ADRIENNE MARSH LEFKOWITZ v. THE BANK OF NEW YORK

IN THE COURT OF APPEAL
(On appeal from Action No.P5 of 1991)

1993, No.190
(Civil)

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J U D G M E N T

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Liu, J.:

1. In 1988, Nicholas Marsh died testate in America. By his last will dated 16th May 1983 and a codicil dated 2nd October 1986, the deceased disposed of his assets, including those in Hong Kong. By his said last will and codicil, subject to a life interest to his widow, the deceased bequeathed his residuary estate to his three daughters upon trust. The widow died in May 1990. The defendant is the second daughter and a beneficiary with a 30% share.

2. The assets left by the deceased in America comprise a corporation and funds, totaling some US$21M. There are monies receivable from Switzerland. The American assets stand in the region of US$23M. The estimated value of deceased's Hong Kong assets is about US$12M. or HK$92 1/2 M. of which about HK$60M. represent funds previously held by Mr Li Ka-shing and his associate company, Quebotin Limited.

3. Shortly after her father's death in 1988, the defendant was granted by the New York Surrogate's Court Preliminary Letters Testamentary and of Trusteeship in the estate of the deceased. In March 1990, the defendant's Preliminary Letters Testamentary and of Trusteeship were revoked. The plaintiff was appointed in her place in August 1990. Complaints of misconduct and impropriety have been filed against the plaintiff and its legal adviser by the defendant who also feels aggrieved by her removal. The defendant's efforts in seeking to reinstate the status quo were unsuccessful. Her latest application to a Surrogate Judge in New York for a new trial was dismissed, and from that dismissal she appealed. Submissions in that appeal had been concluded, and judgment was reserved. Thus, the plaintiff's appointment to represent the deceased's estate in America is still being potentially challenged. Counter-allegations have been made against the defendant whose conduct is described as close to that of a vexatious litigant.

4. In 1991, the plaintiff applied to our Probate Court to prove the deceased's said last will and codicil in solemn form. In 1992, the plaintiff's attorneys were appointed administrators pendente lite in that Probate Action in which the defendant had resisted the appointment of the plaintiff or its attorneys as Hong Kong administrators of the deceased's estate. The 1991 Probate Action was ordered to be tried as a short cause with a stay to enable the defendant to seek an appointment of some persons to be Hong Kong administrators other than the plaintiff or its attorneys. In 1992 the defendant duly commenced proceedings with the view to appointing Bank of East Asia as Hong Kong administrator. In 1993, in another action the defendant claimed from the estate the return of some HK$12M. with accrued interests out of the funds released by Mr Li Ka-shing and his associate company, which is said to be held in trust for her. These Hong Kong proceedings are : Probate Action No.5 of 1991, Miscellaneous Proceedings No.1638 of 1992 and High Court Action No.A4573 of 1993. I shall call them "the 1991 Probate Action", the "1992 Miscellaneous Proceedings" and "the 1993 Action" respectively.

5. In the 1991 Probate Action, leave was granted by Sears, J. to the plaintiff's attorneys in their capacity of administrators pendente lite in Hong Kong to transfer US$4.7M. to the American Administrator, the plaintiff.

6. Out of the deceased's assets in America, the plaintiff as New York Administrator had paid some US$9M. in respect of duties, taxes and outgoings, due here and in America, for and on behalf of the deceased's assets in Hong Kong. It is common ground that administration in Hong Kong has yet to be completed. The outstanding matters are : (1) the defendant's claim in the 1993 Action, (2) the deceased's pensions from Arcadia Trading Company Limited and Bay Novelty & Inspection Company Limited and (3) the final dividends in the winding-ups of these two companies and Sederland Enterprises, Limited. There must be more related costs and expenses to be settled.

