RAVINE LAL HIRANAND v. RAMCHAND GOPALDAS HIRANAND

HCSD 37/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

APPLICATION TO SET ASIDE A STATUTORY DEMAND
NO. 37 OF 2002

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J U D G M E N T

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1. I have three applications before me to set aside three statutory demands issued on behalf of the same Respondent on 6 September 2002.

2. The statutory demands were based on a judgment debt in respect of costs that the three Applicants (as Plaintiffs) were ordered to pay to the Respondent (as the 3rd Defendant) in a probate action (HCAP 15/2000). Details of the probate action and the disposal of the action by the court may be found in the judgment of Yam J dated 4 July 2001, and I shall not repeat them here.

3. Very briefly, in the probate action, the three Applicants contended that their late grandfather, who passed away in 1994, left a last will made by him in 1988. Accordingly they sought the court's order to revoke probate that had been previously granted in respect of a prior will and codicil made in 1986, and decree probate of the 1988 will instead. Under the 1986 will and codicil, the three Applicants' father (i.e. the son of the grandfather) was the sole beneficiary of the estate. Alternatively, they contended that the so-called 1988 will was actually an instrument of trust creating a trust in favour of the family members of the grandfather including the three Applicants. Both contentions were rejected by Yam J, who ordered that the statement of claim be struck out and the costs of the action be paid by the Applicants to the Defendants (including the Respondent in these three applications) on an indemnity basis.

4. The judgment debt is not in dispute. The Applicants now seek to set aside the statutory demands pursuant to rules 47 and 48(5)(a) and (d) of the Bankruptcy Rules (Cap. 6), contending that they have "a counterclaim, set-off or cross demand which equals or exceeds the amount of the debt" specified in these statutory demands, or that there are "other grounds" on which the statutory demands ought to be set aside.

Alleged counterclaim, set-off or cross demand: $12 million cash

5. The test applied by the court is that where there is a genuine and serious counterclaim, set-off or cross demand which equals or exceeds the amount of the debt in question, the court would, in the absence of special circumstances, exercise its discretion to set aside the statutory demand: see Wong Wai Lin Lana v. Heng Wah Wing HCSD 27/2000, S Kwan DJ (12 October 2000) (reversed on appeal on another ground: [2001] 3 HKC 649); Waters v. Malahon Credit Company Ltd HCSD 24/2001, To DJ (21 February 2003); Yip Ku v. Tommy Lai & Co. (a firm) HCSD 25/1999, Waung J (22 June 2001).

6. The Applicants argue that prior to his death, the grandfather had by four cheques given a total of $12 million to the Respondent "to hold on trust for the entire family" (i.e. including the three Applicants as grandchildren). In December 2002, the three Applicants wrote to the Respondent "to break that trust and to give [the Applicants] an account of all the proceeds in trust" and "authorized" the Respondent "to deduct the amount of his statutory demand from the trust funds he is holding for [the Applicants]". The Applicants allege that the Respondent has been wrongfully claiming that the monies were given by the grandfather to him as a gift.

7. At one stage during the hearing of these three applications, it was alleged that the Applicants personally heard from the grandfather in 1994 that the four transfers of money were for the purpose of establishing a trust in the family's favour. This went beyond the affirmation evidence that had been filed by the three Applicants. On the evidence before me, it is clear that the information of the three Applicants primarily came from their father. In any event, there is nothing, apart from the bare words of the Applicants, to support their last minute allegation at the hearing of the applications that they were told by the grandfather during his lifetime about the establishing of the trust.

8. The Applicants rely heavily on the father's allegations. First, they rely on a statement made by the father in April 2000. In paragraph 5 of the signed statement, the father said:

"5 Around 1985 my father expressed doubts on HNH and his interactions became less and at times sore. He became closer to Ramchand Gopaldas Hiranand (RGH) [i.e. the Respondent] and made huge investments in stocks with RGH, PHH and himself as partners. He also requested RGH to hold monies in Trust to benefit me and my said children."

9. Secondly, the Applicant rely on an internal note of Messrs Deacons, the solicitors acting for the three Applicants in the probate action, made in July 2000, setting out the instructions the solicitors had obtained from conferences with, amongst others, the father, his wife, the Applicants and a spiritual advisor (Dr Srikumar). Paragraph 2(4) of the note reads:

"(4) Prior to death, the Deceased [i.e. the grandfather] entrusted moneys with Ram [i.e. the Respondent] to invest for and on behalf of Lal, Kamla and then (sic) children since Ram is always involved full time in the stock market. When applying for estate duty clearance, the EDO detected this sum and raised queries to which Ram replied that he had already repaid the whole sum with interest to the Deceased, without any proof however. The EDO did not satisfy with this answer and finally treated the whole sum of HK$12 million as cash gift (see the Schedule of Property attached to the Certificate of Assessment dated 21 July 1997) on which estate duty was payable as it was considered to be an inter-vivos gift made by the Deceased within 3 years prior to his death on 30 August 1994. There is evidence suggesting that the total sum that has come to Ram's hands has amounted to HK$24m. Dr Srikumar has some documentary proof of further sums received by Ram which were taken from the Deceased's estate."

