CHU KIN WING AND ANOTHER v. CHU KIN SANG JAMES

HCMP 1135/2014

[2018] HKCFI 1597

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1135 OF 2014

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J U D G M E N T

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Introduction

1.  Gee Wong Chou Kok (the “Deceased”) died on 31 January 2003, leaving a last Will dated 12 March 1998.

2.  In the Will, the Deceased bequeathed all her properties to the defendant (her eldest son, who is now aged 72), the late Madam Lily Chu (the widow of the Deceased's second son) and the 1^st plaintiff (her third son) in equal shares.

3.  On 24 June 2005, Probate No. HCAG010733/2004 was granted to the Executors named in the Will, namely the late Madam Lily Chu and the defendant.

4.  The administration of the estate of the Deceased (the “Estate”) had been primarily undertaken by the late Madam Lily Chu, as the defendant has been residing in the United Kingdom since 1966.

5.  Since the Grant, the following real properties in the Estate had been sold: –

Property	Date of sale	Consideration
(i) Flat No. 1, 2/F, and CPS No. 21, No. 2 Cornwall Street (“Flat No. 1”)	4/08/2005	$2.3 million (sold to Lily Chu)
(ii) New Kowloon Inland Lot No. 3908 (consisting of G/F, 1/F, 2/F and 3/F) No. 5 Hing Wah Street) (“Hing Wah Street Property”)	5/09/2005	$4.884 million
(iii) Kowloon Inland Lot No. 6893 (G/F, 1/F, 2/F and 3/F) No. 31 Yin Chong Street (“Yin Chong Street Property”)	8/04/2011	$29 million

6.  Substantial interim dividends were paid to the 3 beneficiaries in 2006 and 2011 after the respective sales of the Hing Wah Street Property and the Yin Chong Street Property.  Other interim dividends were also paid in 2005 and 2007 to 2011.

7.  The late Madam Lily Chu passed away intestate on 26 June 2011.  The 2^nd plaintiff is the daughter and Administratrix of the late Madam Lily Chu.

8.  By that time, remained undistributed were the following assets of the Estate: –

(iv) Flat No. 2, 2/F, and Car park space No. 24, No. 2 Cornwall Street (together “Flat No. 2”); and

(v) cash reserve (of around HK$1 million odd) in the joint name bank account opened with HSBC by the late Madam Lily Chu and the defendant no. 469-194997-833 (the “HSBC Account”). The HSBC Account has been used exclusively for the administration of the Estate including distribution of funds to the 3 beneficiaries.

9.  The 1^st and 2^nd plaintiffs (hereinafter referred to as “the plaintiffs”) rely on the following grounds to contend that the defendant should be removed from acting as the Executor of the Estate of the Deceased: –

(1)  Substantial delay in administering the Estate of the Deceased following the death of the late Madam Lily Chu, and in providing the Statement of Accounts even after the Order of Deputy High Court Judge Seagroatt dated 16 October 2014;

(2)  Failure to provide a complete Statement of Accounts and failing to provide the updated bank statements; and

(3)  Misappropriation of monies from the HSBC Account and attempts to cover up the said misappropriation.

Relevant Legal Principles

10.  Section 33(3) of the Probate and Administration Ordinance, Cap 10 (“the “Ordinance”) provides that: –

“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.”

11.  Section 56 of the Ordinance provides that: –

“The personal representative of a deceased person shall, when lawfully required so to do, exhibit, by affidavit filed in the court, a true and perfect inventory and account of the movable and immovable property of the deceased, and the court shall have power as heretofore to require personal representatives to bring in inventories.”

12.  In Re Estate of Lee Da Kor [2010] 1 HKLRD 415, the plaintiff brought proceedings for an account and the removal of the executors and trustees of the estate of the plaintiff’s father (“Mr. Lee”) of which the plaintiff was one of the beneficiaries.  Mr. Lee passed away on 18 May 2004.  Pursuant to the deceased’s last will, the defendants were appointed as executors and trustees.  Probate was granted on 4 January 2007.  It was the plaintiff’s case that after Mr. Lee’s death, he had repeatedly made inquiries with the executors and pressed for full and accurate account of the estate with inventory but to no avail.  The plaintiff therefore commenced the proceedings on 10 September 2007.

13.  In giving Judgment for the plaintiff, Jeremy Poon J (as he then was) summarized the applicable principles relating to the duty to keep accounts as follows (at paragraphs 17 and 18): –

(1)  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.  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.

(2)  Further, under section 56 of the Ordinance, 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 O.85, r.2(3) order executors to furnish and verify accounts.

