LEE WAI CHI AND OTHERS v, LI WAI CHI, FRANKY AND ANOTHER

HCA 9/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO. 9 OF 2008

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D E C I S I O N

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THE APPLICATIONS

1. There are two summonses before me.  The first one was taken out by the Plaintiffs on 10 September 2012 (“the First Summons”).  The Plaintiffs seek in essence (1) leave to amend the Statement of Claim, (2) an unless order against the 1^st Defendant (“D1”), that unless he fully complies with an earlier Court Order made on 16 August 2012 (referred to below as “the Poon Order”), the Defence herein be struck out, and the Plaintiffs be at liberty to enter judgment as set out in the 1^st Summons, and (3) injunctive relief against D1 with associated disclosure order.  The full terms of the order sought are set out in the document called “Draft Order (to replace that contained in the Summons dated 10 September 2012” handed up on behalf of the Plaintiffs on the second day of the hearing.  I shall call it “the Draft Order”. The 2^nd Summons (“the Second Summons”) was taken out by D1 on 4 January 2013 (5 days before the hearing) for a split trial of the action whereby certain issues are tried separately before the remaining issues in the case.

2. I have heard Mr Mok (appearing for the Plaintiffs) and Mr Harris (appearing for D1) on the order in which the summonses are to be heard.  As the issues involved were intertwined, I directed that the two summonses be heard together, in the sense that I would hear parties’ submissions in respect of both summonses first, and then I would give my ruling on both of them at the end.

THE BACKGROUND

3. The Plaintiffs and the Defendants are members of the same family.  The 2^nd Defendant (“D2”) is the mother.  She has not taken any active stance in the proceedings.  The Plaintiffs and D1 are her children.  D1 is the eldest son.  Their father (“the Deceased”) passed away on 11 July 1987.

4. The Statement of Claim which the Plaintiffs are now seeking to amend was filed on 15 July 2008.  The Plaintiffs’ pleaded case, as summarised by Mr Mok in his written submissions, is that D1 has constituted himself either as a constructive trustee holding the family assets of the Deceased, or as a named executor under his will (“the Will”) who has intermeddled and gained control of the Deceased’s estate without taking out probate, and without ever rendering any accounts to the beneficiaries.  They seek (1) an order that the estate of the Deceased be administered by the Court and an appointment of administrators, and (2) various accounts against D1.

5. The Defendants filed their Defence on 18 October 2008.  Of special significance to these summonses are paragraphs 1C to 1K thereof.  D1 called them “the over-arching paragraphs”.  They contain the outline of his defence, which he repeats a number of times in his Defence when pleading specifically to the contents of the Statement of Claim.  The main effects of those paragraphs are as follows:-

(a)   the Deceased was an extremely successful businessman who during his lifetime built up a very significant fortune for the family;

(b)   the Deceased structured the holding of his assets or settled them during his lifetime in such a way that he could direct the registered holders or trustees of these assets to hold them on trust or otherwise for the benefit of his family members;

(c)   there were thus few properties, if any, which belonged to the Deceased beneficially at the time of his death;

(d)  the companies, assets, personal and real properties described in paragraphs 6, 8 and 9 of the Statement of Claim, and the income derived therefrom (collectively referred to as “the Family Assets” by the Plaintiffs in their Statement of Claim) have all been dedicated by the Deceased as family properties well before he died (which family properties and the income accrued therefrom have been referred to by D1 as “Family Properties” – paragraph 1C of the Defence);

(e)   the Family Properties do not form part of the Deceased’s estate;

(f)   the ratio in which D1, his siblings and D2 share in or enjoy the Family Properties is that set out in the Will;

(g)  D1 as the eldest son was given the task of managing the Family Properties, which he initially undertook solely. Later, some of his siblings joined in the management, during which time his siblings were fully appraised of the management activities and had full access to the records of those activities;

(h)  in the course of managing the Family Properties, D1 and others had made some unsound decisions.  They were however made in good faith;

(i)   D1 has not embezzled or dissipated the Family Properties in breach of his duty of fidelity;

(j)   in view of complaints by his siblings, D1 at one stage stepped away from the management of the Family Properties.  He subsequently regained control of Main Rewards Ltd and Green View Properties Limited.  In relation to these two companies, he has kept the underlying assets in good custody and he is prepared to give a full account of their present value;

(k)  D1 has not obtained grant of probate of the Deceased’s estate.  That was so because there was no or no significant assets held in the name of or beneficially by the Deceased at the time of his death;

(l)   the Plaintiffs have not made out a cause of breach of fiduciary duty by D1, though he accepts that he is a fiduciary; and

(m)  even though he is a fiduciary, he nonetheless should not be under the obligation to account for acts or decisions made in relation to the Family Properties which extended back to as early as 1987.  Further, he is entitled to rely on the provisions of the Limitation Ordinance.

6. On 18 March 2011, the Plaintiffs took out a summons for an order for inter alia the appointment of (a) an administrator ad colligenda bona and/or pendent elite; and (b) a new trustee, with associated directions defining the scope of the duties and authority of the administrator / trustee.

7. The summons of 18 March 2011 was heard by Poon J on 16 August 2011. Having heard the parties, he ordered (“the Poon Order”, being the one mentioned in paragraph 1 above) that:-

(a)   the said summons be adjourned with liberty to restore on 7 days’ notice;

(b)   there be general discovery pursuant to Order 24, rule 1 of the Rules of the High Court within two months from the date of the Order (“the Discovery Order”); and

(c)   D1 do within two months from the date of the Order disclose in so far as within his knowledge by way of affirmation, with supporting documents, what properties were contained in the Family Properties (as the term is defined under paragraph IC of the Defence) at the time of the Deceased’s demise, and in the estate of the Deceased, if any, and all income derived therefrom, what has become of them (both capital and income), and what happened to them (“the Affirmation Disclosure Order”).

