SAMUEL LEE TAK YEE v. CHEN PARK KUEN AND OTHERS

HCA 9928/96

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 9928 OF 1996

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DECISION

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1. This is an action for declaratory and other relief in relation to 100 shares in a company known as Prudential Enterprises Ltd ("PEL") registered in the name of one madam Lee Jin, deceased ("madam Lee"). The 1st defendant is the husband and personal representative of the estate of madam Lee. The 2nd and 3rd defendants are the executors named in the will of one madam Lee Ng Chun Wah, deceased. The plaintiff contends that the 100 shares were held by madam Lee on trust for madam Ng and that there is now a resulting trust in favour of the estate of madam Ng. The 1st defendant denies that the shares are trust property.

2. The action was set down for an 8 days trial commencing on 3 July 2000. On 20 June 2000, the 2nd and 3rd defendants took out a summons seeking, in essence, an adjournment of the trial and directions on the future conduct of the case. This was followed by another summons on 28 June 2000 seeking the filing by the plaintiff of a further and better list of documents. On 29 June 2000, the 1st defendant issued a summons applying for a stay of the action.

3. The 3 summonses were returnable on the first day of trial. After hearing arguments, I ordered that the trial of the action be adjourned pending the conclusion or disposal of the winding up proceedings relating to PEL (HCCW 594/99) and the probate proceedings involving the plaintiff and the 2nd and 3rd defendants (Caveat No. 358/95 and HCA9522/97). I had also made directions relating to pleadings and discovery. I had given oral reasons for the orders. I now reduce them into writing.

Background and History of the Litigation

4. For the purpose of understanding and determining the applications by the defendant, it is necessary to examine the background and history of this action.

5. The plaintiff, the 2nd and 3rd defendants and madam Lee are the children of Mr Lee Man Wah ("the Father") and madam Ng Chun Wah ("the Mother"). In 1958, the Father and his cousin formed PEL. At the time of incorporation, 100 shares in PEL were allotted to madam Lee. Madam Lee died in 1970 and Letters of Administration of her estate was granted to the 1st defendant. In 1979, the Father died. Probate of his will was granted to the Mother. In 1991, the Mother died leaving a will. The 2nd and 3rd defendants are named as the executors under the Mother's will. The plaintiff is one of the beneficiaries to the Mother's estate. The Mother's will made no specific reference to the 100 shares in the name of madam Lee.

6. There is as yet no grant of probate to the estate of the Mother. The plaintiff had caused caveat to be entered and the executors had applied to strike out the caveat ("the Caveat Proceedings"). The hearing is pending. Also, the plaintiff and his children had commenced action for the removal of the 2nd and 3rd defendants as executors ("the Removal Action") and the trial of the action is pending. At the same time, 14 shareholders, including the 2nd defendant, had commenced winding up proceedings against PEL based on just and equitable ground ("the PEL Winding Up Action"). The petition was opposed by the plaintiff and the trial is also pending. Apart from these, there are also other proceedings involving the plaintiff and the executors. Among them were 2 winding up petitions presented by the plaintiff against 2 of the family companies. They were dismissed after trial by le Pichon J. and the plaintiff is appealing against the judgments.

7. When this action was commenced in 1996, the plaintiffs were the 2nd defendant, the plaintiff and his 3 children. While the 2nd defendant sued in his capacity as one of the executors, the plaintiff and his 3 children were suing in their individual capacity and as representatives of all the beneficiaries of the Mother's estate. The 1st defendant soon applied to strike out the plaintiff and his children as plaintiffs on the basis that they lack the necessary locus standi to sue. By the order of Master C.B. Chan made on 28 January 1977, the 3rd defendant was joined as a plaintiff in her capacity as co-executor while the plaintiff and his 3 children were struck off as plaintiffs.

8. It is not in dispute that the 2nd and 3rd defendants were unwilling or, to put it mildly, not keen in maintaining and pursuing this action against the 1st defendant. They had nevertheless agreed to be named as plaintiffs on the understanding and agreement with the plaintiff that the plaintiff would be responsible for the costs, the giving of instructions to solicitors and the conduct of the litigation. This remained the position until May 1998, when the 2nd and 3rd defendants appointed their own solicitors and took over the conduct of the case consequential upon the plaintiff's refusal to continue acting, using the plaintiff's words, "as agent" for the 2nd and 3rd defendants in the action. By that stage, discovery had been completed and the case had reached the stage of exchanging witness statements.

