KU KWOK YING (古國英) in his personal Capacity and in his capacity as one of the Administrators of the Estate v. KU KWOK MING (古國明) in his personal capacity and in his capacity as one of the Administrators of the Estate AND OTHERS

HCMP 1698/2019

[2020] HKCFI 3023

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1698 OF 2019

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JUDGMENT

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1.  In these proceedings, the plaintiff (“P”) is seeking a determination from the court on the following questions pursuant to Order 85 rule 8:

(1) whether or not the gift of the Property under the last will (“the Will”) of Madam Koo Bor Bui (古波女) (“KBN”) dated 27 October 2005, ie 6^th Floor, No. 1 Kiu Yam Street, Kowloon, had been adeemed by reason of the sale and purchase agreement dated 31 August 2013 (“the SPA”) entered into by KBN and the Urban Renewal Authority (“the URA”) in respect of the Property (“Question 1”); and

(2) whether or not the Property has fallen into the residuary estate of KBN (“Question 2”).

2.  KBN was never married and did not have any child.  P and the 1^st defendant (“D1”) are the 2 administrators of KBN’s estate.  P, D1 and the other defendants are all the siblings of KBN. In respect of the 2 questions before the court, P’s position is that the answers to both questions should be “Yes”, while D1 is of the view that the answers to the 2 questions should be “No”.  The other parties to these proceedings have not made any submission on the 2 questions.

The facts

3.  The Will is a homemade will.  In the Will, it is stated:

“(一) 我所居住之所, 位於九龍橋蔭街壹號七樓給四弟古國明。因我數年來身體欠佳，不能工作，所有生活費都由他付，故我所居住之處全送給四弟古國明。

(二) 番禺市僑三樓單位亦是送給古國明。我最親兄弟姊妹不得反對，此為我的希望，希望你們體諒我的心意。”

4.  Apart from the Property and the property in Panyu, no other asset has been dealt with in the Will.

5.  Both P and D1 agree that the address九龍橋蔭街壹號七樓in the Will in fact is referring to the Property.  In Hong Kong, it is quite common that the reference in the Chinese language to the storey-level of a flat would be one number greater than the floor number in the address in English.

6.  These proceedings only concern the Property, and does not concern the property in Panyu.

7.  In or around 2013, the URA implemented a redevelopment project, and the Property was located within the area designated for redevelopment.

8.  On 31 August 2013, KBN entered into the SPA with the URA, by which KBN agreed to sell the Property to the URA at HK$2,466,000.

9.  In the SPA, it is provided:

(1) Clause 31.01 stipulates that the SPA is subject to the fulfilment of 2 conditions precedent (“the 2 Conditions”): 

(a) On or before 5:00 pm of 10 September 2013, the URA must have collected binding agreements from owners of not less than 80% of the undivided shares of the land in question.

(b) On or before 26 June 2014, the Secretary for Development must have granted authorization to the URA to proceed with the redevelopment project.

(2) Clause 31.02 states that the “Fulfilment Date” shall be the latter date of fulfilment of the 2 Conditions.

(3) Clause 31.04 states that in the event either of the 2 Conditions could not be satisfied within the time stipulated, the URA shall not proceed with the redevelopment project and would within 7 business days of failure to fulfil either of the 2 Conditions, notify KBN by written notice.

10.  Subsequently, by the URA’s solicitors’ letter dated 6 January 2014, the URA’s solicitors informed KBN that the 2 Conditions were met and that the Fulfilment Date was 23 December 2013.

11.  On 9 January 2014, the URA made deposit payment (HK$246,600) and part-payment (HK$1,351,680) pursuant to the SPA.

12.  On 14 January 2014, KBN and the URA entered into a Supplemental Sale and Purchase Agreement (“the SSPA”), by which the purchase price was adjusted upwards to HK$2,547,000.

13.  Originally, the sale and purchase should be completed on 6 February 2014.  The URA on 6 February 2014 sent 3 cheques totalling HK$2,286,793.52, being the balance of the purchase price and other allowances to KBN’s solicitors, against the undertaking from that firm that they would provide the URA within 7 working days an assignment of the Property duly executed by KBN.

