LEE CHARLES v. LEE YAN CHUN AND OTHERS

   HCMP1709/2007

   IN THE HIGH COURT OF THE

   HONG KONG SPECIAL ADMINISTRATIVE REGION

   COURT OF FIRST INSTANCE

   MISCELLANEOUS PROCEEDINGS NO. 1709 OF 2007

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BETWEEN

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REASONS  FOR  JUDGMENT

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Introduction

1.  On 14 December 2009, I allowed the plaintiff’s application for (a) an order directing the 1^st to 3^rd defendants as executors of the will of Mr Lee Da Kor (“Mr Lee”) dated 18 December 2001 (“the Will”) to provide inventory and account of the estate; (b) a declaration that the deed dated 8 June 2004 (“the Deed”) is valid and enforceable with consequential directions; and (c) an order removing the executors and appointing Mr Leung Chi Hung (“Mr Leung”), accountant, to replace them. I also ordered costs against the executors personally.

2.  I had indicted that I would give the reasons for judgment in writing, which I now do.

3.  The background leading to these proceedings may be summarized as follows.

The Will and the Deed

4.  Mr Lee had a big family. He bore the 1^st, 2^nd, 5^th to 8^th defendants with Madam Ng Ming Fung (“Madam Ng”), now deceased; the 3^rd defendant with the 4^th defendant; and the plaintiff and the 9^th defendant with a Madam Fan.

5.  Mr Lee died on 18 May 2004. Pursuant to the Will, the 1^st to 3^rd defendants were appointed as executors and trustees. Mr Lee bequeathed his estate as follows :

(1)  Madam Ng, the 2^nd defendant, the 3^rd defendant and the plaintiff shall be given 10,000, 13,940, 22,500 and 15,000 of Mr Lee’s shares in Dowell Trading Company Limited (“Dowell”) respectively.

(2)  His residuary estate shall be divided into nine equal shares and distributed to the plaintiff, Madam Ng, and the 1^st, 4^th to 9^th defendants.

6.  About one month prior to his death, Mr Lee transferred the 15,000 shares in Dowell which were to be given to the plaintiff under the Will to the 4^th defendant as a gift. As a result of this, the plaintiff and the other eight beneficiaries under the Will entered into the Deed, varying the dispositions under the Will (“the Deed”). The parties also entered into two other deeds for the same purpose.

7.  As set out in the Deed, the deceased had at the time of his death accounts in Canadian currency in the Royal Bank of Canada in Vancouver, British Columbia, Canada (“the Canadian Accounts”), which formed part of the residuary estate. Pursuant to the Deed :

“1.  Each of the Beneficiaries hereby conveys and assigns unto the [plaintiff] all of his or her respective share, benefit, estate and interest in that portion of the residuary estate of the Deceased which consists of [Canadian Accounts] and hereby covenants to hold all the monies in the [Canadian Accounts] (‘the Monies’) unto the [plaintiff] absolutely;

…

5.  Each of the Beneficiaries hereby covenants each other and with the [plaintiff] that he or she would procure the Executors of the Will of the Deceased to :

(a)  Confirm this Deed as soon as practicable upon obtaining a grant of the Will of the Deceased in Hong Kong;

(b)  Release all [the Monies] to the [plaintiff] as soon as practicable after obtaining a grant of the Will of the Deceased in the Province of British Columbia and upon retaining sufficient monies from [Canadian Accounts] for payment of taxes, fees, assessments and duties as aforesaid but in any event, not alter than 6 months after obtaining a grant of the Will in Canada.”

8.  Probate was eventually granted on 4 January 2007.

The present proceedings

9.  It is the plaintiff’s case that after Mr Lee’s death, he had repeatedly made inquiries as to the progress and steps taken by the executors to release the Monies to him and pressed for a full and accurate account of the estate with inventory but to no avail.

10.  On 10 September 2007, the plaintiff commenced the present proceedings pursuant to Order 85 of the Rules of the High Court (“RHC”) and sections 33 and 56 of the Probate and Administration Ordinance (Cap.10) (“PAO”). Initially, he only sought an order for account against the executors. On 30 September 2008, Sakhrani J granted him leave to amend the originating summons to add the other defendants (including the 2^nd defendant in her capacity as the personal representative of Madam Ng’s estate) and to seek additional relief for the Deed and removal of the executors.