8. The Poon Order was made upon two undertakings by D1, namely:-

(a)   not to dispose of and/or cause any encumbrance to be created on any interest in the Family Properties and/or his personal properties without the Plaintiffs’ consent; provided that D1 may withdraw from his own personal assets reasonable sum(s) as legal expenses in the proceedings herein, such sum(s) to be agreed between the parties failing which to be decided by the Court (“the 1^st Undertaking”); and

(b)   to cause all new income derived from the Family Properties from the date of the Poon Order onwards to be credited and kept in a stakeholder account under the names of the solicitors for the Plaintiffs and for D1 (“the Stakeholder Account”), such account not to be operated except upon the joint authority of the said solicitors and upon their joint signatures; provided that the Plaintiffs shall consent to withdrawal from the Stakeholder Account an amount every month as D1’s living expenses, such amount to be agreed between the parties failing which to be decided by the Court (“the 2^nd Undertaking”).

9. As put by Mr Mok, the 1^st Summons was taken out primarily to enforce the Poon Order and to compel compliance thereof.

THE FIRST SUMMONS

Order for amendment of the Statement of Claim

10. The Plaintiffs seek leave to amend their Statement of Claim to rely on the matters admitted and averred by D1 in the over-arching paragraphs of his Defence.

11. Mr Harris for D1 did not oppose the application for amendment.  His stance was however subject to one proviso, that the proposed Amended Statement of Claim be “accompanied by a statement of truth on behalf of all the Plaintiffs.”

12. Given the fact that this aspect of the 1^st Summons is uncontested, I grant leave for the proposed amendment.  I however do not find it appropriate to impose any condition relating to the Statement of Truth.  That should be left to be governed by the Rules of High Court.

13. The Defendants did not seek any directions on the filing of amended pleadings consequential upon the Amended Statement of Claim.  I again leave that to be governed by the Rules of High Court.

The “Unless Order” and the “Injunctive Relief”

14. As suggested by Mr Mok, the Unless Order and the Injunction Relief are required to enforce the Poon Order and to compel compliance.  That being the case, the starting point is to consider whether D1 has failed to comply with the Poon Order, and/or whether he has been in breach of the Undertakings.

The scope of the Affirmation Disclosure Order

15. I deal with one preliminary point first.  It relates to the scope of the Affirmation Disclosure Order.  Mr Harris submitted that the word “properties” as it appears in the Affirmation Disclosure Order means, in so far as those properties which are held by limited companies are concerned, the holding companies themselves but not the properties which they hold, with the result that, in the context of those properties, D1 is only required to disclose the particulars of the companies but not the properties which they hold.  He further submitted that if the Poon Order is ambiguous, D1 should have the benefit of the ambiguity.  He relied upon Triolacan Ltd v. Medway Power Drives Ltd and Another (1991) Times, 21 October.

16. This point does not appear in Mr Harris’ written submissions.  It has never been raised in any of the correspondence before me.  It is not even D1’s evidence that he understood the word “properties” as such when he was taking steps to comply with the Poon Order.

17. Mr Harris’ interpretation is in my view inconsistent with the plain wording of the Affirmation Disclosure Order.  D1 was ordered to disclose, “with supporting documents”, inter alia, “what properties were contained in the Family Properties (as the term is defined under paragraph IC of the Defence)”, and “what has become of them (both capital and income), and what happened to them”.  His interpretation if true would also entirely defeat the purpose of having the Affirmation Disclosure Order.  In my view, the wording is clear. There is no ambiguity.  The Affirmation Disclosure Order extends clearly beyond the mere particulars of the holding companies. 

Evidence relevant to D1’s alleged non-compliance with the Discovery Order

18. In respect of the Discovery Order, Mr Mok submitted that the discovery made by D1 in the List of Documents filed has been grossly insufficient.  The evidence he relied upon came primarily from the 3^rd Plaintiff’s 3^rd and 5^th Affirmations.  I summarise the evidence as follows:-

(a)   D1 filed his list of document on 3 November 2011.  The documents disclosed are mostly financial statements and directors’ reports of the “Father’s Companies”.  The List gives no clue about what the Family Properties/Assets and/or the Deceased’s estate were/are consisted of;

(b)   the term “Father’s Companies” was used by the 3^rd Plaintiff in her 5^th Affirmation as meaning this.  According to her, and as pleaded in the Statement of Claim, the Deceased used to participate in investments and development projects in conjunction with his brothers.  From the 1980s, they started to do so through limited companies.  A number of limited companies were formed for that purpose.  She called them “the Uncles’ families”.  The Deceased however did not hold his interests in the Uncles’ Companies in his personal name.  Instead, he formed a number of companies (which she called “the Father’s Companies”), and some of them were (and are) used to hold his shares in the Uncles’ Companies.  Some of the Father’s Companies are Hong Kong companies, and the other Liberian companies.  She also said that income from investments and properties of the Uncles’ Companies were distributed, not to the Deceased personally, but to the Father’s Companies;

(c)   Mr Mok took me through the List of Documents.  No document in respect of the Uncles’ Companies has been disclosed.  At paragraph 4 of his 3^rd Affirmation, D1 referred to 5 companies which “were jointly owned with other companies…representing respectively the interests of my 5^th and 8^th uncle’s families and other business partners.”  Those 5 companies are, or are some of the Uncles’ Companies.  Significantly, according to the descriptions on the List of Documents, none of the documents disclosed therein relate to any of the 5 companies;

(d)  In respect of the Father’s Companies, only documents from some of them have been disclosed; and even in respect of those that have been disclosed, they are mostly restricted to the period between about 2003 and 2009;

(e)   Amongst the documents disclosed, I was specifically referred to Item 62, which I was told contain various financial documents of one of the Father’s Companies called Main Rewards Limited, and that it was from those documents where the Plaintiff found that about HK$99 million had been withdrawn from the company’s account.  I will return to this in the latter parts of the Judgment;

(f)   The List contains altogether 65 items.  That is to be contrasted with what D1’s solicitors said in their letter of 14 October 2011, that “…as at the date hereof our client has delivered to us four cartoon boxes which contain various documents comprises [sic] of about 8,000.00 [sic] pieces of documents. Such documents are being consolidated into 106 items and are included in Schedule 1, Part I of our client’s List of Document”.  D1’s solicitors said in the same letter also that “…our client estimates that there are about 4‑5 cartoon boxes containing the other documents relating to the case that will be delivered to us for preparation of the List of Documents”;

(g)  By a letter dated 4 January 2011 (wrongly dated, which should have been 4 January 2012) to D1’s solicitors, the Plaintiffs’ solicitors complained that the List “contains only 65 documents, most of which are nothing more than company documents of the companies that held/hold the Family Properties.  Such documents are absolutely of no value in ascertaining what the Family Properties and the Deceased’s estate consisted of, and what has happened to them”;

