CHAN WAI MING AND ANOTHER v. CHAN WAI LUN AND OTHERS

HCMP 775/1995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.775 OF 1995

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J U D G M E N T

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1. In this action the plaintiffs claim a declaration that premises at the ground floor, 10 Morrison Hill Road, Hong Kong, ("the suit premises") are held on trust by the 1st defendant for the estate of the deceased, Chan Yam and an inquiry or account of the profits received by the 1st defendant as trustee for the estate and the beneficiaries thereunder. I understood at the beginning of the trial that the claim for an account was abandoned, but from the final submissions on behalf of the plaintiffs it appears that this is not so.

2. This is a dispute between the children of Chan Yam, an undertaker, who died intestate on 27 August 1972, leaving a widow, Man So, and nine children; five sons and four daughters. The plaintiffs, Wai Ming and Wai Chu (I will refer to them all by their given names) are respectively the second and the youngest sons. The 1st defendant is the second child, and the eldest son; the first child, a daughter named King Ho, is now deceased and her estate is represented by her personal representatives. The remaining defendants are the personal representatives of the mother and the remaining living offspring.

3. In a nutshell the plaintiffs claim that after their father's death in 1972 the beneficiaries of Chan Yam's estate agreed that the 1st defendant continue to operate the undertaking businesses as trustee for the other members of the family. He bought the suit premises for himself, without the consent of the other beneficiaries and in breach of his fiduciary duty to them, using funds obtained from the businesses and he holds those premises on constructive trust for the estate.

4. The 1st defendant's case is that there was no agreement for him to operate the businesses for the benefit of the estate. In fact there were no discussions as to distribution of the estate; the entitlements of the children therein would have been very small. The 1st defendant operated the businesses on his own account, and bought the suit premises with his own money. It is not in dispute that the suit premises are now worth about $6.3 million. They would have been worth rather more when this dispute began in 1994, though there is no evidence as to their value then. There was no breach of trust, and no wilful default. In any event the plaintiffs' claims are defeated by laches and/or by the operation of the Limitation Ordinance.

Background

5. The following facts appear from the documents, or are not in dispute.

6. Chan Yam was in the undertaking business since about 1928. 1st defendant started assisting him in his business in 1942 when he was aged about 12 years. In 1952, Chan Yam registered businesses named Kwong Shau and Kwong Fook. By the time of his death he and the 1st defendant were the two partners in Kwong Shau; the father owned 75% and the son 25%. The 1st plaintiff, the 1st defendant, the deceased and the 2nd defendant (the mother) all had one-quarter shares in Kwong Fook.

7. Kwong Shau operated out of premises at 397 Shaukeiwan Road, which had been bought in 1958 and was held in the names of the mother, Man So, and the 1st defendant. It also had leased premises at 10 Morrison Hill Road and Shop H, 12-18 Morrison Hill Road. Chan Yam and the 1st defendant worked in the Kwong Shau business. Kwong Fook was operated by an employed manager from leased premises at 17 Portland Street in Kowloon.

8. There was also a property in Lee Gardens Road in the name of the father and the 1st defendant as joint tenants. This property had been purchased in 1963.

9. After the father's death, on 27 September 1972, the 1st defendant filed a new business registration for Kwong Shau showing the partners as himself (the managing partner) and his mother, Man So. The latter was not active in the business and in fact emigrated to Canada; she took the 2nd plaintiff there in about June 1972 for his education and she landed as an immigrant there on 4 March 1973. She later went to Australia. In fact the whole family either before or after their father's death left Hong Kong; the 1st plaintiff said that his father would have gone to Canada but for his death. The 1st plaintiff himself emigrated to Canada in 1974. The 1st defendant remained in Hong Kong and continued to operate the two businesses.

10. In March 1973 the landlady of the then leased premises at 10 Morrison Hill Road gave Kwong Shau notice to quit, effective on 11 October 1973. Then on 17 December 1973 the 1st defendant purchased those premises, now the suit premises, in his own name, for $300,000. He obtained a mortgage loan of $150,000 from the Hang Seng Bank. Thereafter Kwong Shau paid rent to the 1st plaintiff for the suit premises.

11. On 9 May 1974 Letters of Administration were issued to the 1st defendant and the 1st plaintiff as co-administrators of the estate. The Schedule of Property gave the net principal value of the estate as $31,264.35; the deceased's ¾ share in Kwong Shau was valued at $12,281.00 and his ¼ share in Kwong Fook was valued at $17,835.