9. In February 1999, the 2nd and 3rd defendants took out Beddoe application under HCMP1185/99. Prior to that and as early as March 1997, the 2nd and 3rd defendants had already requested the solicitors then on record for them, but appointed by the plaintiff, to take out Beddoe application. The plaintiff did not agree and the solicitors made no application for the 2nd and 3rd defendants.

10. HCMP1185/99 was concluded on 5 April 2000 with a consent order made by Yam J. whereby the plaintiff was granted leave to apply to be substituted as the plaintiff with the 2nd and 3rd defendants being added as defendants herein. The order also granted liberty to the 2nd and 3rd defendants to take no active part in this action. It is fair to say that at the time, the expectations and understanding of the Court and the parties to the Beddoe application were that the 2nd and 3rd defendants were to be added as nominal defendants and would play no active role.

11. The plaintiff then made the applications for substitution and joinder of parties. By the order of Beeson J. dated 29 May 2000, the plaintiff was substituted as the plaintiff and the 2nd and 3rd defendants were made defendants to the action. On 12 June 2000, the plaintiff made voluntary discovery and filed, without leave, a substituted witness statement. This was then followed by the 3 summonses of the defendants.

The 1st Defendant's Application for Stay

12. In the summons, the 1st defendant sought a stay of the action pending the grant of probate to the Mother's estate or, alternatively, pending the trial of the preliminary issue of whether the plaintiff has the necessary locus standi to sue herein. At the hearing, Miss Eu for the 1st defendant had confined her application to seeking a stay pending grant of probate, but with liberty to apply for dimissal of the action for want of prosecution or for a trial of the preliminary issue on locus.

13. The 1st defendant's reasons for the application can be summarized as this. Since the order of joinder, new matters and materials have come to light, which prejudice the 1st defendant's position herein. Firstly, it is revealed that there are deep-seated differences between the plaintiff and the executors over a number of related issues and matters, which lead to a real danger of the 1st defendant being dragged into a protracted litigation. Secondly, new material has emerged and this goes to the root or basic factual premises of the claim of resulting trust. And it appears that the discovery made by the plaintiff and the 2nd and 3rd defendants is inadequate. Thirdly, in view of the Removal Action, there is a risk of the findings or judgment made herein not binding on the estate of the Mother. Miss Eu argued that the prejudice to the 1st defendant can to some extent be reduced or minimized with the grant of probate to the Mother's estate when some of the related issues and also the status of the executors can be clarified and crystallized.

The 2nd and 3rd Defendants' Application for Adjournment

14. The 2nd and 3rd defendants do not oppose the 1st defendant's application for stay as such, but would hope to "fine-tune" the order of stay in some way. Alternatively, they seek an adjournment of the trial with direction that the action be referred to le Pichon J. to be dealt with together or after the disposal of the PEL Winding Up Action, the Caveat Proceedings and the Removal Action. le Pichon J. had previously ordered that the PEL Winding Up Action, the Caveat Proceedings and the Removal Action be reserved to her, but those orders are currently being appealed against by the plaintiff.

15. Essentially the 2nd and 3rd defendant's reasons for adjourning the trial are this. Firstly, the action is not ready for trial. This is because there is pending discovery to be made by the plaintiff, and also because the scope of the plaintiff's evidence to be adduced at trial remains unclear. There is as yet no leave sought and granted for the substituted witness statement filed by the plaintiff, and there is indication from the plaintiff's solicitors that the scope of the statement and the evidence may be limited. Secondly, it is argued that a number of issues raised by the plaintiff in his proposed substituted witness statement infringe upon matters that are the subject matters or issues to be resolved in the pending litigations involving the plaintiff and the executors. There is therefore danger of inconsistent findings or findings adverse to the pending litigations, if the 2nd and 3rd defendants are to play the role of nominal defendants.

The Plaintiff's Oppositions

16. The plaintiff opposes the applications by all the defendants. The plaintiff argues that there is no new matter in that since at least 1998, it has been apparent that there are differences between the plaintiff and the executors. It is further submitted that the fact that grant of probate to the Mother's estate is pending is irrelevant or has no bearing to this action due to 3 considerations: Firstly, the locus point had already been dealt with by the part of Master C.B. Chan's order directing that judgment on some of the relief should only be entered after grant of probate and after a reasonable time has lapsed to enable the 1st defendant to inspect the grant. Secondly, the locus point had also been covered by the decision of Beeson J. Thirdly, any defect in locus is cured by having the executors joined as nominal defendants in the actions.