(h)  In reply, D1’s solicitors in their letter of 11 January 2012 raised some arguments and tendered some explanations for D1.  In particular they said that “the list of documents filed was a consolidated list”, that “there are 4-5 boxes of annual reports, financial statements, copies of cheques, vouchers, etc. of the companies which have now been located but which were not available to us at the time of filing of our client’s List of Documents…”, and that “our client will retrieve those 4‑5 boxes of documents from the CPA’s office and to prepare a supplemental list of documents for disclosure as soon as practicable”;

19. In reply to the evidence filed by the Plaintiffs, D1 said in his 5^th and 6^th Affirmations that he had done his best to comply with the Discovery Order.  He also said that his efforts had been hindered by the Plaintiffs’ refusal to allow sufficient legal expenses to be spent from his own assets in conducting the defence of his case.  He however has not given particulars as to in what specific ways his conduct of the defence had been hindered.

20. D1’s position was elaborated upon by Mr Harris.  It was submitted that substantial discovery had been made, and that D1 was in “substantial compliance with” the Discovery Order.  He referred to the reference by D1’s solicitors in correspondence to the 106 items, and highlighted the effects of D1’s explanation that that “does not mean that there have been items left undiscovered but is because the documents held by the 1^st Defendant have been grouped so as to reduce them to a smaller number of items.”  He commented that the Plaintiffs have never sought specific discovery, and that in such circumstances, it is not appropriate to made an unless order.

21. However, having reviewed the relevant correspondence, Mr Harris accepted that D1 had been “in error”, and that he had failed to discover the contents of the 4 or 5 cardboard boxes referred to in paragraph 18(h) above.  An undertaking was given on D1’s behalf to produce within 14 days of the hearing of the summonses a supplemental list accompanied by an affirmation to disclose those documents.

22. The evidence discussed above has also to be considered together with the evidence relevant to the alleged breach of the Affirmation Disclosure Order, which I now turn to.

Evidence relevant to D1’s alleged non-compliance with the Affirmation Disclosure Order

23. D1 filed his 3^rd Affirmation on 28 November 2011.  That was the first affirmation which he filed in his attempts to comply with the Affirmation Disclosure Order.  It was filed after one extension of 28 days. 

24. D1’s 3^rd Affirmation is brief.  It comprises less than 4 pages of contents, and contains only 10 paragraphs:-

(a)   D1 at paragraph 2 “confirm[s] that the Family Properties as per paragraph 1C of my Defence…were mainly held by the companies as listed in paragraphs 8 and 9 of the Plaintiffs’ Statement of Claim”.  No particulars were given as to what properties those companies held at the time of the Deceased’s death and what had become of them;

(b)   D1 at paragraph 3 identified 9 companies which he described as “currently active”.  However:-

      i.   again no particulars were given as to what properties they held at the time of the Deceased’s death and what had become of them.  I have been referred to paragraphs 8(1) and 8(m) of the Statement of Claim which pleads that at least two of the 9 named companies are believed to be holding substantial assets;

     ii.   three of those companies (namely Li & Lee Holdings Limited, Kinson International Limited and Oriental Trust Management Limited) appear to be Father’s Companies and are Liberian companies.  D1 said later at paragraph 10 of this same affirmation that “I wish to state for the records that sometime in early 1980’s my late father had passed to me the bearer share certificates of most of the Liberian Companies, including Kinson International Limited and Oriental Trust Management Limited…”  Yet, the whereabouts of those bearer shares were not dealt with;

     iii.   he did not deal with any of the companies which in his view were not active;

(c)   he at paragraph 4 identified 5 Uncles’ Companies.  There was no disclosure as to what properties they held at the time of the Deceased’s death, and what had become of them.  D1 then at paragraph 5 commented that 4 of those 5 companies had been dissolved.  Again no disclosure was made in respect of the properties they had held before dissolution, and what happened to those properties upon dissolution;

(d)  at paragraph 6, D1 said that “[A]s a matter of fact, the Family Properties are generated by the following companies.”  He then identified 5 companies.  He however stopped there.  No disclosure was made as to what Family Properties were generated by them, or what had become of them;

(e)   at paragraph 7, the sale of the entirety of the shareholding in All Best Wishes Limited was disclosed.  The Deceased had 21.3% interest in All Best Wishes, which was held by Main Rewards Limited.  As a result of the sale, Main Reward should and should have received HK$98,299,500.  Out of that sum, a sum of HK$13,099,500 was said to be remained outstanding.  No information was given as to the whereabouts of the sum that had been received, or what use it had been put to.  No explanation was given as to why the sum of HK$13,099,500 had been in arrears.  I will come back to this in the latter parts of the judgement; and

(f)   at paragraph 9, D1 mentioned two further companies which he said had been dissolved.  Again, no information was given as to whether there had been any distribution of assets upon dissolution.

25. By the same letter of dated 4 January 2011 (wrongly dated, which should have been 4 January 2012) mentioned in paragraph 18(g) above, the Plaintiffs’ solicitors complained about the state of the disclosure.  In reply, D1’s solicitors said in their letter of 11 January 2012 that “It is a mere speculation on your part that our client’s affirmation should contain anything other than what has been deposed  or as shown in the documents disclosed on the List of documents or kept in the office of the companies’ CPA.  However, to avoid costs and expenses of unnecessary litigation, our client will take the opportunity to file within the next seven days an additional affirmation to further explain on what has happened to the Family Properties and the companies as listed in paragraphs 8, 9 and 18(d) of Statement of Claim.”

26. On 28 February 2012, D1 made his 4^th Affirmation:-

(a)   Most paragraphs therein were devoted towards his complaint about the difficulties he faced in making discovery.  He confirmed that his List of Documents “was prepared to the best of my ability and listed all document relevant to the action insofar as I had been able to identify them at that date”, though he also said that “I cannot rule out the possibility that there are still other documents in my possession somewhere unknown to me which are or may prove to be relevant to an issue in this very wide-ranging action. However I am not aware of any such documents at present”;

(b)   at paragraph 10, he said that “I should also have dealt with the companies referred to at companies 18(d) of the Statement of Claim. Of these companies the following have been dissolved…”  He then identified 16 such companies.  No information was however provided as to what properties those companies held at the time of the Deceased’s death and what had become of them upon dissolution;

(c)   In short, the information as promised by D1’s solicitors in their letter of 11 January 2012 was not provided by D1 in this additional affirmation.