14.  However, KBN was not in a position to execute any assignment.  She was gravely ill at that time.  She passed away on 12 February 2014, 6 days after the originally scheduled completion date.

15.  The URA was willing and agreed to postpone the completion for 6 months twice, ie to 6 February 2015.  However, by 6 February 2015, grant of representation of KBN’s estate had not been made by the Probate Registry.

16.  On 4 March 2015, after the expiration of the postponed completion date, the URA issued a notice to accept the repudiation of the SPA by reason of KBN’s (or her estate’s) default in completion of the transaction.

17.  On 6 March 2015, the land on which the Property was built upon was resumed by and reverted to the Government and the building was in due course demolished.

18.  On 6 June 2015, compensation money arising from the resumption of the Property (“the compensation money”) was paid by the Government to KBN’s estate.

19.  On 17 November 2017, the deposit and the part payment earlier paid to KBN under the SPA were returned to the URA.

20.  On 24 October 2017, Letters of Administration with the Will annexed thereto was finally granted to P and D1.

P’s submissions

21.  The following principles have to be borne in mind:

(1) Ademption means the “loss” or “withdrawal” of a specific gift or devise in a will[1].

(2) “The general rule is that the subject-matter of a specific legacy must, at the testator’s death, remain within his estate: where there is a change in the thing bequeathed, ademption will follow unless it can be shown that the thing is changed in name or form only and remains in substance the same.  It is a question of fact whether the change has effected a change of substance or merely a change of name or form. For instance, if the legacy is of a specified chattel in possession, as of a gold chain, or a bale of wool, or a piece of cloth, the legacy is adeemed, not only by the testator’s selling or otherwise disposing of the subject in his lifetime, but also if he changes its form so as to alter the specification of it.  Thus, if he converts the gold chain into a cup, or the wool into cloth, or makes the piece of cloth into a garment, the legacy is adeemed.  Conversely, where there was a bequest of the balance of deposit account in a bank and the money was transferred to another account to secure a higher rate of interest the bequest was held not to be adeemed.  There is no distinction between personal and real property.  If, after making the will, and devising specific realty to A, the testator sells the realty, there is ademption, and A will receive nothing.”[2] (Emphasis added)

(3) “If T by his will makes a specific gift of his farm Blackacre to D, and T later enters into a binding contract to sell Blackacre to P, but T dies before completion, this adeems the specific gift to D and D is not entitled to the purchase price payable by P.”[3]

(4) The rule of ademption operates independently of the testator’s intention[4].  “The only rule to be adhered to is to see whether the subject of the specific bequest remained identifiable in itself at the time of the testator’s death; for if it did not, then there must be an end of the bequest: and the idea of discussing what were the particular motives and intention of the testator in each case, in destroying the subject of the bequest, would be productive of endless uncertainty and confusion”[5] (Emphasis added)

22.  Mr Paul Leung, counsel for P, submits that by entering into the SPA with the URA on 31 August 2013, ie at a time about 8 years after the making of the Will, the specific legacy of the Property to D1 in the Will was adeemed.  P submits that although the SPA was subject to the 2 Conditions, the 2 Conditions were fulfilled before the death of KBN.  The SPA (as amended by the SSPA) was a specifically enforceable contract.  By that contract, the nature of the Property had been fundamentally changed, and the specific devise of the Property was no longer identifiable at the time of the death of KBN on 12 February 2014.

23.  Mr Leung relies upon the following authorities in support of his contention:

(1) In Re Sweeting (deceased), Nicholls J said[6]:

“It is common ground that ademption of a specific gift of property is brought about where a contract of sale of that property is entered into by the testator before his death and that contract is one binding on both the testator and the purchaser so as to be specifically enforceable at the suit of either of them.

……

If the rule applies where an option is not exercised until after the testator’s death, with the consequence that conversion and ademption occurs at that time, why should the rule not apply equally (or, indeed, a fortiori) where a contract exists at the death but subject to such conditions which are subsequently fulfilled or waived? Moreover, I do not think that to apply the rule to such a conditional contract would be to extend the rule. Conversion and ademption may be worked by the existence at the death of an uncompleted, specifically enforceable contract, or by the exercise at the death of an option which is subsequently exercised: the existence at the death of a conditional contract which is subsequently completed falls somewhere between these two extremes.”