The parties’ position

11.  The matter came before me on 14 December 2009. The plaintiff was represented by Ms Tong; the 1^st to 3^rd defendants, Mr Lin. The 1^st to 3^rd defendants opposed the application for account and removal. They remained neutral for the application about the Deed.

12.  The 4^th defendant appeared in person although she had not filed any acknowledgment of service. She told the court that she regarded the Deed and binding and enforceable and that she adopted a neutral position for the removal of the executors.

13.  The other defendants are all absent. From previous correspondence, it is clear that neither the 5^th and 6^th defendants, legally represented, nor the 9^th defendant, acting in person, opposed the plaintiff’s claim. The 7^th and 8^th defendants had not filed any acknowledgment of service.

14.  As indicated above, I allowed the plaintiff’s application with costs against the 1^st and 3^rd defendants personally.

15.  I will deal with the relief sought by the plaintiff in turn below.

Duty to account

16.  The applicable principles are well established.

17.  It is the duty of an executor to keep clear and accurate accounts, and to be always ready to render such accounts when called upon to do so : see Halsbury’s Laws of Hong Kong, 2008 Re-Issue, Vol.27, para.425.897. In order to provide a true and perfect account, the executor must provide details of the whereabouts of all properties (including cash) which he is bound to administer : see Edwin Kwok Wing Yun v Lee Shuk Yee, HCMP3904/2001, unreported, 7 June 2002, per Chung J at para.19.

18.  Further, under section 56 of PAO, personal representatives are, when so ordered by the court, to exhibit on oath in the court a full inventory of the estate and render an account of the administration of the estate to the court. Correspondingly, the court may under Order 85, rule 2(3) of the RHC order executors to furnish and verify accounts.

19.  According to the schedule of property attached to the grant of probate dated 23 August 2006 (“the Schedule”), the total net value of Mr Lee’s estate comprising his assets in Hong Kong as at the time of his death was nearly HK$28.5 million. According to the latest bank statements, it had shrunk to about HK$12 million as at 30 November 2009.

20.  In opposing the application, Mr Lin first submitted that what the plaintiff is really after is the Monies. The repeated inquiries for information about the estate were to pressurize the executors to cave in to his request for distribution of the Monies. Once the Monies are ordered to be distributed to him, there is no need for an account. I disagree. The plaintiff is also entitled to share in the residue estate after the distribution of the Monies. A proper and full account is necessary for the due administration and distribution of the residue estate.

21.  Mr Lin next submitted that the executors had already provided the plaintiff with all the bank statements, ledgers and receipts. So the executors had already fulfilled their duty to render an account with inventory. I disagree. In my view, there are at least the following discrepancies that need to be properly accounted for.

22.  First, according to the Schedule, a sum of HK$2,741,375.64 stood in Mr Lee’s account with Shanghai Commercial Bank Limited as at the time of his death. But according to the bank statement dated 28 February 2007 (“the Statement”), the balance was HK$253,328.12 as at 31 January 2007. The executors had offered no explanation for the significant drop.

23.  Second, according to the Schedule, there were two sums of Europe currency totaling EUR609,419.61 with the Bank at the time of Mr Lee’s death. But the Statement showed that as at 28 February 2007, the total balance dropped to EUR441,592.68. Again, the executors had failed to explain the discrepancy.

24.  Mr Lin submitted that the sums reflected by the differences above were in fact used to pay off the estate duty. That submission only made the executors’ case worse. It is not supported by any evidence before me. The total of the two sums did not tally with the amount of estate duty levied. And the executors ought to have given that explanation together with the supporting documents when they provided other information to the plaintiff in purportedly discharging their duty to render a proper account.

25.  Third, some of the purported receipts in support of the funeral expenses appeared to be dubious.

26.  All these cried out strongly for a full and proper account supported by documentary evidence.

27.  I therefore allowed the application for account and inventory and made the order and consequential directions.

The Deed

28.  I have already alluded to the circumstances under which the Deed came into existence.

29.  At the time of the Deed, the plaintiff and the other defendants had no interest in Mr Lee’s estate because it was yet to be ascertained. But they had right to have the estate properly administered and applied for their benefit when the administration was complete. That right is a chose in action, which is transmissible : see Williams, Mortimer & Sunnucks on Executors, Administrators and Probate, 19^th edn, para.78–04. As a matter of law, the plaintiff and the other defendants, as beneficiaries, are perfectly entitled to enter into the Deed to vary the dispositions. The Deed is effected as soon as it is communicated to the personal representatives, who would become bound by the same : Williams, para.67–01. See also Crowden & Another v Aldridge & Others [1993] 1 WLR 433, at p.439A–C.

