SHIH CHIA CHEONG, administrator of the Estate of SHIH CHIA YING, deceased v. LI LIU ZHU

HCMP 1891/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1891 OF 2011

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REASONS FOR DECISION

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1. This is an application by the plaintiff, who is one of the co-administrators of the estate of the deceased (“the Estate”), against the defendant, being the other co-administrator of the Estate, for an order that, inter alia: (i) both the plaintiff and the defendant be removed as the administrators of the Estate and be substituted by 2 independent professionals, McCabe International Trustee Limited (“McCabe”) and Mr Kong How Chi Johnson (“Mr Kong”); and (ii) the defendant do provide for an account and deliver up the assets to the new administrators if so appointed by the court.

2. The application is made pursuant to s 33(3) of the Probate and Administration Ordinance, Cap 10 (“the PAO”).  In the hearing on 26 September 2012, I allowed the plaintiff’s application and I now give my reasons.

Background 

3. The plaintiff is the youngest brother of the deceased.

4. The deceased’s first wife died in 2003.  In the same year, the deceased married the defendant who was a Mainland resident.  At the time of the marriage, the deceased was about 62 years of age and the defendant was in her early 30s.  In 2005, the deceased and the defendant had a son (“the Minor”).  In late 2008, the defendant obtained the one-way permit to live in Hong Kong.

5. On 8 January 2008, the deceased suddenly passed away intestate due to heart attack.  The Minor, who was only 3 years old at that time, and the defendant are the only beneficiaries of the Estate.

6. Letters of Administration of the Estate were granted on 19 August 2009 and the plaintiff and the defendant were both appointed as the co-administrators of the Estate.  As there is a minority interest in the Estate, under s 25(a) of the PAO, administration of the estate has to be granted to either a trust corporation or to not less than 2 individuals.

7. Based on the information set out in the Schedule of Assets annexed to the Letters of Administration, the Estate has the following assets:

(i)  bank deposit in the sum of $18,904.42;

(ii)  1,118,489 shares of Skyworth Digital Holdings Limited (“Skyworth”) which is a listed company;

(iii)  a security account in the joint-names of the deceased and the defendant (“the Securities Account”), in which there were 11,882,857 shares of Skyworth and 2,686,000 shares of TCL International Holdings Limited (“TCL”);

(iv)  3 landed properties in Hong Kong;

(v)  6,000 shares (being 60% shareholdings) of Ying Lee Fat (International) Company Limited (“YFL”) which owns 10 landed properties free from any encumbrances; and

(vi)  dividends declared by Skyworth and TCL and rental income of the landed properties received after the death of the deceased.

8. The plaintiff estimates that the market value of the Estate is over $78,000,000 exclusive of the rental income and dividends earned after the death of the deceased.

9. YLF is a company incorporated by the deceased and the plaintiff in 1985 for the purpose of carrying on the business of property investment.  Prior to his death, the deceased held 60% of the shares in YLF and the plaintiff 40%.  Both of them were directors of YLF and the company was mainly managed by the deceased.  After the death of the deceased, the plaintiff took up the management of YLF and both the plaintiff and the defendant are now the directors of YLF.

The plaintiff’s application for removal of the administrators

10. The Estate was initially managed by the plaintiff. As time passed by, it is the plaintiff’s complaint that the defendant took steps to bypass the plaintiff and to deal with the Estate’s assets and income on her own without providing a proper account.  It is also the plaintiff’s case that the defendant had misappropriated assets belonging to the Estate and there was then a deadlock between the plaintiff and the defendant in the management of YLF.

11. S 33(3) of the PAO provides that the court may, if it is satisfied that the due and proper administration of the estate and the interests of the persons beneficially entitled thereto so require, remove an administrator and provide for the succession of another person in place of such administrator and for the vesting in the new administrator of any property belonging to the estate. In exercising its discretion under s 33(3), the court shall be satisfied with the statutory criteria, and should have regard to the size of the estate, the nature of the assets that needed to be administered, the background and the education, training and experience of the remaining and substituted personal representatives and the interest of the beneficiaries, especially if there is minority interest involved (see: Yu Hong Ping & Ors v Kenneth Yuen [2009] 6 HKC 347 at 349 §12).