27. On 26 May 2012, about three months after D1’s 4^th Affirmation, a letter was issued by D1’s solicitors to the Plaintiff’s solicitors.  It was revealed therein that “investments estimated to be amounting to around $40 Million, which were originated from the Family Properties have generated some income since August 2011.”  It was further revealed that:-

“The investments are made up of:-

1. Fixed Deposits:-

The principal sums and interests have been rolled over automatically;

2. Equity securities:

There is an actively managed portfolio of listed equities;

3. Bonds and Mutual Funds:

These are long term investments and income will only be generated upon their maturity.”

It was then said that D1 was gathering and collating relevant information and documentation regarding those investments, and that they would be provided to the Plaintiffs once they became available.

28. In reply to a demand from the Plaintiffs’ solicitors for further particulars, D1’s solicitors by letter of 1 June 2012 said that “our client’s investment is mixed up with time deposits, equity securities and bonds/mutual funds.”  In respect of deposits, they said that “As at 5 September 2011, the amount of time deposit account is HK$20,708,254.39, and the amount maintained in the savings account is HK$9,275,064.34”.  No details of the relevant accounts were given, nor any breakdown of either the principals of or income from those deposits.  They also gave (a) a portfolio of equity securities (amounting to HK$252,411.40 according to the 3^rd Plaintiff’s calculation) and (b) a portfolio of bonds/mutual funds (amounting to HK$16,993,380.26 according to the 3^rd Plaintiff’s calculation).  On the face of that letter, assets in the total sum of HK$47,229,110.39 were disclosed.

29. On 10 September 2012, the present application was taken out.  It was supported by the Plaintiff’s 3^rd Affirmation.

30. On 22 October 2012, D1 filed his 5^th Affirmation:-

(a)   D1 accepted, as had been pointed out by the 3^rd Plaintiff in her 3^rd Affirmation, that between 13 February 2006 and 27 July 2009, he had withdrawn from the bank accounts of Main Rewards a total sum of HK$99,227,890.25 and had deposited the same into his personal accounts.  He however denied what he did was wrongful.  He said of “of the sums withdrawn from Main Rewards a sum of HK$47,229,100.39 had been used prior to the hearing before this Honourable Court on 16 August 2011 towards the cost of the investments described in my solicitors’ letter to the Plaintiffs’ solicitors dated 1 June 2012.  I cannot now recall exactly which portion of funds was used for which investment;” 

(b)   significantly, no explanation was tendered as to why he failed to disclose those investments in his 3^rd and 4^th Affirmations;

(c)   he further, with reference to a numbers of bank statements he exhibited to his 5^th Affirmation as “LWCF-6”, disclosed “additional investments that I held during the period from August 2012 to 5 October 2012, which is more than HK$60 million.”  The disclosure however stopped here.  No particulars on, e.g. the source of funds with which the additional investments were purchased, their whereabouts, any income derived therefrom, etc. were provided.  I shall call those investments “the Additional Investments” below; and

(d)  He further revealed at paragraph 22 of his 5^th Affirmation for the first time that “Also, prior to the said hearing on 16^th August 2011, I started investing in real property.  The portfolio of real property is currently valued at more than HK$60 Million notwithstanding these properties are subject to existing mortgages with total outstanding loan amount of less than HK$20 Million.  In other words, the net values of these real properties have exceeded HK$40 Millions.  As these properties have not been sold, no new income could be put into the joint account as per the [Poon Order].  The Plaintiffs did not ask for this information before the issuing of the summons.  Had they done so, this application for an injunction would have been unnecessary.”  I observe again that no particulars of those real properties (which I will refer to as “the Portfolio of Real Properties” below) were provided.  There were apparently purchased with funds from the Family Properties, as D1 himself envisaged that upon any sale (though he said there had not yet been any), the proceeds should be deposited into the Stakeholder Account as per the Poon Order.  Again, no explanation was given as to why earlier disclosure had not been made in the 3^rd and 4^th Affirmations. 

31. On 4 January 2013, D1 filed his 6^th Affirmation.  It was filed primarily in support of the 2^nd Summons.  I have made some reference to it at paragraph 19 above.  Paragraph 34 thereof is however relevant to the present issue.  D1, having made reference to the withdrawals from Main Rewards, said at paragraph 34 that “I cannot now recall exactly which portion of funds was used for which investment.  However of the sums withdrawn from Main Rewards, a sum of HK$47,229,100.39 had been used to acquire the investments described in my solicitors’ letter to the Plaintiffs’ solicitors dated 1^st June 2012…Additional investments of more than HK$60 Million in value were held by me in the same period of time which are evidenced by the statements enclosed in LWCF-6.  I had also real property investments with net values exceeding HK$40M.  I am of the view that if the Plaintiffs had asked for clarifications about these withdrawals before the issuing of the summons on 10^th September 2012, the application for an injunction would have been unnecessary.”  I note that even in his 6^th Affirmation, still no particulars of the Additional Investments and the Portfolio of Real Properties were given, and no explanation was tendered as to why earlier disclosure had not been made in his 3^rd and 4^th Affirmations.

32. In a rather unorthodox way, Mr Harris in his written submissions tendered “some further information which is not expressly referred to in those affirmations [of D1].” It was said that D1 involved in the sale of All Best Wishes as a director of a minority shareholder and that he had no ready means of finding out what had led to the delay in payment of the balance of HK$13,099,500.  The following were further said, that “Main Rewards having received some HK$85,200,000 as proceeds of sale of All Best Wishes the 1^st Defendant as the director and controlling shareholder of Main Rewards had to decide whether to invest those proceeds of sale on behalf of Main Rewards or on behalf of himself as an individual investor.  He was advised by the bank that it was more convenient to do so himself as an individual investor.  Although the 1^st Defendant does not know the basis for this advice from the bank it is possible that it may have related to potential tax liabilities arising on profits from such investments.  Acting on this advice the 1^st Defendant decided to wind up Main Rewards and reinvest the proceeds of sale of All Best Wishes himself.”  Mr Harris then tendered another undertaking on behalf of D1 to confirm the further information by affirmation within 14 days from the date of the hearing.

