HUNG JIN MUI v. TANG CHUI YUK ANGELA and Another

1997, No.P4

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

(PROBATE JURISDICTION)

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D E C I S I O N

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1. I have before me three matters. The first is the Plaintiff's application for the appointment of an administrator pendente lite, the second is the Defendants' application to set aside an ex parte injunction granted on 3 December 1997 against them restraining the disposition or dealing with the assets of the estate and the third matter is the Plaintiff's application for the continuation of the injunction.

2. The Plaintiff is the widow of the Testator who died on 21 April 1997. The 1st and 2nd Defendants are two of the four children of the Plaintiff and the Testator. The Defendants have, without admitting any of the allegations of the Plaintiff, offered an undertaking that they will not without leave of the court use, encumber, assign, charge, distribute or otherwise deal with the estate of the Testator pending the trial of this action. This undertaking renders it necessary for the court to consider the injunction issues. So the only issue that I have before me effectively is whether an administrator pendente lite should be appointed.

Background

3. By way of background, it is relevant to state that the Testator made a will in 1994 ("the 1994 Will") under which the widow, i.e. the Plaintiff, is entitled to 60%, the 1st Defendant to 20%, the 2nd Defendant 10% and another child called Johnny, the remaining 10%. In 1996, he made another will ("the 1996 Will"). Under that will, the Plaintiff gets nothing and the whole estate goes to the four children in equal shares.

4. The Plaintiff seeks to propound the 1994 Will and contests the validity of the 1996 Will, alleging that the Testator did not have sufficient mental capacity to make that will and that the children exercised undue influence over the Testator. Suffice to say that there is clearly a serious question to be tried.

Chronology of the probate action

5. The Plaintiff issued a writ on 28 April 1997. It was only after a summons to compel as well as a summons for an "unless order" that a Statement of Claim was filed some four months later on 1 September 1997. In mid November 1997 the Defendants took out a summons for directions.

6. The present application for the appointment of an administrator pendente lite was taken out by the Plaintiff in early December 1997. At that time there were also other on-going disputes between the parties in relation to two other companies in which the Testator and the Plaintiff were shareholders. All these matters came before me in December and at the time one of the assets of the estate related to the Testator's 90% shareholding in the Chor Lau Heung Restaurant (楚留香) ("the Restaurant") which was an on-going business. The Plaintiff holds the remaining 10% of the shares. On 15 December 1997, at the suggestion of the court - a suggestion which the Plaintiff took up by issuing a summons to that effect - was that a receiver and manager be appointed in order that the restaurant business could continue to be conducted and interests preserved. It was a holding operation to enable the status quo to be maintained pending the outcome of the probate action. At the time the court indicated that a speedy trial to resolve the probate issue would be desirable and appropriate, given the many, not to say almost unnatural, disputes between the Plaintiff and her children.

7. From the short chronology referred to above, it is clear that there has been a distinct lack of enthusiasm on the part of the Plaintiff to get on with the probate action itself. Be that as it may, I propose to give directions at the conclusion of my decision in this case relating to the conduct of that action.

The law

8. Both parties agree that the decision of the Court of Appeal in Re Bevan [1948] 1 All ER 271 is the relevant authority. In that case the plaintiff applied to the Probate Division for the appointment of an administrator pendente lite. He sought to propound a will dated August 12, 1938 and sought probate of it subject to the excision from it provisions in favour of certain beneficiaries. The estate in that case was substantial. It consisted of personal estate of (£90,000 and real estate of some (£6,000. It included securities, the interest and dividends on which had to be collected and real estate in respect of which it was necessary to collect the rents and personal chattels which had to be safeguarded by the employment of a caretaker. Lord Greene M.R. observed (at 272C) as follows :

"That is the sort of estate in respect of which the Chancery Division would, in my opinion, have appointed a receiver pendente lite if an administration suit had been begun. The defendants named as executors in the later wills are not in a position to collect and invest the interest and dividends nor to enforce the claims of the estate, for, if it is known that a probate action is pending, debtors are very careful about paying money to executors who may prove to have no title."

He went on to say (at 272 D-E) that it was a case in which the plaintiff in the Chancery Division would have been entitled to obtain a receiver :

"When I say 'entitled' I do not forget that appointments of receivers are within the discretion of the court, but everyone knows that there are certain classes of case in which the court invariably gives that type of relief. In a clear case where the plaintiff has what, for practical purposes, one might call a right to a receiver, this court will always interfere if the trial judge has not acted in accordance with the invariable practice of the Chancery Division."

In reversing the decision of the trial judge who refused to appoint an administrator pendente lite, Lord Greene found that the trial judge did not sufficiently have in mind the difficulties which would otherwise occur in collecting and safeguarding the assets of the estate. It is quite clear that what carried weight was that otherwise "the fruits of the estate cannot be properly collected".