7. This is an appeal from the said Order made by Sears, J. on the two broad grounds, namely, that there was no jurisdiction founding the order and that discretion was wrongly exercised. At the hearing, the judge's query as to whether it was a question of jurisdiction was not satisfactorily responded to by counsel who expressed doubt as to "whether one would put it precisely in terms of jurisdiction". The introduction of s.42 of the Probate and Administration Ordinance obfuscated the jurisdictional challenge. Mr Mok was not counsel then appearing for the defendant. The imputed purpose for a distribution in New York, as then submitted and still being maintained on behalf of the defendant, further clouded the issue when evidently both in Hong Kong and New York the estate had yet to be cleared. In both territories, at least the estate remains saddled with litigation.

8. This judgment will no doubt interest readers across the Pacific. There would seem to be some dissimilarity in our respective probate practices derived from our common heritage. It would not be inappropriate, therefore, to begin with first principles. Under s.40(2) of the Probate and Administration Ordinance, administrators pendente lite enjoy all the rights and powers of general (not, be it noted, full) administrators, "other than the right of distributing the residue of the estate". The exercise of these rights and powers is to be closely supervised by the court. See s.40(3) which reads :

"Every such administrator shall be subject to the immediate control of the court and act under its direction". (Emphasis supplied)

9. Section 40(3) is not obscure. There is no room for Mr Ching's argument that under s.40(3) the court may allow distribution by administrators pendente lite who by law "shall have" rights and powers except for the right of distribution or, in other words, shall not have the right of distributing the residue. Moreover, s.40(3) is not an enabling provision. It merely places the administrators pendente lite under the court's control. Examined by reference to its English source, s.40(2) and (3) would be more transparent.

10. Section 163(1), Administration of Estates Act, 1925 (repealed and re-enacted in s.117(1) and (2) of the Supreme Court Act, 1981) reads :

"Where any legal proceedings touching the validity of the will of a deceased person or for obtaining, recalling or revoking any grant, are pending the High Court may grant administration of the estate of the deceased to an administrator, who shall have all the rights and powers of a general administrator, other than the right of distributing the residue of the estate, and every such administrator shall be subject to the immediate control of the court and act under its direction."

11. Section 117(2) of the Supreme Court Act, 1981 expressly provides for distribution by an administrator pendente lite with the leave of the court in prescribed circumstances. Section 40(3) of our Probate and Administration Ordinance does not confer on our court this additional power. Section 117(2) of the 1981 Act reads :-

"An administrator pending suit shall be subject to the immediate control of the court and act under its direction; and except in such circumstances as may be prescribed, no distribution of the estate, or any part of the estate, of the deceased person in question shall be made by such an administrator without the leave of the court ". (Emphasis supplied)

12. Clearly the court may not direct under s.163(1) of the 1925 Act or our s.40(3) that an administrator pendente lite shall also have the right of a full administrator to distribute. Citation of authority is hardly necessary, but as long ago as 1866, that "it is beyond the power of the court to order an administrator pendente lite to distribute the property" was universally accepted as settled principle. See Whittle v. Keats, (1866)35 L.J.54 at p.55. Dr Swabey for Miss Keats so reminded Sir J.P. Wilde of the court's fettered jurisdiction in an application for payment out of an annuity. The court echoed counsel's concern in these terms :

"I have no power, except by consent, to make such an order."

13. Before us, Mr Mok for the defendant focused on the issue of jurisdiction as his primary submission. Mr Ching did not concede that the transfer ordered was or formed part of distribution, but counsel advanced no or no positive arguments for our consideration. Mr Ching leant heavily on s.40(3) for jurisdiction.

14. The assets of a deceased "must be collected and realised; his debts must be paid; and any surplus must be distributed". "These three tasks, known as `administration of assets' are the duty of his personal representative". See Snell on Equity 29th edn. p.309. Foreign debts are also provable debts in a local administration. In common parlance, "administration" is sometimes ascribed to the two earlier stages as in Permanent Trustee Co. (Canberra) Ltd. v. Finlayson & Ors., (1968)43 A.L.J.R.42 : "When the Territory administration is complete, so that what remains of the Territory assets is ready for distribution to beneficiaries". See also p.1014 Dicey and Morris on The Conflict of Laws 12th edn.: "Administration within the meaning of this Rule does not include distribution to beneficiaries of that portion of the assets which remains in the hands of the personal representatives after the estate has been cleared."