33. I am prepared to take into account the further information tendered by Mr Harris on behalf of D1.  But the further information still misses the important issues, which are (1) what the particulars of those investments are, and (2) whether D1 had made proper disclosure of them as required by the Poon Order, and if not why not.

Evidence relevant to D1’s alleged breach of the Undertakings

34. Relevant to the question of dissipation of assets, Mr Mok on behalf of the Plaintiffs pointed to the following evidence:-

(a)   As revealed in D1’s 3^rd and 4^th Affirmations, many of the Father’s and Uncles’ Companies have been dissolved.  Yet, the assets which those companies might have held have not been accounted for;

(b)   the withdrawal by D1 from the accounts of Main Rewards the total sum of HK$99,277,890.25 between 13 February 2006 and 27 July 2009;

(c)   even according to D1, only HK$47,229,100.39 of the withdrawn sums had been used to acquire the investments described in his solicitors’ letter dated 1 June 2012, leaving a very substantial sum unaccounted for; and

(d)  the particulars of the Additional Investments and Portfolio of Real Properties, which Mr Mok commented as likely to have been the fruits of assets dissipated by D1, are still unknown.

35. Mr Mok was however unable to say that the above matters amounted to breaches of the 1^st Undertaking, as most of them took place (or were said by D1 to have taken place) before the Poon Order.  Instead, Mr Mok’s submission was that the documents and information unveiled in the proceedings clearly show dissipation by D1 of Family Properties, Family Assets and/or the Deceased’s estate.

36. In respect of the 2^nd Undertaking, the following evidence is relevant:-

(a)   the Stakeholder Account was only opened on 17 May 2012.  That was after repeated reminders from the Plaintiffs’ solicitors, some backed by threat of committal proceedings;

(b)   D1 in his 5^th Affirmation explained that the delay was partly caused by the insistence on the part of the Plaintiffs’ solicitors that the  principals of the firms of solicitors representing the parties should attend the bank at the same time to set out the account;

(c)   so far only one sum in the amount of HK$961,009 has been paid into that joint account.  It was deposited against the following background:-

      i.   D1 in his 5^th Affirmation (filed on 22 October 2012) said that “I have instructed W M Sum & Co, certified public accountants for Main Rewards Limited, in consultation with my solicitors as required, to calculate the total sum that should be transferred into the stakeholder account.  I will ensure that the relevant sums are deposited into the stakeholder account on or before 15^th November, 2012”;

     ii.   No sum was deposited into the Stakeholder Account on or before 15 November 2012 as D1 said he would ensure.  In their letter of 21 December 2012 to the Plaintiffs’ solicitors, D1’s solicitors confirmed that “as at 16 November 2012, our client has not deposited any income into the joint account…”

     iii.   In his 6^th Affirmation, D1 said this, that “I apologize for the delay in depositing the relevant income into the joint stakeholder in time as promised in paragraph 9 of my 5^th Affirmation.  It took much longer than I expected for the accountant to come up with the figures.  However…the sum of HK$961,009 was deposited into the said account on 3^rd December 2012”;

(c)   D1 has not however provided any information on how the sum of HK$961,009 was arrived at. 

Whether non-compliance with the Discovery Order

37. I have considered carefully the evidence and the submissions made on behalf of the parties.  Mr Harris submitted that some 8,000 documents had been discovered and that was substantial discovery by any standards.  The number of documents discovered is in my view neither here nor there.  What is important is whether D1 has disclosed in the List all that should be disclosed.  According to the 3^rd Plaintiff’s evidence, and as submitted by Mr Mok, the documents contained in the List are mostly just financial statements and directors’ reports of some of the Father’s Companies.  No document relating to the Uncles’ Companies has been disclosed.  The List gives no clue about what the Family Properties / Assets / Deceased’s estate consisted of, not to mention what has become of them.  These evidence and submissions have not been countered by or on behalf of D1.  What we have from D1 is essentially just a bare assertion that he has done his best.

38. It is also a fact that as at the date of the hearing, the “4‑5 boxes of annual reports, financial statements, copies of cheques, vouchers, etc. of the companies” mentioned by D1’s solicitors in their letter of 11 January 2012 had not been properly discovered in any list.

39. I also regard as relevant this.  In his 4^th Affirmation, having claimed that the List was prepared to the best of his ability, D1 said that “I cannot rule out the possibility that there are still other documents in my possession somewhere unknown to me which are or may prove to be relevant to an issue in this very wide-ranging action. However I am not aware of any such documents at present”. No evidence has however been given as to what steps he had taken to discharge his duty of discovery.  What steps had he taken to compile the documents which were or had been in his possession custody or custody so that they could be listed out and disclosed?  I do not know.  D1 could not simply say that there might still be some relevant documents somewhere which he might not be aware of.

40. In the end, I agree with Mr Mok’s submission that the List of Documents is grossly insufficient.  I am of the view that D1 has failed to comply substantially with the Discovery Order. 

Whether non-compliance with the Affirmation Disclosure Order

41. I have again considered carefully the evidence and the submissions made on behalf of the parties.  I have considered D1’s 3^rd, 4^th, 5^th and 6^th Affirmations, as I was urged by Mr Harris to do.  I have also considered the further information tendered in his written submissions on behalf of D1 (paragraphs 32 and 33 above).

42. I have recited the terms of the Affirmation Disclosure Order above.  I have also considered its scope above.  I note specifically that that D1 is required to make the disclosure with supporting documents.

43. As I have observed above, D1’s 3^rd Affirmation is brief.  It comprises less than 4 pages of contents, and contains only 10 paragraphs.  He only dealt with a selected number of companies there.  But even in respect of those companies he dealt with, no particular was given as to what properties those companies held at the time of the Deceased’s death and what has become of them.  In respect of those companies which he said had been dissolved, no information was given as to what assets they had at the date of the Deceased’s death, what happened upon dissolution and whether there had been any distribution of assets.  In respect of the sale of the All Best Wishes Limited, no information was given as to the whereabouts of the sum that had been received, or what use it had been put to.