12. On 5 June 1979 the plaintiff sold the property at Lee Gardens Road for $2,000,000. The mortgage on the suit property was discharged.

13. On 13 February 1981, the 1st defendant jointly with his mother, Man So, executed a Deed of Gift transferring the property at Shaukeiwan Road to the 1st plaintiff and 5th defendant for the benefit of the other children. They sold this property on 21 August 1983 for $800,000.

14. On 4 May 1986 the parties' mother, who had been living with the daughter Tsun Ho, the 4th defendant, in Australia, died there, apparently intestate. In the same year on 30 September 1986 Kwong Fook ceased trading. There is no evidence of any accounts and the 1st plaintiff who was a partner does not make any claim in respect of this business.

15. Some time in 1993 the plaintiffs obtained the accounts of Kwong Shau. This was followed by a letter from their then solicitors dated 19 April 1994 demanding the business records of Kwong Shau on the basis that it had been agreed that the 1st defendant would act as trustee of the rest of the family to run the business, in consideration that, on the cessation of the business or any form of change therein, he would be entitled to a half share of it (including his interest as a beneficiary of the estate) and the remainder would be divided equally among the rest of the family. This was followed by letters from the daughters Ping Ho and King Ho denying instruction or involvement in the claim. Subsequently the 2nd plaintiff agreed to join the 1st plaintiff in suing the 1st defendant on the basis that he would not be liable for any costs. An Originating Summons was issued on 22 March 1995.

The Issues

16. There are two issues of fact, namely whether there was an agreement for the 1st defendant to carry on the undertaking businesses as trustee for the benefit of the estate, and whether he purchased the suit premises with money obtained from those businesses.

The Evidence

17. The 1st plaintiff says that about a week after the father's death, there was a meeting in a restaurant in North Point between himself, the 1st defendant, the brother Wai Cheung and the sister King Ho. The 1st defendant asked the others to let him carry on the business and they agreed. There was no discussion of distribution of the father's estate at that time. The 1st defendant says that he contacted his mother who was in Canada; she agreed that the 1st defendant should carry on the business because he had to make a living; and she said that the children should follow the intentions of the father in life that half of all the properties and the business should go to the 1st defendant, and the other half to the other four brothers; the daughters were not have any share, because the parents were conservative and favoured the sons.

18. Application was made for Letters of Administration in May 1973. The value of the estate was provided by the 1st defendant or his accountant, but according to the 1st plaintiff the true value would have been much more than $31,000; this view is based on the fact that the business held large stocks of coffins and expensive pine planks for making coffins.

19. When the 1st defendant sold the Lee Gardens property in 1979 this led to a family dispute. Though that property had been held by the father and the 1st defendant as joint tenants, it really belonged to the family, or to the mother and father. The other brothers asked the mother to tell the 1st defendant to give them half of the proceeds of sale but he would not. Instead, the Shaukeiwan Road property was given to the brothers; but the net proceeds for division were only about $600,000.

20. As to the Morrison Hill Road property the 1st plaintiff said that he discussed the purchase of it with the 1st defendant in about September or October 1972; the landlady had by then said that the business must buy the property or move out. The 1st defendant said that the business did not have enough money to buy it. The 1st plaintiff suggested mortgaging the Shaukeiwan Road property and there was some discussion of approaching a friend of the 1st defendant who was a Catholic laybrother for a loan. There was also discussion of how the mortgage could be effected since the mother was in Canada; the 1st plaintiff suggested a letter of authorisation to be signed by her.

21. In any event the purchase of the Morrison Hill Road property proceeded without the 1st plaintiff knowing any more about it, although he later found out, before he emigrated in August 1974, through the elder sister's husband that the 1st defendant had bought it.

22. After that, says the 1st plaintiff, he frequently asked the 1st defendant about the business and to give an account of it, but the 1st defendant always avoided telling him. He took no action to follow up because they were close brothers and he regarded the 1st defendant as the head of the family. Then in 1994 he and the 2nd plaintiff found out that Kwong Shau was operating at a loss; the accumulated debts were then about $1.4 million. So they asked the 1st defendant to wind up the business and distribute the family assets. It was only then that they found out that the 1st defendant was claiming sole ownership of the Morrison Hill Road property.