10. The Applicants tell the court that their present difficulty is that because of the divorce and related proceedings between the father and his wife (i.e. the Applicants' mother), the father has disappeared with all the papers in his possession, and they have difficulty in obtaining further documents and papers to support their claim that the four cheques represented trust monies held in their favour.

11. However, what has been apparently alleged by the father in his statement and the instructions he gave to the solicitors is seriously contradicted by an earlier letter dated 12 November 1996 written by Messrs Woo, Kwan, Lee & Lo to the Respondent on behalf of the father. At that time, the solicitors acted for the father in his application for probate of the 1986 will. It reads:

"Mr Ramchand Gopaldas Hiranand [i.e. the Respondent]

...

Dear Sirs,

Re: Estate of HIRANAND Mangharmal ("the Deceased") [i.e. the grandfather]

We act for Mr Lal M Hiranand [i.e. the father], the attorney of the executors of the above state, Dr and Mrs Hari Harilela.

We are informed by our client that the Deceased made certain payments by cheque to you as gifts. Particulars of such payments are as follows:-

Date	Bank	Cheque No.	Amount
28.02.94	Security Pacific Asian Bank Limited	973198	5,000,000.00
02.03.94	- ditto -	973200	1,000,000.00
25.05.94	- ditto -	973204	5,000,000.00
25.05.94	- ditto -	973203	1,000,000.00

According to the Estate Duty Ordinance, gift made by the deceased within three years prior to his death is dutiable unless it is made for public or charitable purposes or in consideration of marriage or as part of the normal expenditure of the deceased or for a sum not exceeding HK$200,000.00 in aggregate for any one donee. In the present case, you, as donee of the gifts, are liable to the Commissioner for Estate Duty for payment of estate duty and are required to deliver a gift account to the Commissioner. In view of the aforesaid, a gift account has been prepared for you and is enclosed herewith. Kindly arrange the same to be affirmed before a solicitor or a Commissioner for Oaths and then return to us for our further action.

...

	Yours faithfully,
	(signature)
	WOO, KWAN, LEE & LO"

12. It is clear from the above letter that it was the father who claimed that the four cheques in question were gifts made by the grandfather to the Respondent. In the letter, the father through his solicitors asked the Respondent to be responsible for payment of estate duty. All this is very different from what is alleged in paragraph 2(4) of Deacons' note, which says that it was the Estate Duty Office which detected the four sums and raised queries, to which the Respondent replied that he had already repaid the whole sum with interest to the grandfather, so on and so forth. It is clear from the letter that it was the father who said that the four cheques were gifts to the Respondent. It must be remembered that this was a stance taken by the father totally against his interest, if there ever was a possibility that the four cheques were not gifts but trust monies in favour of the entire family, or failing such a trust, monies held by the Respondent in a resulting trust for the grandfather or his estate, given that the father was the sole beneficiary of the estate of the grandfather under the 1986 will. Thus analysed, what the father said in his solicitors' letter must carry much weight.

13. Moreover, according to the evidence filed, shortly thereafter (21 December 1986), the Respondent made an affirmation confirming that he was the donee of the monies in question, and eventually he paid the estate duty chargeable on the gifts as they were made within 3 years of the death of the grandfather.

14. In my judgment, the allegation of the father in his statement made in 2000 and what is alleged in the solicitors' note made in 2000 as per the father's (and perhaps also the spiritual advisor's) instructions are quite fatally contradicted by the contemporaneous documents. It has been suggested that Woo, Kwan, Lee & Lo's letter was only part of the correspondence between the parties, the rest of which may reveal matters in favour of the Applicants. But certainly, the burden is on the Applicants to establish by evidence a genuine and serious counterclaim, set-off or cross demand in the present applications.