17. For the plaintiff, it is further argued that the overlapping of issues between this action and other pending litigations is not a ground for putting off the trial of this action. The Court needs concentrate on the central issues and needs not make findings on other matters or issues. It is said that the central issues can be resolved by findings of credibility. It is also said that the 1st defendant is not a party to the other litigations so that his position is unaffected by these pending litigations.

18. As to the question of inadequate discovery, the plaintiff says that it is not open to the 2nd and 3rd defendants to make the complaint because they were formerly the plaintiffs in this action and it was for them to make the necessary discovery. And even if further discovery is needed, a short adjournment with directions will suffice.

Reasons for the Decision on the Applications

19. There can be no doubt that new material has indeed emerged since the order of joinder, which goes to the basic factual premises of the plaintiff's claim of a resulting trust. This relates to the background leading to the formation of PEL and the allotment of shares in PEL and also the source of funding for acquiring the shares in PEL, including the 100 shares in question. It is plain that further discovery in relation to these matters are essential. On this point alone, the action is not ready for trial.

20. It is true to say that for some time, it has been apparent that there are differences between the plaintiff and the executors. However, insofar as the differences relate to the basic premises of the claim of resulting trust, they only emerge when the 3rd Affidavit of Mr Choi Shiu Hung was filed herein on 20 June 2000 in support of the executors' application for adjourning the trial. This affidavit exhibits the 4th Affidavit of Mr. Choi filed on behalf of the executors in the Beddoe application, which discloses that no cash was paid for the allotment of shares in PEL in 1958 and that the allotment was in fact a way of distribution of profits of another company formed in 1929 called HY & HT Lee Brothers & Company Limited. The plaintiff had criticized the executors for disclosing this affidavit, which was part of the material for the Beddoe application. Irrespective of whether the form of disclosure it takes is appropriate or otherwise, the fact remains that the information and material disclosed are most relevant and pertinent. To say the least, it affords the 1st defendant the possibility of taking a different approach to the claim.

21. On the question of overlapping of issues between this action and the other pending litigations, I agree that the mere overlapping of issues and evidence does not justify not proceeding with the trial of an action. Much depends on the facts and issues involved and also the circumstances of the case.

22. In this action, the ultimate question the court has to decide is whether the shares were held on trust for the Mother and in turn for her estate. This is a mixed question of fact and law. On the factual question, it involves ascertaining how the shares were initially acquired and why they came to be registered in the name of madam Lee. This inevitably involves examining the purpose and background of the incorporation of PEL and the source of the purchase money for the 100 shares in question. Before this Court can hold whether the factual basis for a resulting trust is made out, this Court must make a finding on such issues as who provided the purchase money for the shares, how it came to be provided and also why it came to be so provided as well as why the shares were registered in the name of madam Lee. It is simply not possible for the Court to divorce the ultimate question of whether a resulting trust exists from the primary issues of the circumstances surrounding the allotment of shares and the circumstances leading to the 100 shares being registered in madam Lee's name.

23. It is also not a proper discharge of the Court's duties to merely hold whether the claim is made out without providing an understanding and reasons for the holding or without making known the findings on the basic facts. But if this Court were to give the reasons, hence the findings on the primary issues and basic facts, this Court is bound to be entering into areas and making findings on essential issues yet to be resolved in the other outstanding proceedings, notably the PEL Winding Up Action. This of course is not per se objectionable. But when it is suggested, as the correspondence between the plaintiff's and the executors' solicitors show, that the executors may elect or proceed on the basis that the findings and judgment herein are not binding on them and/or that these issues can or are to be re-litigated elsewhere, then this Court must question the purpose and utility of this trial. This is partcularly so when there seem to be suggestions that the plaintiff's evidence may or can be edited or limited in this trial so as to alleviate some of the concerns of the executors over the impact or consequences of this trial. This Court cannot help but wonder whether any judgment or finding made herein is based on a full and fair presentation of the relevant facts and matters, and in turn, whether the 1st defendant stands to have a fair trial. This is all the more so if the executors were to keep to their role as nominal defendants and to take a non-active part at the trial. If, however, the executors were to adopt an active role so as to avoid adverse findings being made, then there is real risk that the 1st defendant will be dragged into a protracted and, as far as he is concerned since he is not a party in the other pending proceedings, an unpredictable litigation.

