CHAN WAH SHING AND ANOTHER v. CHAN PING AND ANOTHER

HCA 2354/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2354 OF 2014

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JUDGMENT

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1.  This action is typical of the sort of family dispute that all too frequently ends up before the court. In such matters, unfortunately, often the parties are unable to agree on items in dispute, even where normal commercial logic would drive the parties to compromise if only to save costs which will be irrecoverable regardless of which side ‘wins’ before the court.

Parties

2.  The 1^st and 2^nd plaintiffs (collectively “the plaintiffs”) in the matter are brothers.  The 1^st defendant is a further (the elder) brother of the plaintiffs (collectively with the plaintiffs “the brothers”) and the 2^nd defendant is the 1^st defendant’s wife.  The only involvement of the 2^nd defendant with the matter is that she is the registered holder of a property interest the subject of the action, but it is agreed by all parties that she holds this as trustee for the brothers as tenants in common each with a one third share.  Therefore, the 2^nd defendant has played little part in the action.

Background

3.  The brothers previously participated, effectively as partners, (though the business was registered with the Business Registration Office of the Inland Revenue Department as a sole proprietorship in the name of the 1^st plaintiff), in a cosmetics trading business that operated under the name “SB Samuel Trading Company” (“Samuel Trading”).  However, after being successful for many years the business of Samuel Trading for all intents and purposes ceased in or about March and April 2008.

4.  The reasons why Samuel Trading ceased business, in my view, do not directly bear on the matters in dispute in the action, though I would observe that a developing disagreement between the plaintiffs and the 1^st defendant regarding the extent of the latter’s involvement with the business appears to have contributed to the decision to close.  However, for the purposes of this judgment I am not required to make any finding in this regard.

The assets of Samuel Trading

5.  The only substantive matter in dispute before the court concerns the liquidation of the business of Samuel Trading and the distribution, after settlement of any debts, of the proceeds amongst the brothers.  Unfortunately, before the commencement of the trial on 26 June 2017, there was no agreement between the brothers and therefore no progress was made in relation to these matters for nearly 10 years.  As a result, the assets of the business, which apparently are now worth in the order of HK$15 million, have remained undistributed for all these years and therefore could not be utilised by any of the brothers.

The undisputed matters

6.  At the commencement of the trial it was apparent from a review of the parties’ respective pleaded cases that there was a substantial measure of agreement in relation to many of the necessary matters that would need to be considered and agreed as part of the process of liquidation, realisation and distribution.  In particular:

(a) there was no dispute regarding the extent and identification of assets in question, which consist of several properties, various assets or stocks previously used in the course of the business of Samuel Trading and a bank account held by the 1^st plaintiff and 1^st defendant on behalf of Samuel Trading with the Industrial and Commercial Bank of China (“the ICBC account”) (the balance of which was in 2008 and seemingly is still to the present day a little less than HK$400,000).

(b) there was no dispute that absent any agreement for distribution in specie the brothers are each entitled to a one third share of the proceeds of realisation after payment of all outstanding expenses.

(c) there was no dispute that the 1^st defendant is liable for a one third share of the continuing expenses in respect of the property assets; the only dispute was as to the timing and method of payment.

The disputed matters

7.  However, seemingly as a continuing consequence of the disagreement between the plaintiffs and the 1^st defendant back in 2008, the brothers were in dispute regarding what, objectively, might be considered relatively minor matters, but matters which still were sufficient to stall any progress towards the liquidation and ultimately distribution of the assets of Samuel Trading.  The matters in dispute being:

(a) from a date in or about March and April 2008, the plaintiffs paid from their own pockets all of the continuing costs and expenses incurred in relation to the property assets of the former business of Samuel Trading e.g. government rates, management fees, electricity charges et cetera.

(b) the 1^st defendant did not contribute to the aforesaid continuing expenses relying on alleged agreement between the plaintiffs and himself that his share (his ultimate liability for which he does not deny) would be met from the proceeds after the properties were sold as part of the process of liquidation, realisation and distribution of the assets of Samuel Trading.

8.  While there appear to have been desultory attempts to resolve matters and even, at least it is alleged by the plaintiffs, agreement in some respects, no overall resolution was achieved and ultimately the plaintiffs commenced the present proceedings against the defendants in November 2014.  However, as I have observed, the 2^nd defendant was included as a party only because she is the registered holder of one of the property interests and therefore a necessary party in order to give effect to the relief sought.