15. Furthermore, this is not a new matter. In the statement of claim filed by the Applicants (as Plaintiffs) in the probate action, after pleading their primary case of a later will (i.e. the 1988 will), they pleaded an alternative case based on a trust arising from the (so-called) will (as an instrument of trust) (paragraph 17). It then went on to plead in paragraph 18 and seek relief in the prayer as follows:

"18. Despite knowledge of the beneficial interest of each of Kamla [i.e. the Applicants' mother], Shaon, Priya and Ravine [i.e. the 3 Applicants], each of the 1st, 2nd and 3rd Defendants sought to deal with the estate of the Deceased [i.e. the grandfather] in a manner injurious to their interests.

Particulars

....

(4) By transfers between 1989 and 1994, the 3rd Defendant [i.e. the Respondent] received moneys from the Deceased for investment for the benefit of Lal, Kamla, Shaon, Priya and Ravine. The 3rd Defendant has treated those moneys as gifts.

AND THE PLAINTIFFS CLAIM AGAINST THE 1ST, 2ND AND 3RD DEFENDANTS AND EACH OF THEM:-

1. The Court shall decree probate of the [1988 will] in solemn form of law;

2. Alternatively to 1., a declaration that the estate of the Deceased is subject to the trust pleaded in paragraph [17] herein;

...

7. An inquiry as to what assets should form part of the estate of the Deceased which the Defendants ought to account.

8. Payment by the 1st, 2nd and/or 3rd Defendants of the amounts found due and payable to the Plaintiffs (if any) on the taking of the accounts.

9. All other necessary account and enquiries."

16. There is no dispute that paragraph 18(4) referred to or included the four transfers in the total sum of $12 million. There can be no dispute that on a fair reading of the statement of claim, it alleged a trust in respect of the total sum of $12 million as comprising part of the assets of the grandfather, which was said to have arisen pursuant to the so-called 1988 will (as the alternative case of the Applicants in the probate action). It was therefore alleged in paragraph 18 that after the monies were transferred to the Respondent, the Respondent acted in breach of trust by claiming the monies as gifts.

17. It must be remembered that this alternative case of the Applicants in the probate action, together with their primary case in that action, were struck out by Yam J. Although the Applicants have taken out an appeal against the decision of Yam J, they have no doubt delayed in prosecuting the appeal, and thus far no hearing date has been set for the appeal. For the purpose of the present applications, the judgment must be regarded as valid and binding on the Applicants.

18. In those circumstances, two points may be made: first, despite the instructions or information set out in Deacons' note, the Applicants through their lawyers have chosen to run a case (in the probate action) that the trust in respect of the sum of $12 million arose pursuant to the so-called 1988 will, instead of any other arrangement between the grandfather and the Respondent in 1994 when the monies were transferred to the Respondent (which is their present case). This casts a serious doubt on the credibility of the Applicants' present claim.

19. Secondly, it gives rise to the question of estoppel. Although, as I said, on a fair reading of the statement of claim, the present case that the trust in respect of the total sum of $12 million arose in 1994 through some arrangement between the grandfather and the Respondent (instead of under the so-called 1988 will) was never raised or pleaded in the probate action, so that strictly speaking the strike-out order of Yam J did not deal with this contention (which is the Applicants' present contention), the wider principle of estoppel is most likely engaged in the present case: see Hong Kong Civil Procedure 2002 Vol. 1 para. 18/19/11 and the cases referred to therein, including but not limited to Yat Tung Company v. Dao Heng Bank [1975] AC 581.

20. In other words, the further alternative case that a trust in respect of the total sum of $12 million arose in 1994 through some arrangement between the grandfather and the Respondent (which is the Applicants' present contention) could and should have been raised in the probate action. In this regard, one must not be misled by the description "probate action" given to the previous action between the parties. It is true that the primary case of the Applicants in that action was in respect of the validity of the alleged 1988 will as the last will of the deceased grandfather (and thus the validity of the prior 1986 will and codicil). For that reason, that action was properly described as a probate action. However, even based on what was expressly pleaded in the statement of claim in that "probate action", it is clear that the Applicants in that action went beyond the issue of probate raised by their primary case concerning the alleged 1988 will. For as an alternative case, they also ran a case of trust arising out of the same 1988 instrument. In other words, they were contending there: if that instrument did not constitute a will, it constituted an instrument of trust.

21. Thus analysed, it is clear that in the earlier action, quite apart from the probate dispute, there was also a trust dispute between the parties. The Applicants contended as an alternative case that the assets of the grandfather were covered by an express trust pursuant to the 1988 "will" as an instrument of trust¹. If that was successful, it would for all practical purposes by-pass the 1986 will and achieve the Applicants' purpose via the back door. In those circumstances, in my judgment, the further alternative case that even if this general trust in respect of the entire assets of the grandfather created pursuant to the 1988 "will" could not be sustained, a trust limited to the total sum of $12 million allegedly created in 1994 through the arrangement between the grandfather and the Respondent could be maintained in the probate action. Mr Fung, appearing for the Respondent, therefore contends with much force that the matter "could and therefore should have been raised in the earlier action". It was not raised, but the wider principle of issue estoppel applies here (in the absence of any special circumstances), and would prevent the Applicants from making a claim against the Respondent in respect of the total sum of $12 million. As I said, I can see the force of the argument.