24. Counsel for the plaintiff had submitted that this action could be determined upon a finding of credibility of the parties and of the testimony and evidence adduced. I do not disagree that, to a certain extent, credibility is an important aspect of this case. But to arrive at a sound finding on credibility of either the plaintiff, the 1st defendant or the executors (if they testify or if their statements were to be admitted), this Court must have regard to the surrounding circumstances and matters, including the relationship between the plaintiff and the Mother so as to see the propensity of the many things relating to the allotment and payment of shares said to have been communicated to the plaintiff by the Mother. This issue of the relationship between the plaintiff and the Mother is a live issue in other pending litigations. The analysis outlined above on the issue of the formation of PEL will therefore apply.

25. On the question of whether the grant of probate to the Mother's estate is relevant to this action, it is quite clear that before there can be a grant, the Caveat Procedings and the Removal Action will have to be resolved. The determination of the Removal Action is relevant to this action in that it will remove the danger, which is not a fanciful one, that any finding or judgment made herein in favour of the 1st defendant will not bind the new executors appointed upon the removal of the 2nd and 3rd defendants.

26. As to the locus point, I accept that the grant of probate may not necessarily resolve the 1st defendant's objection to the plaintiff's locus to sue as one of the many potential or contingent beneficiaries to the residuary estate of the Mother. The issue will have to be determined herein, whether by way of a preliminary issue or at the trial.

27. In this connection, I do not read the decision of Beeson J. as conclusive on this issue. The decision is only on the application of joinder and must be read in the light of the issue Beeson J. had to decide, namely, whether it is so plain that the plaintiff lacks the necessary locus that he cannot be subsitituted as the plaintiff. I also do not read the order of Master C.B. Chan as covering the plaintiff's position on this locus point. As with the practice in interlocutory applications before masters, Master C.B. Chan had not rendered a written decision for her orders. However, in ordering that the plaintiff and his 3 children be struck off as plaintiff, the Master must have accepted the 1st defendant's argument that the beneficiaries could not sue in their individual capacity and on behalf of the general class of beneficiaries.

28. I do not wish to be seen pre-judging the issue of locus by any holding on the argument that any defect in the plaintiff's locus is cured by joining the executors as nominal defendants herein. But I do wish to point out that a very important rationale underlying the Court of Appeal's holding in Ip Cheung Kwok v. Sin Hua Bank Trustee Ltd. [1990] 1HKLR 497 to the effect that the plaintiff there cannot seek the declaratory relief without having the personal representative before the court directly or by representation, is that the absence of the personal representative would mean that the order made does not bind the personal representative when duly constituted and there would therefore be multiplicity of proceedings and that the personal representative could be embarrassed by an order adverse to the estate : see p.511.

29. In this case, notwithstanding the joining of the executors as defendants, the risk of the order or judgment made herein not binding on the executors of the Mother's estate when duly constituted, the risk of multiplicity of proceedings as well as the possibility of placing the existing or future executors under embarassment and difficulties are not eliminated or reduced.

30. I pause here to make one further observation on the position of the executors. It appears that the Beddoe application hearing before Yam J. and the consent order proceeded on the basis that the executors can and will act as nominal defendants only and will play a non-active role at the trial. As events unfold, this may no longer be the case. It may be that the executors can no longer be contented with the role of nominal defendants and that they may have to actively participate in the trial. It may therefore be necessary that they return to Yam J. to seek further directions.

31. For the reasons stated above, I am driven to the conclusion that this action is plainly not ready for trial; and that it is inappropriate for this action to be tried before the PEL Winding Up Action, the Caveat Proceedings and the Removal Action are concluded or disposed of. The trial of this action should therefore be adjourned pending the conclusion and disposal of those actions and proceedings. I do not order a stay as I consider that in the interim period, there are a number of interlocutory and other matters that may have to be dealt with, including the matter of further discovery.

Costs

32. The defendants have in effect succeeded in their respective summonses. There is no reason why costs should not follow events. The plaintiff should therefore pay the defendants the costs of the 3 summonses, includng the hearing before Yeung J. on 26 June 2000 and the hearings on the first 2 days of the trial. For reasons appearing below, the costs of the 1st defendant will be taxed on a common fund basis whereas that of the 2nd and 3rd defendants will be taxed on a party and party basis. In view of the fact that there will be some time to the finalization of this action, these costs are to be taxed and paid forthwith.