9.  In the action the plaintiffs seek relief as follows:

(a) an order for sale of the property assets pursuant to an alleged agreement between the brothers;

(b) alternatively, an order for sale of the property assets pursuant to section 6 of the Partition Ordinance (Cap 352);

(c) all the necessary consequential orders to give effect to any order for sale;

(d) an order that the proceeds of sale be applied as follows:

(i) to discharge all government rent, rates and other outgoings outstanding at the time of sale;

(ii) to discharge all legal costs, valuation fees and other expenses incurred in connection with the sale;

(iii) to reimburse the plaintiffs for the 1^st defendant’s ‘share’ of the past government rent, rates and other outgoings in respect of the property assets that they paid from their own pockets;

(iv) save as above, be distributed equally between the brothers;

(e) an order that the balance of the ICBC account be shared equally between the brothers (save that if required the 1^st defendant’s share be used to set off any unpaid portion of the past government rent, rates and other outgoings in respect of the property assets the plaintiffs have paid from their own pockets);

(f) an order for the sale of a vehicle with the proceeds distributed equally between the brothers;

(g) an order that the stocks, furniture and machinery remaining in any of the property assets be divided equally between the brothers;

(h) costs; and

(i) interest.

Attempt to find common ground

10.  At the start of the trial, I asked the respective counsel appearing for the plaintiffs and the defendants if their clients were present in court.  On this being confirmed, and with the assistance of the court interpreter, I addressed the parties and drew their attention to the apparent substantial measure of agreement between them regarding the undisputed matters.  I therefore invited them to attempt to agree all the necessary directly consequential matters, for example the mechanics of sale and distribution, rather than embark on a six-day trial as previously had been ordered.

11.  With these observations made, I then adjourned the hearing to allow the parties to see if any further agreement could be reached between them which would narrow the scope of the matters in dispute required to be considered by the court.  Subsequently, on the hearing resuming at 3:30 pm the same day, counsel for the parties advised me that agreement had been reached in relation to a number of further matters and that the only areas of dispute which remained were as follows:

(a) the timing and method of the payment by the 1^st defendant of his one third share of the cost and expenses in relation to the property assets previously paid by the plaintiffs out of their own pockets;

(b) how the plaintiffs should be compensated by the 1^st defendant for the costs and expenses previously paid by them out of their own pockets, they maintaining that they should be entitled to interest on the sums paid from the date of payment through to the present day; and

(c) the costs of the action.

12.  As regards those matters agreed, I directed that the parties prepare an appropriate draft consent order to reflect the agreement and it be provided to the court for approval.  Subsequent to the hearing being adjourned, for my delivery of judgment on the matters thereafter dealt with at trial, a draft order was provided to the court as directed.  However, from correspondence later addressed to the court by the parties’ respective solicitors, it became apparent that despite the confirmation of counsel for the parties given to the court at the hearing, the agreement was not entirely complete in all respects.  While very substantially agreed, there remained an issue regarding the reserve price that should be set in the event that the property assets are only sold through a process of public auction(s).  This is a matter I shall return to later in this judgment.

No dispute as to amounts paid by the plaintiffs

13.  As I have observed, the issue of the costs and expenses incurred in connection with the property assets which the plaintiffs paid out of their own pocket appears to have been the most contentious between the parties.  However, the parties’ respective counsel were at least able to indicate that there was no dispute as to the amount of the costs and expenses concerned.

14.  With the bulk of the matters that would otherwise have needed to be decided agreed between the parties, the trial commenced to deal with the remaining dispute as whether there was an agreement as alleged by the 1^st defendant between himself and the plaintiffs that his one third share would first be paid by the plaintiffs and that they would later be reimbursed when the property assets were sold.  This in turn gave rise to the subsidiary issue as to whether the plaintiffs were entitled to interest on the sums paid out by them, effectively on account for the 1^st defendant.

The ICBC account

15.  However, during the course of the trial, as result of the parties’ counsel’s submissions, the oral evidence of the parties and questions posed by the court, a further issue arose namely whether the plaintiffs had been required (out of necessity) to make the payments out of their own pocket or, in effect, had done so voluntarily.  Though not clear from the respective pleadings of the parties, it transpired that the balance of the ICBC account of nearly HK$400,000 might have been sufficient to meet all of the costs and expenses incurred in connection with the property assets, and not just the 1^st defendant’s one third share, but also the two thirds share attributable to the plaintiffs, all the way through to past the date of commencement of the action in November 2014.  Had these monies been utilised it might well have been the case that the 1^st defendant did not owe any monies to the plaintiffs, at least not when they first sued him.