23. The 1st plaintiff was cross-examined at length and it is apparent from his answers that he has no positive evidence of any kind as to how the purchase of the Morrison Hill Road property was financed. He assumes that the money must have come from the business, because the property was bought so that the business could continue to operate there, because of his discussion with the 1st defendant about raising funds for it at the end of 1972 and because of his knowledge of the 1st defendant's spendthrift ways. He even said that the 1st defendant used to take money from the business without the father's permission; this led to quarrels in which he had to mediate. Nor did he know what the state of the business was at the time of the father's death; he used to work in it part-time, to answer the telephone and deal with clients but he did not know about the accounts. He maintained that in effect the probate valuation must have been false because there were large quantities of stocks and "there should not be creditors".

24. As to the meeting after the father's death he said that the 1st defendant had pleaded, in tears, for the others not to take their shares out, but to let him carry on the business so that he could make a living. So they let him carry on though it was never agreed that he would have the business to himself or that they would relinquish their entitlements to it. He regarded the business as a family business; he could not tell the difference between the father's business and the family's business though he thought most of it belonged to the father.

25. There was also evidence of loans made to the 1st defendant, support given to his daughter and so forth. I do not propose to rehearse this; it is all in support of the 1st defendant's having been a spendthrift, and therefore unlikely, in the view of the plaintiffs, to have been able to finance the purchase of the property himself.

26. The 2nd plaintiff also gave evidence. He is now an Australian citizen. He says he was 16 or 17 when his father died; he had already gone to Canada with his mother for education. He could not come back to Hong Kong for the funeral because of immigration requirements. He did not know much about the business or the property when he was young; but he knew that the business supported the family. However, when he needed support as a boy in Canada he did not get it; he had to work as well as study.

27. He had married in 1979, and after that his mother lived with him until her death. He knew that she wanted her half of the family property to go to the four sons other than the 1st defendant, according to Chinese tradition.

28. He could not remember when he had heard about the sale of the Lee Gardens Road property but the mother had been very upset, because she thought the 1st defendant was cheating his brothers. He had got a share of the proceeds of the Shaukeiwan property but it was nothing like what he would have had as a share of the Lee Gardens Road property.

29. He thought, all along, that the 1st defendant had been acting as administrator for the family business, and that the Morrison Hill Road property had been bought as part of that business. But in 1994 the 1st defendant had denied it and said it was all his; so they were all furious and hurt because he had broken their trust.

30. The 4th defendant, Madam Chan Tsun Ho, who appeared in person at the trial, gave evidence for the plaintiffs mainly regarding a payment of $100,000 which she made to the 1st defendant in mid 1986. He had asked for it "to save the business". She had later asked for repayment but it had been refused; the 1st defendant said he had no money.

31. She also gave evidence of her understanding of the position after the father died. By that time, she was herself in Australia. She understood that the 1st defendant assumed the position of the father, and she believed that he had continued the business for the family all along. She herself, as a daughter, did not think she was entitled to any part of it; that is what her mother had told her; and she did not think about it; she was married, and able to work for herself.

32. Affirmations of Chan Siu Ho and Chan Wai Cheong were also read. The former says she never waived her rights in her father's estate. The latter dealt with the meeting after the father's death and his evidence on this supports that of the 1st plaintiff. He says that it was agreed that there would be no distribution of the assets and that the 1st plaintiff would continue the business as manager and trustee. He also says that it was the father's intention that his interest in the Lee Gardens Road property be held to benefit the male issue of the family on his death. It was because the 1st defendant kept it to himself that the mother had instructed him to make over the Shaukeiwan Road property to the other brothers.

33. The 1st defendant confirmed the contents of his various affirmations and a witness statement. His case as it appears from these documents is that he cannot now remember if there was a meeting after the death of his father, but there was certainly no discussion of distribution of the estate. The common understanding was that everything would go to the mother. When it was found out how little was in the estate, everyone waived their claims to it. No one bothered about it until 1994 when he refused the plaintiffs' requests for financial assistance. In the meantime he had bought the Morrison Hill Road property for himself with his own money and that borrowed from a friend; and all the siblings well knew that.

34. As to the state of his finances around the time of his father's death it is his evidence that he had made money on a property in Tak Lee Building, which he had been purchasing by installments but could not be completed; and he invested in shares. He had sold some shares in 1972 to finance his mother's travel to Canada. He spent about $100,000 on his father's funeral.

