TANG KWAN PO AND OTHERS v. CHENG KUM HAI AND OTHERS

HCA 14608/1998

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 14608 OF 1998

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D E C I S I O N

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1. This is an interlocutory application by the 1st Defendant against all the Plaintiffs to compel the Plaintiffs to sign and return two Confirmations of Assignments in favour of the 1st Defendant.

2. The 1st Defendant is the administratrix of the estate of Tang Yuk She, deceased. The 1st to 6th Plaintiffs and the 2nd Defendant are 7 of the 8 beneficiaries of the deceased's estate. The deceased died intestate on 14 June 1984. The properties comprising the deceased's estate include:

(1) Flat B, 3/F, Ka Wah Court and car parking spaces nos. 13 and 29, Ground Floor, nos. 353 and 355 Prince Edward Road West, Kowloon (collectively called "the Ka Wah Court Property"); and

(2) Office Space No. 4, 3/F, United Building, nos. 17-19 Jubilee Street, Central, Hong Kong ("the United Building Property").

On 30 June 1988, the 1st Defendant assigned the Ka Wah Court Property to herself and the 2nd Defendant as joint tenants. On the same day, she also assigned the United Building Property to the 3rd Defendant. Both assignments were to assign the legal and beneficial interests of the respective properties at certain stated considerations. The 3rd Defendant was incorporated on 16 May 1986. The 1st and 2nd Defendants are the directors and shareholders of the 3rd Defendant.

3. On 29 August 1998, the Plaintiffs commenced this action against the 1st Defendant, as administratrix of the deceased's estate and in her personal capacity, the 2nd Defendant and also the 3rd Defendant. In the Statement of Claim, the Plaintiffs seek to set aside the 1988 assignments in respect of the Ka Wah Court Property and the United Building Property assignment. The action is still in progress.

4. Prior to and after the commencement of this action, there had been discussions and correspondence exchanged between the parties' respective solicitors on the sale of the 2 properties. Prior to the present application, the 1st Defendant had made various attempts at selling the two properties both through private sales and through auctions. A total of 3 auctions had been held between July and December 1999. The last of these auctions was held on 7 December 1999. Before this auction was held, the 1st Defendant had obtained valuations of the 2 properties. According to the professional surveyor commissioned by the 1st Defendant, the current open market value of the Ka Wah Court Property was $3,350,000.00 and for the United Building Property, $600,000.00. The surveyor also gave the forced sale value of the Ka Wah Court Property at $2,850,000.00 and of the United Building Property at $450,000.00. The reserve prices for these two properties for this last auction were fixed at $2,900,000.00 and $480,000.00 respectively. At the December auction, there were 3 bids for the Ka Wah Court Property. The highest bid was of $2,860,000.00 which did not reach the reserve price. Although the sale was withdrawn at the auction, the 1st Defendant subsequently decided to sell the Ka Wah Court Property to the bidder who offered $2,860,000.00. In respect of the United Building Property, there was only one bid at the price of $480,000.00. And this was accepted and the property was sold at this price. The successful bidders and purchasers for the 2 properties were the same person, one Tang Kwan Fat, who was the 8th beneficiary of the estate of the deceased. He is also a director and shareholder of the 3rd Defendant.

5. On 15 December 1999, the 1st Defendant's solicitors requested the Plaintiffs to sign two Confirmations of Assignments. Upon learning the fact that the reserve prices were fixed with reference to the forced sale prices and upon learning the identity of the successful purchaser, the Plaintiffs refused to sign these confirmations.

6. On 18 April 2000, the 1st Defendant took out the present summons pursuant to Order 85 r.2 Rules of High Court seeking to compel the Plaintiffs as beneficiaries to sign and return the Confirmations of Assignments.

7. The application was opposed principally on two grounds. Firstly, the Plaintiffs contended that the application was misconceived and the Court had no jurisdiction to allow the Plaintiffs to confirm the 1988 assignments. Secondly, the Plaintiffs argued that even if there is jurisdiction to compel the Plaintiffs to sign the confirmations, the Court should not exercise that power in favour of the Defendant because to do so is not in the best interests of the estate.

8. On the question of jurisdiction, it is to be noted that the confirmations sought from the Plaintiffs are in respect of the two 1988 assignments, which are the subject matter of dispute and claim in this action. If this Court were to compel the Plaintiffs to confirm these assignments, the Court is in effect compelling the beneficiaries to consent and approve the previous assignments by the 1st Defendant of the Ka Wah Court Property to herself and the 2nd Defendant and also of the United Building Property to the 3rd Defendant. In effect, the Court and the beneficiaries will be sanctioning these previous assignments as well as recognising in some form the propriety of these transactions. It is, however, quite clear that the propriety of these transactions is one of the major issues and concerns in this action. That being the case, the beneficiaries cannot be compelled to accept and agree to transactions which they have all along contended to be controversial, improper and liable to be set aside. It is particularly so in view of the fact that the present application is by way of an interlocutory application.