16.  I should add that there is no dispute that each of the 1^st plaintiff and the 1^st defendant had the ability to disburse the monies in the ICBC account under only their own signature.

The plaintiffs’ evidence

17.  When the 1^st plaintiff, who was the only one of the two plaintiffs to give oral witness testimony, was asked why the plaintiffs did not make use of the monies sitting idle in the ICBC account for the past nearly 10 years, he explained that did not want to be accused of unauthorised or wrongful dealings with the assets of Samuel Trading and also referred to demands or threats in this regard he alleged had been made by the 1^st defendant at or about the time Samuel Trading ceased business or subsequently in correspondence.  However, other than the actions of the 1^st defendant videoing the contents of the various property assets (which could be explained on the basis that he was concerned to ensure that was no later dispute as to what was then contained there) and a letter from the 1^st defendant to the plaintiffs dated 30 April 2008 which asked for various confirmations that, amongst other matters, no assets of the business had been wrongfully misdirected to a competing business (and which, therefore, does not bear out the 1^st plaintiff’s claims), the 1^st plaintiff was unable to point to any evidence of such demands or threats.

18.  The 1^st plaintiff further acknowledged that he had sufficient signing rights to allow him to make use of the funds in the account and that had he done so he would not have had to make the payments from his own pocket.  When asked why he did not proceed to make the payments using the monies in the ICBC account and copy evidence of the payment and receipt to the defendants, he was unable to offer a credible explanation.

19.  The 1^st plaintiff further denied that there was ever any agreement between the plaintiffs and the 1^st defendant to pay the costs and expenses on the 1^st defendant's behalf until the assets of Samuel Trading were sold and their proceeds of sale distributed.  However, he could not offer any credible explanation for why the plaintiffs, even if in disagreement with the 1^st defendant in this respect, did not nevertheless agree to the sale of the assets on the basis that they could offset the monies owed (and any necessary interest payable) against the proceeds.

The 1^st defendant’s evidence

20.  During the 1^st defendant’s oral witness testimony, he maintained his pleaded case that was a prior agreement between himself and the plaintiffs that they would pay his share of the costs and expenses until the assets of Samuel Trading were sold and the proceeds of sale distributed.  However, he gave no evidence in support of such an agreement beyond that contained in his witness statement which is entirely unsupported by any contemporaneous documents.

21.  He also denied having issued any form of demand or threat that might have caused the plaintiffs to believe that he did not agree to the monies in the ICBC account being used to pay costs and expenses of Samuel Trading.  He further, though this appeared to be an argument only developed and adopted at trial for it is not found in the 1^st defendant’s pleaded case or his filed witness statement, asserted that he would have had no objection to the plaintiffs making use of the monies in the ICBC account instead of paying the costs and expenses from their own pocket.

22.  When asked by the court as to why he had not proposed this to the plaintiffs as a solution to what in the event has turned out to be a near 10 year impasse, he claimed that he did not have access to the account information from the plaintiffs until June 2014 and therefore did not know the account balance.  However, he was unable to give any credible explanation as to why, given that he is a signatory to the account with single signing rights, he did not simply approach the bank and ask for the information.

Interest

23.  Before the trial commenced, the plaintiffs were directed to particularise their claim for interest, showing the principal amount on which interest was claimed, from what date, the rate of interest and quantifying the amount of interest that resulted.

24.  During the trial, counsel for the parties agreed that in so far as interest prior to judgment pursuant to Section 48 of the High Court Ordinance (Cap 4) was to be awarded it should be at the rate of 6% per annum, being the commercial rate of 5% plus 1%.

25.  However, in the light of the position as regards the unutilised balance of the ICBC account revealed during the course of the trial, I further directed that the parties seek to agree or if it could not be agreed separately submit particulars of the date at which, having regard to the agreed rate at which costs and expenses were being incurred in respect of the property assets each month, the balance of the ICBC account would have been exhausted had it been utilised to pay these costs and expenses and they not been paid by the plaintiffs out of their own pocket.

26.  According to a calculation subsequently submitted to the court as directed, it is now common ground between the parties that had the ICBC account been utilised there would have been sufficient funds in it to meet all of the costs and expenses until the early part of 2015 (in or around April 2015), which is several months past the date that these proceedings were commenced in November 2014.  Therefore, rather than HK$125,557.98 being due and owing from the 1^st defendant to the plaintiffs as ‘his share’, as claimed in the Writ of Summons, there would have been nothing outstanding.