15. It is trite law that "a foreign administrator has no right to receive property in (Hong Kong) qua representative of the deceased". See P.833, Cheshire and North's Private International Law 10th edn. "The administration of the estate [as distinction from distribution] is carried out in accordance with the law of the country in which the grant was made" i.e. lex fori. See p.660 Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (1993); pp.1013-1014 Dicey and Morris on Conflict of Laws, 12th edn. and p.515 Graveson's Conflict, 7th edn. It "must be in the country in which possession of it is taken". See p.659 Williams, Mortimer and Sunnucks. "Distribution of the residue of movables is regulated by the lex domicilii" i.e. the law of the domicile. See p.936 Williams, Mortimer and Sunnucks. Administration in the context of distribution "after the estate has been cleared .... is characterised as `succession' and governed by" the lex domicilii for movables. "If the deceased died domiciled in (Hong Kong) the (Hong Kong) personal representative will ordinarily carry out such distribution himself, although if there are difficulties he may take the directions of the court. If the (Hong Kong) administration is ancillary, the usual course will be for him to hand over the balance to the foreign domiciliary administrator. But the court has a discretionary power to restrain him from doing so." p.1014 Dicey and Morris. Priority of creditors and marshalling of assets for the payment of debts are matters for the lex fori. Choice of law aside, it stands to reason why administration of local assets as distinct from distribution "must be in the (territory) in which possession is taken". But when it comes to distribution, it is made in accordance with the lex domicilii. Therefore, where a foreign domiciliary administration is subsisting, distribution of all assets, looked at in the round, may be more conveniently carried out by the foreign principal administrator. It would seem that no assets may usually be sent or ordered to be sent overseas from an ancillary administration to a principal domiciliary administration except at the stage of distribution after the local estate is cleared. The general rule is that the foreign principal administration has no right to receive the property in an ancillary administration qua representative of the deceased. So it is an exception to this rule and the ordinary practice of a native full administrator of the estate of a locally domiciled deceased to distribute himself that the foreign principal administration may be transmitted the local surplus assets and hold them qua representative of the deceased. However, such a transfer of surplus assets may not be made except by a full local administrator in the exercise of his duty of distributing after the local administration is complete.

16. It was agreed on all hands that Hong Kong was an ancillary administration to the domiciliary administration in New York. Distribution should not be attempted before the assets in Hong Kong have all been got in and cleared. Since s.40(3) withholds the right of distribution from an administrator pendente lite, only a full Hong Kong administrator may distribute. When the stage of distribution finally arrives, a foreign representative may apply to the court "for an order for the transfer to him [by the full Hong Kong administrator] of the net balance of assets under the (Hong Kong) administration but is not entitled as of right to such an order." See p.1015 Dicey and Morris. After payment of all the debts recognised by Hong Kong law, the full Hong Kong administrator "must see to the distribution of the residue of the movables under his control in accordance with the lex domicilii. He may be justified in some cases in handing over the surplus to the principal representative" in New York. (Emphasis added). See p.937 Williams, Mortimer and Sunnucks. If a full Hong Kong administrator "transmits assets to the representative in another country" before the completion of the first two stages in administration, he "has acted contrary to his duty". (Emphasis added) See p.660 Williams, Mortimer and Sunnucks. "Ordinarily", it would be justified to pay "over to the foreign principal" after administration is complete. See In the Estate of Weiss, deceased, [1962] p.136 at p.144, per Scarman, J. as he then was. But even after the estate is cleared, it would not be imprudent for the full Hong Kong administrator to obtain the court's directions before making a transfer. The full administrator in Inthe Estate of Weiss, deceased, supra. was authorised to hand over the surplus or net balance in his hands to the principal representative. See the converse in In re Achillopoulos, [1928] 1 Ch.433 where the court was not receptive to the payment of statute-barred debts outside England. For the reasons I have given, I make no apology for these extensive quotations for such fundamentals as our ground rules.