14.  On the evidence of that case, even though the executors had already provided the plaintiff with all the bank statements, ledgers and receipts, the executors had failed to explain the discrepancies in relation to the significant drop in the deceased’s assets and discrepancies in the relevant bank accounts.  As the executors ought to have given explanation together with the supporting documents and they had failed to do so, they had not discharged their duty to render a proper account.

15.  His Lordship ordered the executors be removed for two principal reasons (at paragraph 37): –

(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.  At the latest, they should have distributed the monies to the plaintiff within a reasonable time after January 2007; and

(3)  They were also ordered to be personally liable for the costs of the plaintiff’s claim.

16.  In Re Chan Kan Ying, HCMP 888/2013 (Judgment dated 19/07/2017), B Chu J held, inter alia, that there has been substantial delay on the part of the defendant in administering the estate and such delay is unjustifiable and that the account provided by the defendant is not complete and the 1^st defendant be removed as administrator of the estate.

17.  Her Ladyship further stated at paragraphs 81 and 82 that it is the duty of administrators to keep clean, clear and accurate account and to be always ready to render such account when called upon to do so, and to discharge the duty to account properly, there must be production of the relevant supporting documents and receipts, as well as proper breakdown of items.  Further, it is essential for the account to show at least the opening capital assets, details of the movements of capital assets, the present capital assets, details of income earned, and details of expenditure.

Delay in Administrating the Estate and in providing the Statement of Accounts

18.  The late Madam Lily Chu passed away on 26 June 2011.  On 30 April 2013 (ie about two years after the death of Madam Lily Chu), a letter was written to the defendant by the plaintiffs’ solicitors, Messrs Johnny KK Leung & Co (“JKKL”), requesting the defendant to do the following: –

(1)  To render an account of HK$1,100,000 (the “Outstanding Balance”) from sale proceeds of the sale of the Yin Chong Street Property left behind after a total of HK$27,900,000 had been distributed to the three beneficiaries;

(2)  To render an account of the rental income (if any) from Flat No. 2 (referred to in the letter as the Cornwall Property) to the plaintiffs;

(3)  To account for the current use or status of Flat No. 2 to the plaintiffs; and

(4)  To assign Flat No. 2 to the plaintiffs insofar as their two-third share is concerned.

19.  By the letter dated 13 May 2013, JKKL reminded the defendant his duties as the executor of the Estate, that he is bound to keep clear and accurate accounts, to be always ready to render such accounts when called upon to do so and to distribute the Estate or the residuary of it to the beneficiaries under the Will.

20.  The defendant replied and stated in his letter dated 18 May 2013 that, “My late mother wanted to keep Cornwall property as our ‘permanent family home’ & insisted that the Cornwall property should not be split or sold”.

21.  By an email dated 3 June 2013, JKKL repeated to ask the defendant to clarify the following two issues: –

(1)  The whereabouts and the current status of the Outstanding Balance together with the rental income (if any), and was the money deposited in the HSBC Account; and

(2)  Whether the defendant was prepared to transfer and assign to the plaintiffs their two-third share of and in Flat No. 2.

22.  The defendant replied and suggested to have family meetings but without addressing the said two issues.

23.  By the letter dated 6 September 2013, JKKL reiterated that there were in gist two issues to be dealt with: –

(1)  The undistributed remaining sale proceeds and rental income of the Yin Chong Street Property; and

(2)  The transfer of the two-third share of and in Flat No. 2 to the plaintiffs.

24.  By the said letter, JKKL urged the defendant to extend the co-operation in furnishing them with the defendant’s favourable reply including his written consent authorizing HSBC to release information of the HSBC Account to the plaintiffs so as to settle the matter amicably without the need to resort to expensive legal actions.

25.  Despite the aforesaid, the defendant gave no reply to the plaintiffs.  The plaintiffs thus commenced the present proceedings on 8 May 2014 (which was nearly three years after the death of the late Madam Lily Chu).

26.  The above shows that the defendant had been delaying in administrating the Estate and refusing to account for the Outstanding Balance and rental income and refusing to assign the two-third share of and in Flat No. 2 to the plaintiffs for nearly three years after the death of the late Madam Chu and also refused to provide an account of the HSBC Account.

27.  By the letter dated 7 July 2014 to the defendant’s solicitors (hereinafter referred to as “Gallant”), the plaintiffs statedthat in order make things simple and to save time and costs, the plaintiffs had no query about the account of the Estate of the Deceased prior to the death of the late Madam Lily Chu, and would be content to have an account of the Estate in respect of the HSBC Account and Flat No. 2 as from 27 June 2011.  This however was not accepted by the defendant.