30.  The intent of the Deed is clear. The plaintiff was originally entitled to Mr Lee’s 15,000 shares in Dowell under the Will. But later Mr Lee gifted the shares to the 4^th defendant. The beneficiaries all agreed that the disposition of the Monies should be varied as per the Deed to compensate the plaintiff for the loss of his entitlement to the shares.

31.  The 1^st defendant signed the Deed in her capacity as beneficiary. So she did, in her other capacity as executor, have notice of the Deed on 8 June 2004. According to the 2^nd and 3^rd defendants, the 1^st defendant said she was not aware of the contents of the Deed when signed it. It is simply incredible and must be rejected. The 2^nd and 3^rd defendants also alleged that they were not aware of the circumstances under which the Deed was executed. I therefore find it unbelievable. Common sense dictated that the 1^st defendant must have told the other two executors about the Deed soon after it was made. I therefore find that, soon after June 2004, all the executors must have been aware of the Deed and its contents. Even if I were wrong, the undisputed evidence clearly shows that by January 2007, the Deed had been communicated to all the executors by the plaintiff’s solicitors.

32.  That being the case, the 1^st to 3^rd defendants became bound by the Deed and must act accordingly. Unfortunately, that was not the case. They insisted that they must obtained confirmation from all the beneficiaries as to the Deed before they could act. Since confirmation was not forthcoming, they were unable to accede to the plaintiff’s request to distribute the Monies to him under the Deed.

33.  Their belief was misconceived. Nothing in the evidence suggests that any of the beneficiaries, having entered into the Deed, would later renege on it. (Indeed, some of the defendants have, by correspondence since the commencement of the proceedings, confirmed the validity of the Deed.) The Deed itself does not require any confirmation from the beneficiaries before it took effect. And as a matter of law, once the Deed was communicated to the executors, they became bound. At the latest, they should have distributed the Monies to the plaintiff within a reasonable time after January 2007.

34.  For these reasons, I allowed the declaratory relief concerning the Deed and made consequential directions for distribution of the Monies to the plaintiff.

Removal of the executors

35.  Under section 33 of PAO :

“(1)  Where it appears to the court that a probate or administration either ought not to have been granted or contains an error, the court may call in the probate or administration and if satisfied that it would be revoked at the instance of a party interested, may revoke it.

(2)  A probate or administration may be revoked under subsection (1) without being called in if it cannot be called in.

(3)  The court may, if satisfied that the due and proper administration of the estate and the interests of the persons beneficially entitled thereto so require, suspend or remove an executor or administrator (other than the Official Administrator) and provide for the succession of another person in place of such executor or administrator and for the vesting in that other person of any property belonging to the estate.”

36.  In exercising its jurisdiction under section 33, the court must consider whether the removal of the executors is necessary for the due and proper administration of the estate and in the interests of the beneficiaries.

37.  I ordered the executors be removed for two principal reasons :

(1)  They had failed to render a full and proper account despite repeated requests from the plaintiff.  The documents that they had provided were insufficient.  It seemed to be that they had more or less adopted the attitude : “Here are the documents.  You sort it out yourself.”  That is plainly wrong.

(2)  They had been unjustifiably dilatory in distributing the Monies to the plaintiff.

38.  For the due and proper administration of the residue estate, they must be removed. The best person to replace them is a professional accountant. The plaintiff has nominated three accountants. They are all qualified to do the job. They all estimated that about 40 hours of work would be required. I chose Mr Leung because of his hourly rate (HK$1,500) is the lowest.

Costs

39.  The general principles regarding costs in administration proceedings can be found in Re Buckton [1907] 2 Ch 406, summarized in Underhill and Hayton, Law Relating to Trusts and Trustees, 17^th edn, paras.87.30–87.34. The third category of cases is that when a beneficiary, made a hostile claim against the executors and other beneficiaries, the unsuccessful party will be ordered to pay the successful party costs. The present case fell within that category. Further, the 1^st to 3^rd defendants had defaulted in discharging their duties as executors. They should be responsible for the costs of these proceedings personally. And I so ordered.