44. Despite what D1’s solicitors had said in their letter of 11 January 2012 (that “…our client will take the opportunity to file within the next seven days an additional affirmation to further explain on what has happened to the Family Properties and the companies as listed in paragraphs 8, 9 and 18(d) of Statement of Claim), D1 did not tender the explanation as promised in his 4^th Affirmation.

45. Months after the 4^th Affirmation, D1’s solicitors in their letter of 26 May 2012 revealed for the first time those investments of fixed deposits, equity, bonds and mutual funds which amounted to around HK$40 million.  Those investments were not disclosed in D1’s 3^rd and 4^th Affirmation, and no explanation has been tendered as to why.

46. Then, in his 5^th Affirmation of 22 October 2012, the Additional Investments and Portfolio of Real Properties were disclosed.  No particulars were given, and no explanation was given as to why earlier disclosure had not been made in the 3^rd and 4^th Affirmations.  Even in his 6^th Affirmation filed recently, still no particulars of the Additional Investments and the Portfolio of Real Properties were given, and no explanation was tendered as to why earlier disclosure had not been made in his earlier Affirmations.

47. The further information tendered by Mr Harris on behalf of D1 does not assist.  Its misses the important issues.  I have explained why.

48. D1 has asserted a number of times that he had tried his best.  He also said that the disclosure relates to transactions that took place many years ago.  The task might not be easy.  I accept that.  But that is no excuse of him not to at least try the best he could.  The state of disclosure suggests clearly he has not.  The disclosure (or lack of) relating to the Additional Investments and Portfolio of Real Properties illustrates this.  They do not appear to relate to distant transactions.  At least D1 has not said so.  Yet, there has not even been attempt to make any meaningful disclosure of those investments.  The sum of HK$961,009 deposited into the Stakeholder Account affords another illustration.  D1 accepted that that sum represented income from Family Properties; otherwise he would not have caused it to be deposited into the Stakeholder Account.  That sum is therefore clearly caught by the Affirmation Disclosure Order, and in particular the limb of “all income derived therefrom, what has become of them (both capital and income), and what happened to them”.  D1 should have no difficulty disclosing particulars of that sum and how it was arrived at. After all, he engaged accountants to work it out, who apparently did work it out.  Yet, particulars of not even that sum have been offered.

49. In one of his over-arching paragraphs, D1 said that “In relation to [Main Rewards Ltd and Green View Properties Limited], the 1^st Defendant has kept the underlying assets in good custody and he is prepared to give a full account of their present value.”  He has not even done that.

50. Having considered the totality of the evidence, I form the view that D1 has failed also to comply with the Affirmation Disclosure Order.

Whether Unless Order appropriate

51. I now consider whether an unless order in the terms proposed is appropriate.

52. I first consider the interaction between the 1^st Summons and 2^nd Summons. The gist of Mr Harris’ submissions in this context is this: D1 has made reasonable efforts to comply with the extensive discovery and disclosure obligations imposed upon him by the Poon Order, that he should not be required to undertake further obligations until his liability has been established, and in order to speed up determination of the issues of liability, a split trial in the manner as set out in the 2^nd Summons should be ordered.

53. I do not accept the submission.  When considering this part of the 1^st Summons and the appropriateness of the proposed Unless Order, the starting point is the Poon Order.  Until reversed or varied (and there has been no appeal or application for variation), it is binding on D1.  It has to be complied with. 

54. In any event, the split trial advocated by Mr Harris will in my view complicate rather than simplify matters.  The issues framed are complicated.  In particular, the question of laches and acquiescence (Issue 1.5 framed set out in the 2^nd Summons) would open up a variety of factual issues the trial of which would in turn require discovery and disclosure.  Indeed, Mr Harris himself accepted that the preparation for the trial of the framed issues alone, not to mention the proposed split trial itself, would take considerable amount of time.  I see no reason why the compliance of the Poon Order should be put on hold in the meantime pending the results of such preliminary issues.

55. Mr Harris also complained that the Affirmation Disclosure Order is very demanding, in the sense that D1 is expected to be able to state with complete particularity what properties were contained in the Family Properties and to recall accurately every item of property ever owned since 1987 by each of those companies.  It has further been submitted that to require D1 to give that degree of detail would come very close to ordering an account, which is part of the relief sought in the action.

56. The difficulty in complying with the Poon Order has in my view been exaggerated.  D1 is not required by the Poon Order to remember every transaction with every detail.  He is required to disclose in the affirmation matters “in so far as within his knowledge”.  The same safeguard appears in the draft Unless Order. 

57. In any event, I come back to this – the Poon Order is binding upon D1.  If he is of the view that there is anything wrong with it, he could have appealed it.  He could have tried to have it varied, either under the “liberty to apply” paragraph or otherwise.  He has done neither.

58. Further, D1 accepts that he is a fiduciary – see the over‑arching paragraphs.  Mr Harris accepted a fiduciary has the duty to account.  To discharge that duty, D1 will have to particularise the Family Properties.  The Poon Order requires nothing more.

59. Mr Harris further commented that the Plaintiffs have never sought specific discovery.  I note however the specific nature of the Affirmation Disclosure Order.  I note also the requirement that D1 should support his disclosure by documents. Despite the specificity of the Order, D1 has not provided any meaningful disclosure.  I see no reason why the Plaintiffs should be forced to go through another round of application for specific discovery.

60. In considering the appropriateness of the proposed Unless Order, I regard also as relevant D1’s previous conduct in his attempts to comply with the Affirmation Disclosure Order.  On the issue of compliance, Mr Harris urged me to consider not just D1’s 3^rd and 4^th Affirmations, but also his 5^th and 6^th.  I have.  The clear picture is that despite having been given 16 months, and despite repeated requests having been made by the Plaintiffs’ solicitors in the course of correspondence, little particulars of the Family Properties have been provided.  The Plaintiffs have been drip-fed information.  No particulars were provided even in respect of those which D1 should have been able to provide (see paragraph 48 above).  In view of his recalcitrant conduct, I take the view that an unless order is an appropriate tool to compel compliance of the Poon Order so as to get the preparation of the trial moving.