35. He said that after the father's death he registered his mother's and his own names as the partners in Kwong Shau; she knew about that but he did not tell his siblings. Then in November 1972 they mortgaged Kwong Shau for money for the business. In March 1973, he heard from his landlady that he should buy the property at Morrison Hill Road or quit. He decided to buy. The price was $300,000. Funds for the purchase came from a mortgage for $150,000 and he borrowed $200,000 from a friend whose company he remembered; it was named Shin Yee. Completion was on 17 December 1973. He paid back this loan three months later by mortgaging the Lee Gardens Road property. He produced a mortgage of that property to the Shanghai Commercial Bank on 28 May 1974 for banking facilities of $250,000.

36. He sold the Lee Garden Road property in June 1979 for $2 million, and shortly thereafter discharged the mortgage he had taken out to buy the suit property. He said he was not sure if the funds for that had come from the proceeds of sale or if he had sold some shares.

37. He said that the transfer of the Shaukeiwan property to the 1st plaintiff and Wai Cheong was done at their mother's instance but that the 1st plaintiff had promised not to sell it, but to collect rent from it and use that for any of the siblings who was in difficulty. The transfer came about when the 1st plaintiff and their mother came to him and asked him to do it. No one said anything about being unhappy over the sale of the Lee Gardens Road property. Their relationship was good then. Nor did anyone make any demands for distribution or accounts of the father's estate.

38. He said that the business did not do very well between 1973 and 1983 because bigger undertakers had combined and dominated the market.

39. He had indeed had $100,000 from Tsun Ho in 1984. This came about because the younger sister Ping Ho had noticed that he was short of cash, because he had been extravagant. She had told Tsun Ho to let him have the money; and Wai Cheong had brought him the cheque. Tsun Ho had never asked for repayment. This had nothing to do with the charging order; there was one, dated 4 December 1984 which related to a credit card debt, but he had borrowed from his wife's sister to pay that off.

40. He denied receiving a loan from the 2nd plaintiff in 1983; he said that he was given some pocket money, as the elder brother. He denied having let the 1st plaintiff support his daughter in Canada when she was studying there. As to how this matter came to a head he said that the plaintiffs had wanted to go into the frozen meat business in 1993 so he had introduced them to his accountant. He did not know what documents the accountant had given them. He did not know if, as the 1st plaintiff said, they had been trying to mortgage the suit property. He did tell them that they had no interest in the suit property, but nothing happened then; they did not quarrel with them.

41. The 1st defendant was cross-examined at length. I do not need to go into details but it appears from the cross-examination that he is something of a spendthrift. Unfortunately also he was one of those witnesses who seem incapable of a straight answer.

Evaluation and Findings

42. As I have indicated, the 1st defendant seemed incapable of a straight answer to cross-examination. He was evasive. However he was not inconsistent in his evidence of how he financed the purchase of the Morrison Hill Road property. He did not, it is true, give any specification of the identity of the person from whom he borrowed the money in his affirmations and statement, but only supplied this in oral evidence, but I do not see this as particularly significant when one is dealing with evidence of what happened in 1973. He has been able to provide some documentary support for his allegations of having cashed in shares.

43. The 1st plaintiff's evidence was straightforward enough but the problem with it is that when one analyses it, much of it is assumption. In particular, it seems to be assumed that because the 1st defendant was a spendthrift, and told the 1st plaintiff that he did not have enough money to buy the property, the money he used must have come from the business. However, the 1st defendant is in a position to say, and he does say that he borrowed from a friend and that cannot be contradicted. It is not an unlikely thing; people do borrow money from friends, even large sums. The same applies to the 1st defendant's explanations of where the money came from for the purchase of the Lee Garden Road property and so on. It is all not unreasonable and it cannot be contradicted. Reliance is placed on the evidence of the 1st plaintiff that the defendant discussed with him, in late 1972, how to obtain funds to "save the shop" but if this were said, and even if the 1st defendant at that stage considered buying the shop with funds from the business, it would not necessarily mean that he did so a year later.

44. So far as the meeting after the death of the father is concerned it seems probable that there was such a meeting at which it was agreed that the 1st defendant would continue to operate Kwong Shau and Kwong Fook. Nothing would be more natural. The 1st plaintiff says that the 1st defendant begged the others, with tears in his eyes, to let him carry on, but that sounds incredible. How they could stop him, at any rate from carrying on as Kwong Shau of which he was the only surviving partner, is not clear. In any event all the siblings were adult and in many cases out of Hong Kong. They had their own lives to live and although the 1st plaintiff says that he suggested that he carry on the business that does not seem realistic. He was a civil servant; he was going to emigrate; and there is a vast difference between answering the telephone for an undertaker and doing all the other work involving coffins and corpses.