33. The defendants further seek the costs of the aborted trial on a common fund basis to be paid forthwith. The plaintiff says that he should not be responsible for these costs because it is the executors who caused the delay in discovery, and because it would be apparent to the 1st defendant from reading the initial draft witness statement of the plaintiff (given on the basis that he would be subpoenaed as a witness for the executors) that there would be overlapping of issues between this action and the other actions. In my view, none of these arguments can avail the plaintiff in so far as the 1st defendant is concerned. As leading counsel for the 1st defendant observes, this action has been commenced and conducted in the most unusual way, and, in my assessment, this is largely because of the role played by the plaintiff. It may be that the executors are also to some extent responsible for the present state of affairs. However, what is beyond doubt is that it is through no fault of the 1st defendant that the action has developed into the present state such that the trial dates have to be vacated. There is no reason why the 1st defendant has to suffer in terms of costs for matters and conduct clearly beyond his knowledge and control.

34. It is also to be observed that when this action reached the discovery stage, it was the present plaintiff who was responsible for giving instructions to Messrs. Masons for the conduct of the plaintiffs' case. Messrs. Masons was the firm of solicitors appointed by the present plaintiff to act for the executors when they were still the plaintiffs. Indeed in a letter dated 14 November 1998 to the executors' present solicitors, Messrs. Masons said that they consider it appropriate to include in the plaintiffs' list of documents, those documents that were in the present plaintiff's possession custody or power as being documents that were in the plaintiffs' possession custody and power. It is therefore not open to the plaintiff now to accuse the executors for any failing or delay in discovery. To the extent that the delay in the Beddoe application has contributed to the abortion of the trial, it is also to be noted that it is the present plaintiff who did not agree to it when the executors requested Messrs. Masons to make the application.

35. Further, the 2nd and 3rd defendants' summons for adjournment was issued on 20 June 2000. Had the plaintiff not opposed it, the 1st defendant would not have to incur the costs for the preparation of the trial, or at least part of it. For all these reasons, the costs of the 1st defendant in relation to the aborted trial should be borne by the plaintiff and on a common fund basis to be taxed and payable forthwith. This however does not include the costs of the unused 6 days commencing from 5 July 2000.

36. The position of the 2nd and 3rd defendants is slightly different from that of the 1st defendant. To the extent that they had gone along with the suggestions of the plaintiff in the commencement and continuation of this action, they cannot be said to have played no part in resulting in the adjournment of the trial. The 2nd and 3rd defendant's costs of the aborted trial should therefore be reserved. They are however entitled to be reimbursed by the estate on a trustee basis.

Further Directions

37. Both the plaintiff and the 2nd and 3rd defendants agree to file further and better lists of documents. I do not see a need of ordering the plaintiff to verify his list, as requested by the 1st defendant. Although counsel for the plaintiff had indicated a possibility of further amending the pleading, he was not prepared to commit himself until after discovery is completed. Likewise, he did not wish to deal with the question of leave for the plaintiff's substituted witness statement at this stage. In the circumstances, I only grant the 1st defendant's leave to re-amend the defence consequential upon the Re-Amended Statement of Claim and make orders for discovery.

Conclusion

38. The orders that I make are as follows:

(1) The trial of this action be adjourned until after the conclusion or disposal of HCCW 594/99, Caveat No. 358/95 and HCA 9522/97.

(2) Leave to the 1st defendant to file and serve a Re-Amended Defence consequential upon the Re-Amended Statement of Claim. The Re-Amended Defence be filed and served within 14 days from the date of this order.

(3) The plaintiff and the 2nd and 3rd defendants to file and serve within 21 days from the date of this order further and better lists of documents.

(4) There be liberty to apply in respect of the filing and service of substituted witness statement(s).

(5) The costs of the 1st defendant's summons filed on 29 June 2000 and the costs of the 2nd and 3rd defendants' summonses filed on 20 June 2000 and 28 June 2000, including the appearance before Yeung J. on 27 June 2000 and the hearings on 3 & 4 July 2000, be paid by the plaintiff to the 1st defendant on a common fund basis and to the 2nd and 3rd defendants on a party and party basis. Such costs to be taxed and payable forthwith.

(6) The 1st defendant's costs of and occasioned by the adjournment of the trial and the costs thrown away, but excluding the unused costs of the 6 days commencing from 5 July 2000, be paid by the plaintiff on a common fund basis to be taxed and payable forthwith.

(7) There be certificate for 2 counsel for the 1st defendant.

(8) The 2nd and 3rd defendants' costs of and occasioned by the adjournment of the trial and the costs thrown away be reserved.

(9) The 2nd and 3rd defendants' own costs be paid out of the estate of madam Ng Chun Wah, deceased on a trustee basis.