done so a long time ago and not at the trial.

149. On the footing that the doctrine of relation back is applicable such that the counterclaim is to be treated as having been commenced on the date of the writ, ie 27 May 2011, Victor would only be entitled to claim against Susie in respect of causes of actions founded on tort which accrued on or after 27 May 2005.  Hence, in so far as Victor’s counterclaim for mesne profits is concerned, Susie would only be liable for one day’s occupation of the Li Kwan Property (ie for her occupation of the Li Kwan Property on 27 May 2005). In his closing submissions, Mr Chan contended that the mesne profits recoverable by Victor should be for the period from 27 May 2005 to 3 June 2005 (8 days), the latter being the last date on which she was permitted to remain in the Li Kwan Property pursuant to a court order dated 4 April 2005 made in HCMP2982/2004.  However, in view of the fact that Susie moved out of the Li Kwan Property on 27 May 2005, I do not consider that she should be liable for mesne profits for the period from 28 May 2005 to 3 June 2005.  In any event, Victor has not produced evidence regarding the market rent of the Li Kwan Property.  Mr Chan referred the court to the rateable value of the Li Kwan Property, but that cannot be regarded as evidence of the market rent of that property.  Accordingly, I would make an award of nominal damages only in respect of Victor’s counterclaim for mesne profits.

150. In respect of the items raised by Victor in paragraph 83 of his counterclaim against Susie:-

(1) Item (a) relates to “Rental loss of Li Kwan Property as from January 1990 to June 2005”.  As earlier mentioned, only nominal damages would be awarded.

(2) In respect of item (b), which relates to “Cleaning expenses incurred by the Estate in respect of Li Kwan Property”, Victor has produced a quotation issued by General Central Engineering Limited dated 24 November 2005 for the sum of HK$65,000 which, on its face, related to demotion works to clear certain illegal structures and general renovation of the property.  There is no evidence that the works mentioned in the quotation were actually carried out, or that the amount stated in the quotation was paid to the contractor. Furthermore, there is no reason why Susie should be liable for the costs to remove illegal structures or for general renovation of the property.

(3) In respect of item (c), which relates to “Reinstatement and refurbishment expenses”, Victor has produced another quotation issued by Angliss Decor Ltd dated 15 February 2007 for the sum of HK$163,020.  Again, there is no evidence that the works mentioned in the quotation were actually carried out, or that the amount stated in the quotation was paid to the contractor.  Also, there is no reason why Susie should be liable for the reinstatement and refurbishment expenses.

(4) Item (d) relates to “Government Rent and Government Rates from 2001 to 2005”.  As in relation to the claim for mesne profits, Susie should only be liable for Government rent and rates for 1 day only, amounting to approximately HK$18.1 (the annual rates payable in respect of the Li Kwan Property were HK$6,614.00 for the period from 1 April 2004 to 31 March 2005).

(5) Lastly, item (e) relates to costs under the court order dated 4 April 2005 made in HCMP 2982/2004.  In principle, Victor could enforce the court order directly against Susie.  I do not see why Victor can claim the same amount in a separate action (whether by way of an original claim or counterclaim) against Susie.

151. Overall, I would make a lump sum award of HK$100 in respect of Victor’s counterclaim.

CONCLUSION

152. In all, I find that Victor acted in breach of the fiduciary duties that he owed to the Estate in relation to the sale of the Property to APH.  In view of the consent judgments against APH, it is not necessary for me to find whether APH knowingly assisted Victor in his breach of fiduciary duties.  Had it been necessary to do so, I would have no difficulty in finding “knowledge” and “assistance” on the part of APH.  The Property has already been revered to the Estate pursuant to the consent judgments.  If the Estate is able to recover from APH the full amount found due upon the taking of account, there should not be any additional loss or damage payable by Victor to the Estate.  The position would be different, however, if the Estate is unable to recover from APH the full amount found due.

153. I shall leave it to the parties to agree on the form of the order to give effect to the findings in this judgment, with liberty to apply in the event of disagreement.

154. I also give judgment on Victor’s counterclaim against Susie in HCA 894/2011 for the sum of HK$100.

155. On the question of costs, I make the following orders nisi:-

(1) in HCA 1605/2004, Victor shall pay the costs of Tony, to be taxed if not agreed on common fund basis, with certificate for two counsel;

(2) in HCA 894/2011, Victor shall pay the costs of Susie in respect of the main action, to be taxed if not agreed on common fund basis.  Although Victor has obtained judgment against Susie in respect of his counterclaim, it is for a nominal sum only. Also, very little time was spent at the trial in relation the counterclaim.  I do not consider it appropriate to make any deduction in respect of Susie’s costs of the main action; and

(3) there be no order in respect of Victor’s counterclaim against Susie in HCA 894/2011.

156. Susie’s own costs are to be taxed in accordance with legal aid regulations.

157. Lastly, it remains for me to thank counsel for the assistance that they have rendered to the court.

HCA 1605 of 2004

HCA 894 of 2011