Conclusion

27.  Having regard to how the matter unfolded and developed before the court I do not find it necessary to address many of the allegations and counter allegations contained in the pleaded cases and evidence of the parties.  Thankfully, there is now, finally, a very substantial measure of agreement.

28.  Under cover of the defendants’ solicitors letter addressed to the court dated 14 July 2017 and copied to the plaintiffs’ solicitors, the court was provided with a draft consent order that set out detailed arrangements agreed between the parties regarding the “mechanism and procedure for sale and distribution of the assets, be that of proprietary, or otherwise, of the former business of Samuel Trading”.  I therefore make a consent order in terms of the draft consent order, save in relation to two matters in respect of which, for the reasons I explain below, it later transpired that the parties were not in agreement.  However, the matters agreed include the treatment of the principal element of the costs and expenses of the property assets paid by the plaintiffs out of their own pocket and therefore I need not deal with the dispute in this regard which was the subject of evidence and argument before me at trial.  The only remaining related matter is the interest, if any, payable by the 1^st defendant to the plaintiffs for having funded the payments in advance and costs.

29.  As I have referred to previously, while at the time of trial the court was informed that all necessary matters had been agreed, the same letter referred to above advised that there remained two small areas of disagreement.  The agreed mechanism for the sale of the property assets provides that if a private treaty sale cannot be completed in respect of any property asset, that property should be sold by public auction with a reserve price set at a percentage of the market value previously assessed by surveyors.  The mechanism further provides that if the first round public auction does not result in a completed sale there should be a second public auction again with a reserve price, but (presumably to encourage a sale) set at a level lower than that provided for in the first round.

30.  The parties having been unable to reach agreement in this regard, the same letter referred to above set out their respective positions and indicated that the parties were content that the matter be determined and disposed of by the court.  Accordingly, I order that the reserve price in respect of paragraph 9(3) of the draft order be the midpoint between the respective figures proposed by each of the plaintiffs and the defendants as set out in the said letter, and similarly the reserve price in respect of paragraph 9(4) of the draft order again be the midpoint between the respective figures proposed by each of the plaintiffs and the defendants also as set out in the said letter.  As I am conscious that this judgment is likely to be published, I will not repeat the figures here.  The parties are directed to revise the draft order as ordered, the order in these respects only not being ‘by consent’, and re-submit it to court for approval.

Interest

31.  The subject of interest and costs remains to be dealt with.  As appears from my observations in the course of this judgment, that this action reached trial, let alone a trial for which six days of court time was reserved, is disappointing.  Both sets of parties, plaintiffs and defendants, appear to have contributed and in equal measure to the collective inability to resolve matters by agreement.  In particular, the failure on all sides to appreciate the potential to make use of the monies in the ICBC account led to proceedings being commenced and then defended when in my view it should have been realised that this was wholly unnecessary.

32.  During the hearing, it was accepted by counsel for the defendants that the plaintiffs are entitled to interest on any monies they expended to pay the costs and expenses related to the property assets out of their own pocket from no later than the date on which the monies in the ICBC account would have been exhausted had they been utilised instead.  As I have observed, it is agreed that this would have been from a date in or about April 2015.

33.  Counsel for the parties have jointly agreed and provided the court with an interest calculation on the above basis which shows that the interest payable by the 1^st defendant to the plaintiffs was HK$4,794.91 up to 30 June 2017.  To allow for the period through to the date of judgment, I propose to round this figure up to a lump sum and accordingly I order that the 1^st defendant pay the plaintiffs HK$5,100 in respect of interest within seven days of the date of judgment.

Costs

34.  With due respect to counsel for the parties, I do not propose to set out their respective submissions on costs at any length in this judgment.  Counsel for the plaintiffs, while stating that he was instructed to ask for costs, acknowledged that costs are always in the court’s discretion to be dealt with as it best thinks the interests of justice are served.  Counsel for the defendants, offered similar submissions, and proposed that an appropriate order would be no order for costs.

35.  As observed by the counsel for both parties, costs are entirely in the discretion of the court, and for the reasons which are apparent from this judgment, I order that there be no order for costs in favour of any party i.e. each party bears their own costs.  In all the circumstances, I believe that this is a fair and the appropriate order.