28.  By the consent order of DHCJ Seagroatt made in these proceedings on 16 October 2014, it was ordered that: –

(1)  Flat No. 2 being an asset of the Estate and as provided for in the Will be sold as soon as possible at the best market price;

(2)  The net proceeds of sale are to be paid into the HSBC Account, in the name of the defendant, the surviving executor;

(3)  no payments are to be made out of the said account as from today [ie 16 October 2014] without the consent of all parties or until further order;

(4)  A statement of the estate account is to be prepared by an independent accountant to be agreed by the solicitors for all parties as soon as possible; and

(5)  The application be adjourned generally with liberty to apply and with costs reserved.

29.  Following the consent order of DHCJ Seagroatt dated 16 October 2014, the two-third share of and in Flat No. 2 has been assigned to the plaintiffs, and the defendant’s one-third share thereof was sold to the plaintiffs on 30 October 2015 and therefore Flat No. 2 ceased to be part of the Estate.

30.  The defendant however continued to delay in instructing and/or providing documents to the retained accountant, one KL CPA thus causing a substantial delay in providing the Statement of Accounts, as reflected from their delay in replying to JKKL’s letters (and no reasons have been given) as follows: –

(1)  The defendant did not provide bank statements of the HSBC Account, the Bill of Costs issued by Messrs. K. M. Lai dated 8 April 2011 for the sale of the Yin Chong Street Property together with supporting documents and the quotation for building maintenance of the Yin Chong Street Property to KL CPA until 21 June 2016, ie more than eight months after KL CPA was appointed on 7 October 2015;

(2)  The defendant did not write to KL CPA and mention about JKKL’s letter dated 5 December 2016 until 21 September 2017 ie more than nine months later.  By JKKL’s letter dated 5 December 2016, the defendant had been informed that the 2^nd plaintiff was not in possession of the relevant documents;

(3)  The defendant did not clarify with KL CPA that Flat No. 2 had ceased to be part of the Estate until 11 October 2017 ie nearly two years after the same had been sold to the plaintiffs;

(4)  The defendant did not reply JKKL’s said letter dated 5 December 2016 until 25 October 2017 ie more than ten months later;

(5)  The defendant did not instruct KL CPA to prepare the Statement of Accounts and give adequate and complete instructions and information to them as soon as KL CPA was instructed.

31.  I agree it is plain to see from the contemporaneous correspondence that there has been inordinate delay and inaction on the part of the defendant to provide the necessary information and documents to KL CPA to prepare the Statement of Accounts until as late as in around September and October 2017, after the defendant was informed that the plaintiffs would apply to restore the present proceedings.  This was the reason why KL CPA was only able to provide the Statement of Accounts on 15 December 2017 ie more than two years after KL CPA was formally retained and more than three years after the consent order of DHCJ Seagroatt dated 16 October 2014.

32.  I further agree that it is entirely unjustifiable for the defendant to shift the blame to the plaintiffs by alleging that the plaintiffs had failed to provide him the information thus causing the delay in the preparation of the Statement of Accounts.  This is because the plaintiffs had already made clear in their Third Affidavit filed on 22 September 2014 that save and except the documents provided therein, the plaintiffs “are not in possession of any documents belonging to the estate of the Deceased”.

33.  In the circumstances, I find that there is substantial and unjustifiable delay in administrating the Estate before these proceedings were commenced after the death of the late Madam Lily Chu, and in preparing the Statement of Accounts even after the consent order of DHCJ Seagroatt dated 16 October 2014.

Failure to provide a complete Statement of Accounts and failure to provide up-to-date bank statements

34.  More importantly, not only is there a delay in preparing the Statement of Accounts, also the Statement of Accounts provided by KL CPA on 15 December 2017 is in fact not a complete account of the Estate because: (i) it only covered the period from 12 August 2005 to 12 May 2014; (ii) even for the said limited period of time, the Statement of Accounts did not attach all the bank statements of the HSBC Account – in particular, the bank statements for June to August 2011, 2012, 2013 and January to April 2014 are missing; (iii) the Statement of Accounts made no reference to any transactions in between the said missing periods; (iv) it failed to provide details of expenditure and failed to address the queries specifically raised by the plaintiffs in their Second Affidavit filed on 11 August 2014; and (v) it failed to account the current status of the Estate and the HSBC Account and failed to provide documents, for example, bank statements from 12 May 2014 onwards.