12. The defendant disputes that she has failed to render a full and proper account in respect of the administration of the Estate, or that she has misappropriated or intermeddled with the assets of the Estate.  In my judgment, it is not necessary for the court to resolve these factual disputes between the parties, as there is a more fundamental reason as to why the defendant should be removed as an administrator.

13. It has all along been the defendant’s position that the Estate is at least entitled to half of the interest in respect of the assets in the Securities Account, the value of which is around $30,000,000.  She also alleged in her 2^nd affirmation filed on 3 May 2012 that she had sold all the Skyworth shares in the Securities Account to pay for the debt of the deceased in the amount of about $33,000,000.  In the defendant’s 3^rd affirmation filed on 9 July 2012, the defendant has suddenly changed her stance and claims that she should be the sole beneficiary owner of all the assets in the Securities Account.  By reason of such latest allegation, it would put the defendant in a serious conflict of interest with the Estate and the Minor, and this factor alone justifies the removal of the defendant as an administrator of the Estate.

14. Although the defendant is one of the beneficiaries of the Estate and her son, the Minor, is the other beneficiary, the one-half entitlement of the Minor (subject to the right of surviving wife to take the personal chattels absolutely and a net sum of $500,000 out of the residuary estate) shall be placed on statutory trust in terms of s 5 of the Intestates’ Estates Ordinance, Cap 73.  This entitlement of the Minor is, therefore, distinct and separate from the entitlement of the defendant.  Taking into account the latest allegation of the defendant and her serious conflict of interest, it is inappropriate and undesirable for the defendant to continue to administer the Estate and the interest of the Minor should be protected by the appointment of independent administrators to manage the statutory trust.  Quite sensibly, Mr So, counsel for the defendant, does not seek to argue otherwise.

Choice of the substituted administrators

15. The court has an unfettered discretion in the choice of the substituted administrators under s 33(3) of the PAO (see: Re Lau Yik Yam [2010] 3 HKLRD 700 at 703 §10).

16. The plaintiff considers himself to have a legal and moral duty to protect the interest of the Minor.  However, in view of his old age of 62 and the breakdown of trust on the defendant, the plaintiff intends to step down from being an administrator of the Estate.

17. In considering whether to replace the existing administrators with professional administrators, the court is obviously concerned about the fees charged by the professional administrators in the administration of the Estate.  However, as the Estate is sizeable one and the Minor is of very young age (currently 7), it is justified to appoint professional administrators to administer the Estate.

18. As for the candidates for the substituted administrators, the plaintiff proposes McCabe and Mr Kong.  After reading their résumé, I am satisfied that they have the experience in administering sizeable estates and they are suitable candidates as the substituted administrators.

19. On the other hand, the defendant proposes that the Estate should be co-administered by Mr Leung Wing On Louis (“Mr Leung”) and herself.  Based on the reason mentioned above, it is certainly not appropriate for the defendant to continue to co-administer the Estate.  For Mr Leung, he is heavily engaged in various public services and community works and so I doubt whether he has the time to administer the Estate.  Further, according to his résumé, Mr Leung lacks the experience in managing and administering sizeable or indeed any estates, and so I would prefer the candidates proposed by the plaintiff.

20. I understand that Mr Kong is prepared to charge the same rate as Mr Leung (ie a flat hourly rate of $2,500), and I am also satisfied that the proposed charges of McCabe are reasonable.

21. In such circumstances, I made the order that the plaintiff and the defendant be removed as the administrators of the Estate and be substituted by McCabe and Mr Kong.  I also made other consequential orders including the delivery up of the assets of the Estate and the corresponding vesting order.

22. Regarding the costs of the application, since the defendant has opposed the plaintiff’s application unsuccessfully, I ordered the defendant to pay the costs of this action to the plaintiff on an indemnity basis.  As the plaintiff is only discharging his duty as administrator in making the present application, I also ordered that his costs shall be paid out of the assets of the Estate on a trustee basis.

23. These are the reasons for the order I made in the hearing on 26 September 2012.