17. With leave of Sears, J. the administrators pendente lite in this case transmitted fund out of jurisdiction to the principal administrator in New York. The Hong Kong assets have not been cleared. There remain to be finalised at least the defendant's claims in her 1993 Action, the pension funds and the final dividends from the three companies. There will be monies to be got in and related expenses to be paid. At this stage, no transfer may be ordered to be effected to the New York principal administration even by a full Hong Kong administrator. It would be a breach of a full administrator's duty to transmit fund to the principal administration before the Hong Kong estate is ready for distribution. The court should not countenance such a breach let alone authorise it. So long as it was sought to transfer money to the domiciliary administrator, it would not matter what view the judge took of the nature or character of the transmission or the use to which the transmitted fund would be put. The question that lies at the heart of this appeal is not whether the transfer was or was needed for distribution but whether such a transfer before clearing the Hong Kong estate was lawful. That was the real bone of contention. The court would have had no power to sanction such a breach of duty in the case of a full Hong Kong administrator appointed for an ancillary administration, and it was all the more objectionable to permit the same wrong to be perpetrated through these administrators pendente lite. After the Hong Kong administration is complete and ready for distribution, that final task to distribute would fall exclusively on the full Hong Kong representative. I have endeavoured to establish earlier in this judgment that on a true interpretation of s.40(3), the administrators pendente lite have no right of distributing the residue of the estate. Consequently, the surplus or net balance for distribution would necessarily be left in the hands of the full Hong Kong administrator yet to be appointed in the 1992 Miscellaneous Proceedings or in the 1991 Probate Action which was set down to be heard as a short cause. Hence, the full Hong Kong administrator would be the representative to hand over or be ordered to hand over to New York any fund out of the net corpus, if and when a transfer is sought. In this case, no unusual circumstances were advanced for invoking the court's other special powers such as those under s.36 of the Probate and Administration Ordinance. Both parties hereto took their respective stand on s.40(2) and (3) of that Ordinance.

18. In my view, the judge should not have been asked to order these administrators pendente lite to make the US$4.7M. transfer. In fact, the judge should never have been invited to entertain an application, at this stage, for transmitting any money to the principal administration in New York. It is decidedly a question of jurisdiction. The judge had no jurisdiction to make the order he did.

19. As for discretion, the foreign administration in New York has paid substantially for duties, taxes and outgoings charged on the Hong Kong assets. No foreign debts have been incurred within what is really one estate; nor have such disbursements given rise to any liability to recoup the New York administration. But the cash reserve of the New York principal administration has yet to be replenished. Whether the diminished cash position in New York has affected its unquestionable liquidity in terms of its past enormous surplus assets was not a feature which weighed with the judge who merely commented in passing: "The cash position does not appear to be liquid". However, the judge had observed: "The American administration has had heavy expenses". The plaintiff's attorneys as Hong Kong administrators pendente lite understandably used the plaintiff bank's facilities in their administration. The deposits made with the plaintiff bank pending the application to Sears, J. may well suffer from technical flaws. The administrators pendente lite are members of a reputable law firm and accepted by the court as fit and proper persons to be so appointed. There has been no cry for their removal. The criticism of prior transfers cannot be a matter of real significance. The request for a transfer to the principal foreign administration should not be judged by urgent need alone. In the exercise of his discretion, the judge allowed himself to be guided by "a course.....reasonable and just for both parties". But for the challenge to jurisdiction and our probate practice, I would not interfere with the order of the judge on the alleged wrongful exercise of his discretion. In practical terms, it would seem to be a sensible order to be made with a built-in protection for the defendant's claim in the 1993 Action. The judge had sufficiently considered the defendant's grounds of opposition. Mr Ching also led us through the relevant considerations the judge had taken into account. The discretion point fails.