61. I however have had some reservation about the wording of the draft order originally contained in the 1^st Summons. D1 was required to act “in full compliance with” the Discovery Order and Affirmation Disclosure Order, failing which judgement be entered.  I was concerned about the meaning of “full compliance”, and whether the adoption of such a yardstick would invite dispute.  I voiced my concern out to the parties.  I was then usefully handed the Draft Order.  Whilst the term “in full compliance” still features (at paragraph 2 of the Draft Order), a new proposed paragraph 10 has been added, which stipulates that “There be liberty to apply, including but not limited to a determination by the Court, in case of dispute between the parties, on the question of whether or not the 1^st Defendant has fully complied with the Order and/or undertaking(s) to the Court, as alluded to in paragraph 2 hereinabove.”  I am of the view that the proposed paragraph 10 is sufficient to address my concern.

62. Having considered the totality of the evidence and submissions, I grant, subject the discussion of the detailed terms below, the Unless Order as contained in the Draft Order. 

Whether breach of the Undertakings

Whether the Injunctive Relief should be granted

63. There is no evidence that D1 has breached the 1^st Undertaking.  I have given the reasons why.

64. In respect of the 2^nd Undertaking, I am not satisfied that the evidence is sufficient to establish any beach by D1.  The setting up of the Stakeholder Account might have been delayed.  But the 2^nd Undertaking contains no time limit for the setting up of the account, and it has in fact been set up ultimately.  More significantly, there is no evidence as to what the sum of HK$961,009 was made up of.  It may have included all income up to 3 December 2012.  It may also have included any income from the Additional Investments and Portfolio of Real Properties.  It may not.  At this stage, nobody except perhaps D1 and his accountants know.  Further, there may have been further income from the Family Properties since the cut-off date adopted for the calculation of the sum of HK$961,009 which should be and should have been paid into the Stakeholder Account. But again there may not.  In the absence of proper disclosure by D1 under the Affirmation Disclosure Order, the Plaintiffs do not know.  I am not prepared to speculate.

65. However, the conclusions I reached above support one submission made by Mr Mok, which was this.  The Poon Order represents a package of means to freeze and protect the Family Properties, to get discovery and disclosure, and to get the preparation of the trial moving so as to take it to the next stage.  But D1 has not been complying with the Discovery Order and Affirmation Disclosure Order. The result is that there is now no way of policing the Undertakings, and that the whole package fails.  I accept that submission.

66. I also take the view that the evidence in its entirety suggests that the Family Properties require protection.  I repeat specifically the evidence and Mr Mok’s submissions referred to in paragraphs 34 and 35 above, which I accept. 

67. I regard as important the basis of the Plaintiffs’ application for the Injunction Relief, which is primarily proprietary in nature.  D1 accepts that the Family Properties are to be shared and enjoyed by all the parties in the ratio set out in the Will, and that he was only given the task of managing them.  He also accepts that he is a fiduciary, and Mr Harris has accepted that comes with that fiduciary relationship is at least the duty to account.

68. With that in mind, one looks at the proposed terms of the Injunctive Relief.  The proposed Injunction Relief is set out at paragraph 3(a) to 3(f) of the Draft Order:-

(a)   Paragraph 3(a) seeks to refrain D1 from dissipating assets up to the value of HK$99,227,890.25, which was the sum he accepted having withdrawn from the accounts of Main Rewards and having deposited into his private accounts;

(b)   Paragraph 3(b) seeks to refrain D1 from dissipating the very equity securitiesdisclosed by the letter dated 1 June 2012 from D1’s solicitors;

(c)   paragraph 3(c) seeks to refrain D1 from dissipating the very bonds and mutual funds disclosed in that same letter;

(d)  paragraph 3(d) seeks to refrain D1 from dissipating the balance of the purchase price to be received by Main Rewards from the sale of All Best Wishes;

(e)   paragraph 3(e) seeks to refrain D1 from dissipating the Additional Investments; and

(f)   paragraph 3(f) seeks to refrain D1 from dissipating the Portfolio of Real Properties.

The properties sought to be protected are either Family Properties or assets traceable back to Family Properties.

69. Mr Harris submitted that the Injunctive Relief should not be granted.  I have considered his submissions:-

(a)   Firstly he submitted that the Undertakings have been given and that they are sufficient to cover all the matters in relation to which injunction relief is now sought, and that there is no reason to suppose that D1 would not continue to abide by them.  I have set out why in my view the package which the Poon Order represents cannot now achieve what it was intended to achieve due to the non-compliance by D1 of the Discovery Order and Affirmation Disclosure Order.  The Undertakings cannot now be policed, and are no longer sufficient to protect the Family Properties;

(b)   Mr Harris referred to a letter of 26 February 2009 from D1’s solicitors to the Plaintiff’s solicitors offering an undertaking not to dispose of certain Family Properties pending resolution of the dispute.  It was submitted that that offer was ignored, and that it is inappropriate to grant an injunction in relation to a matter where an undertaking was voluntarily offered but refused.  I do not accept the submission.  I have considered the terms of the undertaking offered.  It was not proposed to be a court undertaking.  It was offered as an alternative to the Plaintiffs intended application for the appointment of provisional administrator.  Circumstances have also materially changed since that offer;

(c)   Mr Harris submitted that the Plaintiffs had not offered any undertaking as to damages. An undertaking has now been included in the Draft Order.  Mr Harris then submitted that there is no evidence to prove that the undertaking offered is worth anything.  I note however that the Plaintiffs are between them entitled to share and enjoy 8/15 shares of the Family Properties.  The evidence suggests that they have the means to back up the undertaking;

(d)  Mr Harris cited to me a number of authorities on the nature of fiduciary duties, the differences between a trustee and a fiduciary, whether fiduciary duties necessarily include the duty not to mix funds, etc.  He submitted that it would be oppressive to D1 if the Injunctive Relief together with the associated ancillary disclosure orders were to be ordered.  I may be excused for not reciting all the authorities.  The fact is that D1 accepts that he is a fiduciary.  The exact extent of his duties may be a trial issue.  But obviously he has at least the duty to account.  Mr Harris accepted that.  And if authority is required, I refer to Hollingworth v Juson [2006] 3 HKC 488 at 494-495.  I see nothing oppressive, given the full circumstances of this case, about granting the Injunctive Relief to protect the Family Property and to compel D1 to make disclosure of the particulars of the Family Property;

(e)   Then Mr Harris submitted that the Plaintiffs have failed to come with clean hand. It was alleged that “they first concealed and then failed to disclose secret drawings of funds which they have made from Family Properties without the knowledge of D1”.  The funds concerned rental income from two properties, one at Kowloon Tong Mansion and one at Nathan Road, which are respectively owned by Sunnyland Limited and Greenview Properties Limited.  I have considered the allegations.  I have also considered the evidence in reply given by the 3^rd Plaintiff. In short she said that all rental income had been reported to the two companies concerned.  Her evidence is supported by the accounting documents of the two companies which she produced.  On the evidence, I reject the allegations that the Plaintiff did not come with clean hand. 