9. I accept that Order 85 r.2 Rules of High Court does give the Court power to give directions to facilitate the administration of an estate. Mr Wong for the Plaintiffs argued that the Plaintiffs cannot be compelled to sign these confirmations because they are under no legal duty to assist in the administration of the estate. Mr Ismail replied by saying that the beneficiaries do have a duty not to unduly obstruct the administration of the estate. I agree that beneficiaries should not unduly obstruct the administration of an estate and therefore the power under Order 85 extends to giving directions to prevent such obstructions.

10. In this case, I do not agree that the Plaintiff beneficiaries by refusing to sign the Confirmations of Assignment are unduly obstructing the administration of the estate. The assignments that they were asked to confirm are the very subject matter of dispute in this action. Prima facie, they are entitled to refuse to give the confirmations so as to preserve their positions in this action. On the other hand, the Court is in no position to decide whether the beneficiaries should confirm the assignments without going into the merits of the case and without deciding on whether the assignments were proper. If, indeed, these assignments were not proper and are liable to be set aside as alleged by the Plaintiffs, then it would not be right for the Court to compel the Plaintiffs to confirm the assignments at an interlocutory stage. This is particularly so when one considers that the 1st and 2nd Defendants had recently at the requests of the Plaintiffs executed declarations of trusts declaring that they were mere trustees in respect of the two properties, notwithstanding the 1988 assignments. The fact that the Plaintiffs may still be able to pursue a claim for damages is irrelevant.

11. I turn now to deal with the 2nd question of whether it is in the best interest of the estate to have the beneficiaries confirm the two assignments, assuming that it is a proper case for the Court to exercise the power under Order 85 r.2, Rules of High Court. I accept that in exercising the jurisdiction to give directions on an application under Order 85 r.2, the Court is essentially concerned with what is in the best interest of the estate and not in determining the rights of the adversarial parties. The Court should therefore see whether the objections are or are not well founded and also whether the directions sought by the administratrix should be given having regard to the best interests of the estate and the beneficiaries: per Lord Oliver in Marley v. Mutual Security Merchant Bank [1991] 3 All ER 198, 201. Mr Ismail argued that it is in the best interest of the estate to have the two properties sold and realised as soon as possible and to have the proceeds of sale brought in to form part of the estate. That I accept and agree. Mr Ismail, however, continued to argue that towards that end, it is also in the best interest of the estate to facilitate the completion of the present sales to Mr Tang Kwan Fat. And in order to enable the completion, Mr Ismail submitted that the beneficiaries should be compelled to confirm the assignments in 1988.

12. In my view, confirming the 1988 assignments by the beneficiaries is not the only way to enable completion. The Defendants could have sought confirmation by the beneficiaries or the sanction of the Court for the proposed sales to Tang Kwan Fat. In an application of that nature, the Court's considerations may then be very different. To say the least, there will be no question of this Court predisposing of an issue which has yet to be determined in the trial of this action.

13. In addition, it is still incumbent upon the 1st Defendant to demonstrate that it is in the best interest of the estate to complete the proposed sales to Tang Kwan Fat. It is the Plaintiff's argument that the proposed sales are suspicious. Their suspicions are based on the prices of the sales and also upon the relationship of Tang Kwan Fat to the Defendants. I do not consider that these suspicions are wholly unfounded. There is, first of all, no explanation from the 1st Defendant as to her decision to obtain forced sale value of the properties and then to fix the reserve prices by reference to the forced sale value. There is also no explanation from the 1st Defendant as to her decision to sell the Ka Wah Court Property to Tang Kwan Fat notwithstanding that the reserve price had not been reached. In the previous auction, there were bids which did not meet the reserve price but were not accepted by the 1st Defendant. The change in circumstances, if any, and the reasons motivating the 1st Defendant to adopt a different course for this particular auction had not been forthcoming. These matters together with the fact that Tang Kwan Fat is a shareholder and director of the 3rd Defendant do give rise to reasonable ground for doubting whether the sale prices are the best prices obtainable in the market. It follows that the 1st Defendant had not been able to demonstrate that it would be in the best interest of the estate to complete the proposed sales to Tang Kwan Fat.

14. For the above reasons, I dismiss the 1st Defendant's summons. I see no reason for departing from the normal rule that costs should follow event. Accordingly, the costs of this application should be to the Plaintiffs against the 1st Defendant. Mr Wong had asked for these costs to be paid forthwith. In my view, there is nothing special in the circumstances of this application as to warrant a costs forthwith order. This is an interlocutory application, the subject matter of which is not completely unrelated to the issues between the parties in this action. The general rule on costs in interlocutory application should therefore apply and the costs should be paid in any event. In short, I order that the 1st Defendant's summons dated 18 April 2000 be dismissed with costs to the Plaintiffs against the 1st Defendant in any event.