20. It is quite unnecessary to deal with the specific grounds of appeal. The judge had no jurisdiction to make the order. I would allow the appeal.

Macdougall, V.-P.:

21. I am grateful to Liu J for his summary of the facts. I am, however, unable to agree with his conclusion that the judge was wrong in making the order which is the subject of this appeal.

22. The principal point at issue is a short one. Did the judge have power under section 40 of the Probate and Administration Ordinance Cap. 10 to make that order? The section provides:

"40(1) Where any legal proceedings touching the validity of the will of a deceased person, or for obtaining, recalling, or revoking any grant are pending the court may, subject to section 25, appoint an administrator of the estate of the deceased.

(2) An administrator so appointed shall have all the rights and powers of a general administrator, other than the right of distributing the residue of the estate.

(3) Every such administrator shall be subject to the immediate control of the court and act under its direction."

23. Mr. Ching's initially attractive submission for the respondent that sub-section (3) invests the court with an unfettered discretion to grant an application by an administrator pendente lite to make a distribution of the residue of an estate is not consistent with a proper reading of the section. In my view it is not permissible to interpret sub-section (3) as giving the court a discretion to confer on an administrator pendente lite a power which sub- section (2) specifically denies to him. Sub-section (3) does no more than empower the court to control such acts of the administrator pendente lite which fall within the scope of the rights and powers conferred on him by sub-section (2).

24. However, in order to uphold the judge's order it is not necessary for the respondent to rely on that submission, for I do not accept that the effect of the order was to permit the administrators pendente lite to perform an act which was beyond their statutory rights and powers.

25. Clearly, sub-section (2) prohibits an administrator pendente lite from distributing the residue of the estate. But what the administrators sought to do, and were authorised to do by the judge's order, was to transfer US$4.7m to the executors of the estate in New York to reimburse them for monies payable in settlement both of the estate duty levied on the assets of the estate in Hong Kong and estate taxes levied by United States tax authorities in respect of the deceased's Hong Kong assets. In my opinion this does not constitute a distribution of the residue of the estate. The payment of debts, taxes and duties payable by an estate is not an act which falls without the powers of a general administrator or, by virtue of section 40(2) of the Ordinance, those of an administrator pendente lite.

26. In my view, the judge was entirely correct when he found on the evidence before him that the payment which the administrators pendente lite sought to make did not amount to a distribution of assets.

27. The second issue is whether this court should conclude that the judge's exercise of his discretion must be set aside. This court will not interfere with the exercise by a judge of his discretion merely because its members would have exercised that discretion differently. It is only where the court has come to the conclusion that the judges discretion must be set aside for one of the reasons referred to in Hadmoor Productions v. Hamilton [1983] 1 AC 191 that it becomes entitled to set it aside and exercise an original discretion of its own.

28. With regard to this issue I respectfully agree with Liu J that the order which the judge made was entirely sensible. On the evidence before the judge he was perfectly justified in making it.

29. I would dismiss this appeal.

Yang, C.J.:

30. I have had the advantage of reading in draft the judgments of Liu J and Macdougall V-P.

31. It is right that I should acknowledge my indebtedness to Liu J for the depth of his research and for his detailed analysis. However, with the greatest of respect to him, it is on the meaning of the word "distributing" in Sec. 40(2) that I feel constrained to differ from Liu J. The word "distributing" has no special meaning other than that given to it in everyday life. It does not imply an absence of beneficial interest, indeed, it points to the disposing of property to beneficiaries. I agree with Macdougall VP on this issue. There was no distribution in the present case. Sec. 40(2) therefore does not apply.

32. I too would dismiss the appeal.