70. I have considered all the evidence and the parties’ submissions.  Though not specifically addressed by the parties, I have also considered the principles derived from the speech of Lord Diplock in American Cyanamid.  I am satisfied that the Injunctive Relief should be granted.  I will come back to the detail terms of the relief later.

THE SECOND SUMMONS

71. I have summarized at paragraph 1 above the order which D1 is seeking under the 2^nd Summons. He is asking the Court to order a separate trial of separate issues before other issues.  The separate issues (“the Separate Issues”) which D1 is seeking to be tried first may be summarised as follows:-

(a)  the existence of the constructive trusts pleaded at paragraphs 15 and 15B of the proposed Amended Statement of Claim;

(b)  the extent of any fiduciary duties owned by D1 under the alleged constructive trust;

(c)   whether the 2002 Agreement pleaded at paragraphs 22 and 23 of the Statement of Claim existed, and if so whether it constituted accord and satisfaction; and

(d)  whether and if so to what extent the Plaintiffs are barred from claiming relief under the provisions of the Limitation Ordinance and/or the equitable doctrine of laches or acquiescence.

72. I have been referred to paragraphs 33/4/9 of The Hong Kong Civil Procedure 2013.  I note the general principles as enunciated by the Court of Appeal in Telford Development Ltd v Shui On Construction Co Ltd [1990] 2 HKC 110 and applied by Waung J in Chan Jak Tung v Baltrans Ltd [1997] 1 HKC 89, that the general rule is that all issues in one case should be tried at the same time.  There is power to order that different issues in the case be tried at different times, but that departure from the general rule is ordered only if it is just and convenient.  It is for the party who seeks such a departure to demonstrate that it is indeed just and convenient.  I have also been cited Carl Zeiss Stiftung v Herbert Smith & Co [1969] 1 Ch 93 for the proposition that it is not necessary that the decision of the split issues should be such as to dispose of the entire action whichever way it is decided.  Whereas I accept that, the question as to whether the determination of the Separate Issues would dispose of the entire action must be a relevant consideration to be taken into account when exercising my discretion.

73. I have considered the Separate Issues.  They are complicated issues of mixed law and facts.  No evidence has been placed before me that having a split trial of the Separate Issues would result in any saving of costs and time.  I have made some observations at paragraph 54 above that in my view they would complicate rather than simplify matters.  Extensive efforts and costs will have to be spent on the preparation of their trials, and their determination would not be such as to dispose of the entire trial.  And pending the preparation for the trial of the Split Issues, should the Poon Order or D1’s duty of discovery in respect of the main trial be put on hold?  I see no basis to order that.

74. The main reason given in support of the application was that a split trial will spare D1 from the requirements under the Poon Order to effect what was said to be extensive discovery and disclosure until after the determination of the Split Issues.  I do not accept that that is a valid reason to support a split trial.  If allowed, D1 would in effect be permitted to by-pass the Poon Order through the back door.  That will neither be just nor right.  In any event, as I have observed above, the difficulties in meeting the Poon Order have in my view been exaggerated.

75. I am of the view that D1 has failed to discharge the onus on him to justify any departure from the general rule that all issues should be tried together.

76. I dismiss the 2^nd Summons.

SUMMARY ACCOUNT

77. I have not specifically dealt with above the part of the Plaintiffs’ application for an Order, pursuant to O.43, r.1, that D1 do give an account of the whereabouts of the said sum of HK$99,277,890.25.  D1 accepted having withdrawn sums in that total amount from the accounts of Main Rewards and deposited them into his personal accounts. The explanation given by him in his 5^th Affirmation for having done so was this, that “I withdrew the funds because I intended to wind up Main Rewards Limited shortly after the sales of the shares of All Best Wishes Limited, held by Main Rewards, in 2009.  I explained this at paragraph 7 of my Third Affirmation herein and explained that part of the sale price of those shares was still due at that time.  This sum still remains outstanding and the sale has not yet been finalized.  Main Rewards has therefore not yet been wound up.” 

78. No explanation has been given by D1 as to why he saw any need to make those withdrawals before the intended winding-up of Main Rewards.  But whatever the reasons, D1 has not put forward any personal claim for the monies.  They remain the property of Main Rewards, and remain part of the Family Properties.  That being the case, I cannot see any preliminary question to be tried – see O.43, r.1(3).

79. I order the summary account.

THE TERMS OF THE DRAFT ORDER

80. I have heard parties on the terms of the Draft Order.  Mr Harris has made a number of criticisms against some paragraphs in it.  But by reason of all the matters set out above, I grant the order as appear on the Draft Order.

81. In respect of the Unless Order, I give D1 50 days to comply.  For the avoidance of doubt, the period of 50 days starts on the day immediately after the date of the handing down of this judgment, and expires at 4:00 pm on the 50^th calendar day (inclusively of all intervening Saturdays, Sundays and public holidays). If that 50^th day is a Saturday, Sunday or public holiday, the period will expire at 4:00 pm on the working day immediately after.

COSTS

82. I make the following orders nisi.  In respect of the 1^st Summons, save the costs of and occasioned by the amendment of the Statement of Claim, D1 do pay the Plaintiffs’ costs of and occasioned by the 1^st Summons to be taxed on the party and party basis if not agreed, with certificate for two counsel.  In respect of the 2^nd Summons, D1 do pay the Plaintiffs’ costs of and occasioned thereby to be taxed on the party and party basis if not agreed, with certificate for two counsel. 

83. The orders nisi will become absolute 14 days after the date of this judgment unless an application in writing to vary is filed and served within the said 14 days.

84. I am grateful for counsel’s assistance.