(2) In Re Rodger, Stewart J said[7]:

“If, after a specific devise of property, the testatrix by a valid and enforceable contract for sale and purchase agrees to sell the lands to another the testatrix has in effect done two things, firstly, she has manifested an intention that the devisee should not receive the lands as such and secondly, has converted his or her interest in the realty to a claim for the price.”

(3) In Brown v Heffer[8], the High Court of Australia said:

“…… ademption occurs also where the property has been so dealt with that by the rules of equity it must be considered at the death as having been converted into other property, such as money, which the words of gift are not apt to comprehend

……

thus, in the case of a simple devise of land, if it is found at the testator’s death that after making the will he became bound by a contract to convey or transfer land to another, and the contract is still subsisting, so that when he dies he was in the sense of Lysaght v Edwards, a trustee of the land for the purchaser and entitled only to money in its place, there is no property in respect of which the words of devise are capable of taking effect

……

It is true that in such a case the testator still held the legal estate at his death, and under the old law that estate would have passed to the devisee though only as trustee for the purchaser and without any right to retain the purchase money when received; but now that the legal estate passes on the death to the personal representative there is no subject matter at all to which the words of gift can apply

……

What is meant by a contract being so binding upon the testator as to effect a notional conversion of the land into money is that the state of affairs existing immediately before his death was such that a court of equity if applied to at that time would have ordered specific performance by him of his obligation under the contract to convey or transfer the land to the purchaser upon performance of such of the purchaser’s obligations as the contract required to be performed at or before settlement……”

24.  Mr Leung submits that the subsequent termination of the SPA by the URA on 4 March 2015 is irrelevant to the questions now before me.  In P’s submissions, every will speaks from the time of death[9]. As long as the gift of the Property had been adeemed as at the time of death, the subsequent termination by the URA of the SPA and the “return” of the Property to the estate would not change the position.

25.  In Mr Leung’s submissions, both the answer to Question 1 and the answer to Question 2 should be “Yes”.  As a result, the compensation money falls into the residuary estate, which is held on statutory trusts by the administrators for the 5 siblings pursuant to s.4(8) of the Intestate’s Estates Ordinance.

D1’s submissions

26.  Mr Jonathan Ah-Weng, counsel for D1, submits that KBN had a clear intention to make the Property as a specific bequest to D1 by the Will, and KBN had also given a reason for doing so, ie KBN was physically unwell for a few years and could not work, and all her living expenses were paid by D1.  KBN also stated in the Will that the property in Panyu should also be a specific bequest to D1, and all the other siblings could not object to this.

27.  Mr Ah-Weng submits that before completion of the sale and purchase between KBN and the URA, KBN retained some beneficial interest in the Property.  Mr Ah-Weng refers me to the House of Lords’ decision in Jerome v Kelly[10] in support of his submission.  In that case, Lord Walker said at [32]:

“It would therefore be wrong to treat an uncompleted contract for the sale of land as equivalent to an immediate, irrevocable declaration of trust (or assignment of beneficial interest) in the land. Neither the seller nor the buyer has unqualified beneficial ownership. Beneficial ownership of the land is in a sense split between the seller and buyer on the provisional assumptions that specific performance is available and that the contract will in due course be completed, if necessary by the court ordering specific performance. In the meantime, the seller is entitled to enjoyment of the land or its rental income. The provisional assumptions may be falsified by events, such as rescission of the contract (either under a contractual term or on breach). If the contract proceeds to completion the equitable interest can be viewed as passing to the buyer in stages, as title is made and accepted and as the purchase price is paid in full.” (Emphasis added)

28.  Lord Walker’s dictum in Jerome v Kelly was cited with approval by the Court of Appeal in Mui So Bing v Wan Chi Shing & Others[11].