9. Lord Greene then went on to consider the practice of the Probate Division concerning the appointment of an administrator pendente lite and the Chancery Division concerning the appointment of a receiver, stating that the settled practice of the Probate Division was to follow the practice of the Chancery Division. Quoting from the judgment of Sir J.P. Wilde in Bellew v. Bellew (1865) (4 Sw & Tr 58; 13 LT 247), he said :

"... the practice of the Ecclesiastical Courts and of this court [i.e., the Court of Probate], has been only to grant administration pendente lite in cases where necessity for the grant is made out". (emphasis added)

Sir J.P. Wilde had concluded that the rule of the Court of Chancery regarding the appointment of a receiver was wider than the rule of the Court of Probate with regard to the appointment of an administrator pendente lite :

"The rule of the Court of Chancery appears to be, that wherever there is a bona fide suit pending, the court will appoint a receiver quite irrespective of the condition of the estate, or of the person who has the actual possession of it, on the ground that while the suit is pending there is no one legally entitled to receive or to hold the assets, or to give discharges."

10. The leading textbooks on the subject have little to say. Some refer to necessity, others to expediency. In my judgment, whether one uses the term "necessity" or "expediency", I do not think that the court would make an order without regard to or wholly divorced from the actual circumstances of the case, namely the assets comprised in the estate and whether they warrant the appointment of an administrator pendente lite. It is apparent from a proper reading of the passage quoted from Bellew v. Bellew that an appointment is not an automatic consequence of a bona fide suit pending, regardless of the condition or nature of the estate; rather such an appointment would be made by reference to and if warranted by the particular facts. It follows that the nature of the assets comprised in this estate is of critical importance.

11. I now turn to consider the assets as disclosed in the evidence.

A. Shares in private companies

12. As I mentioned earlier, the Testator had a 90% interest in the company (Chor Lau Heung Restaurant Co. Ltd.) that owns and runs the Restaurant and the receiver, who was appointed on 15 December, is now in charge of the restaurant business.

13. The Testator also had a 42% interest in a company called Acegrowth. The Plaintiff has the remaining 58%. Acegrowth owns the premises occupied by the Restaurant. I understand that there is no formal lease and although it is said that rent of $30,000 a month is payable, no rent appears to have been paid for more than two years.

14. There is a third company, Wing Cheung Records Limited, in which the Testator had a 10% interest and the Plaintiff a 90% interest. Finally, there is a fourth company by the name of Marvel Ace whose sole asset is a piece of land in Sai Kung. This company is the subject of a winding-up petition and relief under section 168A instituted by the Plaintiff. The Plaintiff's case is that she was wrongfully ousted as director, that her shares were diluted and instead of having a 30% interest, as a result of an increase in share capital and issuance of shares to a company owned by the children, her share has been reduced to 1%. The Testator's estate, assuming the increases in capital were valid, and about that I make no finding or judgment, is entitled to a 2.3% interest. The land owned by Marvel Ace was mortgaged by the Testator during his lifetime to finance the refurbishment of Wing Cheung Mansion to which I will refer below.

B. Interests in land

15. The Testator owned various lots in D.D.76, 245 and 243. In addition, he apparently had a one-tenth share of a flat in Royal Court in Kennedy Road which is currently rented out.

C. Valuables, jewellery and antiques

16. There is a list of a number of these valuables and antiques which have been reported to the Estate Duty Office for estate duty purposes. Some items are alleged to be missing and, on the evidence, neither side admits to having possession of these missing items.

D. Promissory note

17. In September 1996, some six or seven months prior to his death, the Testator sold his 90% interest in Wing Cheung Mansion to Citywin which is a company beneficially owned by the children. The consideration was $110 million. Citywin issued a promissory note and under that note which is dated 25 September 1996, the $110 million was repayable on 24 October 1996. Leading counsel for the Defendants informed the court that the promissory note was extended for 85 days. It is to be noted that the note makes no reference to or provision for the payment of interest and the date for payment has passed. I think it is accepted that money due under this note has not yet been paid by Citywin.

18. I will now mention two matters raised by the Plaintiff in relation to the assets of the Testator.

19. The first relates to cash proceeds of sale of two flats which she owned jointly with the Testator. It would appear that the Testator sold his interests in the two flats (one in Parkview and the other in Amber Garden) to the Plaintiff for some $10.5 million. This money was paid into a joint account in their joint names and has now been transferred into an off-shore bank account allegedly as part of estate planning. The money is presumably the Plaintiff's, so from her point of view there cannot be any need for protection. The second relates to the 70 shares the Testator had in Marvel Ace which were sold during his lifetime. The proceeds of sale amounting to $7,000 have in fact been paid.

20. The assets in this estate have a unique feature. They are almost exclusively "internal". I use this term to refer to the fact that they are not investments, for example, on the stock exchange, or in buildings owned by third parties. The shares are in companies owned by the Testator and the Plaintiff and/or the children, so are the properties although there have been dispositions by the Testator in his lifetime to the Plaintiff, his children or to companies owned by them.