22. Furthermore, I am inclined to accept Mr Fung's further argument that the alleged trust, viewed independently from the 1988 "will", is in any event too uncertain to be valid; there are doubts regarding what the "entire family" may include, and there is not a single clue as to the respective proportions or shares of the beneficiaries under the trust.

23. The Applicants also rely on a list setting out share transactions that were carried out by the Respondent in or around May 1994 (Hearing bundle II page 425). The Applicants argued at one stage at the hearing that these share transactions were carried out by the Respondent with the monies obtained under the cheques, and the list represented an account rendered by the Respondent to the grandfather in respect of the use of the cheque proceeds. That was not their affirmation evidence. In any event, I do not agree. At the bottom of the list, it was clearly set out that the grandfather and two outsiders had beneficial shares in the transactions. This is wholly inconsistent with the suggestion of the Applicants that the monies represented by the cheques were trust monies held in trust by the Respondent for the entire family, and by this list the Respondent was giving an account to the grandfather in respect of those monies. At best, the list was evidence that the Respondent used to carry out share transactions in which the grandfather had a beneficial share. This is very much different from the Applicants' present contention in respect of the sum of $12 million.

24. The Applicants also argue that their grandfather did not make large gifts of money to members of the family, particularly someone wealthy in his own right like the Respondent. In my judgment, whether taken alone or together with the rest of the evidence before the court, this is not sufficient to help the Applicants establish a genuine and serious counterclaim, set-off or cross demand against the Respondent, justifying the setting aside of the statutory demands.

25. The Applicants say that because of the disappearance of the father and the failure to co-operate on the part of the spiritual advisor, they have been experiencing difficulties in collecting further material, information or evidence in support of their claim. That may or may not be true. But the fact remains that it is for the Applicants to establish a genuine and serious claim, and the court can only act on the evidence presented before it. On the material before me, I am not satisfied that the Applicants have passed the threshold burden in respect of the sum of $12 million.

Alleged counterclaim, set-off or cross demand: 2 properties

26. The Applicants rely on two properties (the Chatham Road property and the MacDonnell Road property) to argue that the grandfather had a share in both properties, which the Respondent has failed to account for.

27. It is quite clear from the evidence presented by the Applicants before the court that their case is essentially based on bare allegations of theirs as well as that of their father's. The matter has been fully explained by the Respondent in his affirmation filed in opposition to the applications. Although the Applicants have been given leave to file evidence in reply, no substantive evidence has been filed in relation to the properties in question.

28. In any event, even if the grandfather or his estate still had a share in the two properties, it would not assist the Applicants at all, as they are not a beneficiary under the 1986 will, the validity of which has been confirmed by Yam J in the probate action.

29. The two properties do not give rise to the necessary counterclaim, set-off or cross demand.

Other grounds

30. The "other grounds" in rule 48(5)(d) of the Bankruptcy Rules should be of the same degree of substance as those specified in sub-paragraphs (a)-(c) of the same rule; normally an applicant has to show circumstances which would make it unjust for the statutory demand to give rise to those consequences that it would entail if it were not set aside: Re a Debtor [1999] 1 WLR 271; Wah Tat Foundation & Engineering Ltd v. Kam Kin Bun HCSD 5 & 6/2003, Poon DJ (7 May 2003).

31. The Applicants claim that in proceedings between their parents in Singapore, if their mother's claim against their father is successful, they will obtain a substantial payment of money from the father, and that will be more than sufficient to discharge the judgment debt. At an earlier stage of these applications, the Applicants anticipated that the Singaporean proceedings would be concluded in their favour in the first quarter of 2003. But of course, thus far, the proceedings have not been concluded.

32. In any event, I do not accept that this is a sufficient reason for exercising the court's residual discretion under rule 48(5)(d).

Order

33. In conclusion, I refuse the Applicants' applications which are therefore dismissed. I make an order nisi that the costs of these applications be paid by the Applicants to the Respondent, to be taxed (on a party and party basis) if not agreed. Unless any party applies to vary this costs order nisi within 14 days after this judgment is handed down, the same shall become absolute upon the expiry of the 14-day period.