35.  The Statement of Accounts is therefore incomplete.  I agree it is indeed an affront to common sense to limit the period from 12 August 2005 to 12 May 2014 when the Statement of Accounts was provided on 15 December 2017, pursuant to the consent order of DHCJ Seagroatt dated 16 October 2014, and the plaintiffs have all along been asking for an account of the Estate following the death of the late Madam Lily Chu ie after 26 June 2011 and updated bank statements of the HSBC Account. It also goes without saying that DHCJ Seagroatt must be ordering an up-to-date Statement of Accounts of the Estate to be prepared so that parties and the court can know about the current status of the Estate and the HSBC Account.

36.  Even by the letter dated 19 April 2018, the defendant only provided bank statements for the period between 12 May 2014 and 12 June 2015, the defendant still fails to produce the up-to-date bank statements which in fact is one of the very matters that the plaintiffs have been asking since 2013.  By now, more than 5 years have passed since the request has been made and more than 15 years have passed since the death of the Deceased (and also about 7 years after the death of the late Madam Lily Chu), yet the defendant still fails and refuses to produce the updated bank statements or account of the Estate to the plaintiffs.  The defendant is therefore in clear breach of his duty as an executor to provide an account of the Estate whenever requested.

37.  Without the updated bank statements, the plaintiffs are in the dark as to whether there are some other transactions and/or withdrawals made after 12 June 2015 and as to the current balance in the HSBC Account and are unable to make any queries about them.  The plaintiffs’ right to have an inventory and account of the Estate has been wrongfully and unreasonably denied.

38.  I agree that the defendant has failed to provide a proper account of the HSBC Account and of the Estate in breach of his duty as an executor and in breach of the consent order of DCHJ Seagroatt dated 16 October 2014.

Discovery of misappropriation of monies of the Estate

39.  As stated above, the Statement of Accounts provided on 15 December 2017 only covered the period from 12 August 2005 to 12 May 2014, which is the period of time unilaterally decided on by the defendant without the plaintiffs’ consent and without any apparent justification. The Statement of Accounts also did not contain a full set of the bank statements of the HSBC Account.  In fact, by unilaterally instructing KL CPA to limit the period of time covered by the Statement of Accounts, the defendant was able to avoid disclosing a number of withdrawals after 12 May 2014 from the HSBC Account, in respect of which the plaintiffs had all along queried about even as early as in the plaintiffs’ Second Affidavit filed on 11 August 2014.

40.  The various withdrawals and their alleged purposes were only revealed on 19 April 2018 (after queries have been raised for nearly four years) and the answer is an alarming one.  By the letter dated 19 April 2018 to JKKL, Gallant stated that there were three transactions recorded in the HSBC Account during the period from May 2014 to May 2015, and they were payments to their firm as costs and disbursement on account as follows: –

(1)  Withdrawal of HK$50,000 on 19 May 2014;

(2)  Withdrawal of HK$200,000 on 24 June 2014; and

(3)  Withdrawal of HK$180 on 24 June 2014.

41.  It is to be noted that the defendant in his Affirmation made on 28 July 2014 did not disclose the withdrawals from the HSBC Account of HK$200,000 and HK$180 on 24 June 2014 (both happened before he signed the Affirmation and therefore he must be aware of those withdrawals when signing the Affirmation).

42.  The defendant therefore has misappropriated trust monies in the HSBC Account, which is part of the Estate of the Deceased, for his own benefit.  In short, the defendant should not have used monies in the HSBC Account to pay for his legal costs.

Conclusion and Disposition

43.  For the reasons stated above, I am of the view that the defendant should be removed as the executor of the Estate of the Deceased.

44.  Accordingly, I grant the following relief as sought by the plaintiffs: –

(1)  An order that the 1^st and 2^nd plaintiffs be appointed as the executors to complete the administration of the unadministered estate of the Deceased in place of the defendant;

(2)  A declaration that the defendant holds and has held all the monies and/or deposits in the HSBC Account, now in his own name following the death of the other joint account holder ie the late Madam Lily Chu, on trust for the estate of the Deceased, and an order that all the monies and/or deposits in the HSBC Account be released and transferred by HSBC to the 1^st and 2^nd plaintiffs as executors of the estate of the Deceased; and

(3)  An order that the defendant do render to the 1^st and 2^nd plaintiffs a true and perfect inventory and account of the HSBC Account and the defendant’s dealings of all the monies and/or deposits therein for the period from 27 June 2011 up to the date of this order with all supporting documents, and the defendant shall produce the same by way of an affirmation within 28 days from the date of this order.

45.  Further, I order that the costs of these proceedings including all costs reserved be borne by the defendant personally.

46.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

47.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.