29.  Mr Ah-Weng submits:

(1) On entering into the SPA, KBN became a trustee whilst retaining substantial and personal (beneficial) interest in the Property, and the URA became a part beneficial owner.  The beneficial ownership is “split” between KBN and the URA on the provisional assumption that the sale would be completed.

(2) Upon KBN’s death, the specific bequest in the Will would be engaged.  KBN’s part of the beneficial interest in the Property, as well as the legal title to the Property, would be passed to D1.

(3) Later, when the URA accepted the repudiation due to non-completion by KBN’s death, the provisional assumption that the sale would be completed was falsified.  From that time onwards, there was no longer any split of beneficial interest.  The full beneficial interest in the Property would be passed to D1.

(4) In the circumstances, the specific bequest of the Property was not adeemed.

30.  In Mr Ah-Weng’s submissions, both the answer to Question 1 and the answer to Question 2 should be “No”.  The specific bequest of the Property in the Will should remain in place.

My view

31.  Having considered the submissions, I agree with Mr Leung, and I am unable to accept Mr Ah-Weng’s submissions.

32.  There is no doubt that at the time of the Will, KBN intended to make the Property as a specific bequest to D1 upon her death. However, the question before me is not whether KBN intended to make the Property as a specific bequest to D1 at the time of the Will.  The question before me is whether by the SPA signed by KBN and the URA on 31 August 2013 (ie about 8 years after the making of the Will), the specific bequest of the Property in the Will has been adeemed.

33.  With respect, I am of the view that there are two problems in Mr Ah-Weng’s submissions.

34.  First, after the execution of the SPA, the nature of the Property did change.  Before entering into the SPA, KBN was the sole legal and beneficial owner of the Property.  All the beneficial interest of the Property was vested in KBN.  Mr Ah-Weng is correct in saying that after the execution of the SPA, KBN still retained some beneficial interest in the Property.  I fully accept the proposition of law as said by Lord Walker in Jerome v Kelly.  However, after the execution of the SPA, KBN only retained some beneficial interest, and she no longer owned all the beneficial interest in the Property.  KBN’s interest in the Property before the execution of the SPA, and her interest in the Property after the execution of the SPA, are two different interests.  The difference is not a difference in form or in name, but is a difference in substance.

35.  In my judgment, the original legacy as contemplated in the Will is the sole legal and beneficial ownership of the Property.  After the execution of the SPA, KBN no longer had the sole beneficial ownership of the Property.  That remained to be the situation at the time of the death of KBN.  The original legacy as contemplated in the Will did not exist at the time of the death of KBN, and must be regarded as being adeemed.

36.  Second, with respect, I am unable to agree with Mr Ah-Weng that the termination of the SPA by the URA on 4 March 2015 has the effect of resurrect the specific bequest.  As submitted by Mr Leung, the critical point of time should be the time of KBN’s death, for the Will spoke from the time of the death.  The relevant question is, at the time of KBN’s death, whether the sole legal and beneficial ownership of the Property was part of the estate.  For the reasons set out in the above, the answer to this question is “No”.  That being the case, the specific bequest has been adeemed by the time of KBN’s death.  In other words, the ademption has already taken place.  I cannot see how the subsequent termination of the SPA could have the effect of reversing the ademption.

37.  I am in agreement with Mr Leung and would answer both Question 1 and Question 2 in the affirmative. 

Deposition

38.  In my judgment, the answer to Question 1 is “Yes”, and the answer to Question 2 is also “Yes”.

39.  As to costs, while P and D1 would have personal interests in the outcome of these proceedings, both of them are administrators of KBN’s estate.  Both Question 1 and Question 2 are questions arising in the administration of the estate.  P and D1 are genuinely having different views on these questions, and hence it would be necessary to submit these questions to the court for determination.  In view of all these, I would allow both P and D1 to get back their respective costs from the estate, and those costs would be taxed on solicitor and own client basis.  There be an order that costs of these proceedings (including all costs reserved), be paid by KBN’s estate to P and to D1, and those costs would be taxed by the court. Since P is on Legal Aid, P’s own costs should be taxed in accordance with the Legal Aid Regulations.

40.  Lastly, it remains for me to thank counsel for the assistance rendered to the court.