21. There are perhaps only two exceptions : the first is the one-tenth interest in the flat in Royal Court and the second is the promissory note.

22. In applying the principles laid down in Re Bevan to these assets, the first point to note is that dissipation or jeopardy is not a present consideration because that has been sufficiently addressed by the undertaking given by the Defendants. The second is whether there is a need to collect the "fruits of the estate". I can only come to a view by looking at the assets in question to see what, if anything, there is for an administrator pendente lite to do.

The law as applied to the assets

A. Shares

23. So far as shares in the family companies are concerned, none of the shares in any of these companies can be dealt with whilst the probate action is still pending.

* Chor Lau Heung Restaurant Co. Ltd

24. There is no danger to income or profits of the Restaurant which are being collected and preserved. To the extent that there are profits, these would be available for distribution by way of dividend by the company when a meeting can be convened and a board appointed. But this cannot happen until after the outcome of the probate action is known.

* Acegrowth

25. Unless there is rental income, there will be no dividends to collect. If indeed the Restaurant owes rent to Acegrowth, first of all, Acegrowth has to recover the rent and it is to be noted that the Plaintiff is a major shareholder of that company. In any event, there is no danger there because of the fact that the Restaurant is now run by a receiver and manager and to the extent that rent is payable and there are profits of the company with which to pay the rent, the money will be there for that purpose, and there is, therefore, nothing further that can be done at this stage.

* Wing Cheung Records

26. Here again the Plaintiff is a majority shareholder. As a 90% shareholder, she is in control.

* Marvel Ace

27. There are on-going winding-up proceedings. So long as those proceedings are pending, I cannot see that any dividends will be payable.

B. Interests in land

28. As regards the interests in land, there is no suggestion that there is any income arising from the various lots in the demarcation districts I have referred to. The only evidence I have regarding income is to the one-tenth interest in Royal Court. Even so, there is no complaint about any difficulty in the receipt of this rental. Should it arise, the court will give appropriate directions for the rent to be paid into court : this alone would not appear to justify the costs involved in the appointment of an administrator pendente lite.

C. Valuables, etc.

29. The appointment of an administrator pendente lite is unlikely to advance matters further. Both sides refer to the list of valuables and as regards the missing items, I cannot see that any useful action can be taken by an administrator in the interim i.e. between now and the adjudication of the probate action. What is clear is that the action should be heard as soon as possible.

D. Promissory note

30. This is the Plaintiff's strongest point. The note is for a substantial amount of money. The amount was payable sometime ago. If a demand is made, interest will start running. If the Plaintiff succeeds in propounding the 1994 Will she will be entitled to 60% of it. If, however, she is unsuccessful, the persons entitled will be the children who, of course, beneficially own Citywin, the obligor under this note. So, if at the end of the day, the children were to succeed in upholding the 1996 Will, repayment now means raising funds to pay themselves. But as regards the Plaintiff, being entitled to 60% of the estate under the 1994 Will, she is concerned that such a substantial sum remains unpaid. That is wholly understandable as it is unclear if the unpaid vendor's lien will apply in this case.

31. Leading counsel for the Defendants raised certain matters which he said should be taken into account in deciding whether or not an appointment should be made. First, he says it is in the discretion of the court. He pointed to the delay by the Plaintiff in seeking the appointment of an administrator pendente lite when the Plaintiff had knowledge of all the relevant facts and of the matters about which she now complains for a very long time, and in fact since before the cause of action accrued, which was upon the death of the Testator.

32. The second matter is the question of costs which, it was submitted, would be a drain on the estate. This submission of course is premised on costs eventually coming out of the estate. The Plaintiff on the other hand says that there is no downside on costs because if she were to be unsuccessful in the probate action, she would have to pay the costs.

33. In a testamentary suit, condemnation in costs includes all the charges of an administrator pendente lite : see Fisher & Joy v. Fisher (1879) 4 P.D.231. This is subject to the qualification that if any work is done, which is necessary in any event to wind up the estate, there should be an apportionment of those costs : see Re Howlett [1950] P.177 and Tristram & Coote's Probate Practice 28th Ed. at 686. Nevertheless, I accept that interim funding may cause a temporary drain on resources.

34. Having regard to all the matters set out above, I have come to the conclusion that an administrator pendente lite should be appointed unless suitable undertakings are forthcoming to the effect that if the Plaintiff were to be successful in the probate action, interest on the promissory note will run from today, and secondly, that until the resolution of the probate action, Citywin will not dispose of, encumber or otherwise deal with its 90% interest in Wing Cheung Mansion.

[Short adjournment]

35. As the Defendants by their counsel are willing to proffer the undertakings sought, the undertaking relating to the accrual of interest being without prejudice to any contention by the Plaintiff that interest should accrue from an earlier date, an administrator pendente lite will not be appointed. Minutes of order are to be submitted for approval.

[Submission on costs]

36. Costs are to be in the cause.