45. The 1st plaintiff says that there was no discussion at that meeting of distribution of assets. There is no evidence from him of any specific agreement that the business would be carried on for the benefit of the family generally or the four sons other than the 1st defendant. It is all very well to say that this is what the father wanted, or what the mother said they should do because it was the deceased father's wish, but the father had made no will and no one was bound to follow his wishes. It is also all very well for the 1st plaintiff to say that he cannot tell the difference between the father's business and the family's business but they are in fact and law by no means the same thing.

46. I think that what the 5th defendant Wai Cheong says in his affidavit about a trust agreement has to be discounted because it is only evidence on paper, obviously drafted by a lawyer, and has not been tested by cross-examination. Further it is strange that he should refer to a trust in the 1st defendant to "look after the family business and our needs"; realistically, all the children except the 2nd plaintiff were grown up and living their own lives; I do not know what needs they could be expected to have. There is certainly no evidence of dependency.

47. It seems to me more likely that if there was any agreement it would have been, as the 1st defendant put it in his affirmation, that everything in the father's estate would go to the mother. That the 1st defendant registered her as a partner lends some support to this. However for any agreement to avoid the statutory provisions for intestate succession to be valid, it would be necessary for all the children to be parties to it; and they were not all present at the meeting. This in itself renders it unlikely that any definite agreement was reached as to what would be done with the estate. Overall seems to me most probable that if there was any agreement soon after the father's death it was simply that the 1st defendant would carry on with the businesses; and nothing else was decided at that stage.

48. As to what may have been agreed thereafter, the father's estate was valued by reference to his interests in the two partnerships and the 1st plaintiff and 1st defendant applied for Letters of Administration on the basis of that valuation. The 1st plaintiff was a party to that valuation and I do not see how he can now be heard to say that it is inaccurate; nor is there anything beyond his assertions to suggest that it was. It is correct that by the intestacy rules, the mother would have been entitled to the first $25,000 and the children would have been entitled to very little. It would therefore seem reasonable, if the mother was to be looked after, for the children not to bother about their minuscule shares. This coupled with the fact that no one (and in particular the 1st plaintiff who was a co-administrator) did anything about division of the estate leads me to the conclusion that this is in fact what happened, as the 1st defendant says. I am not therefore satisfied that there was any agreement that the 1st defendant should carry on the business or businesses for the benefit of the estate or even of the male descendants.

49. I turn to the question of how the 1st defendant bought the property. He did so before he became co-Administrator of the estate but in any event, if he bought it with the estate's money it would be held on constructive trust for the estate and the beneficiaries.

50. As I have indicated the 1st plaintiff can only say as a matter of assumption, or inference, that because the 1st defendant was a spendthrift he must have taken the money from the estate or the business against which the estate had a claim to buy the property; he could not have bought it himself. Perhaps he was a spendthrift; some of his own evidence seems to indicate that he gambled. Perhaps he did later borrow or otherwise receive money from his siblings, and perhaps they did assist in supporting their aged mother, as all good children should; though I have to say that the estimates given for such support seem exaggerated, and in any event this would only avail the plaintiffs if there had been an agreement that the mother would be supported entirely from the proceeds of the estate. However the 1st defendant has given consistent evidence that he borrowed from a friend and there is nothing to contradict him. I have indicated that the 1st defendant was an evasive witness and this may go against his credibility but at the same time demeanour is never the best indicator of truthfulness. In any event the onus is on the plaintiffs to prove that the 1st defendant did this. Even if the 1st defendant's own evidence is discounted the best that the plaintiffs can say is that they think this is what happened and in my view this is not enough. There is insufficient evidence on which I could find as a fact proved on the balance of probabilities that the 1st defendant bought the suit property with money from the business or businesses.

51. It is also difficult to see how, if the 1st plaintiff knew in 1974 from his sister's husband, who worked in a bank, that the 1st defendant had bought the property, he would not also then have known that the 1st defendant bought it in his own name.

52. In fact, so far as Kwong Shau is concerned, there was no business whose money could be used, because by section 35 of the Partnership Ordinance, Cap. 38, in the absence of any agreement between the partners, the death of any partner dissolves the partnership. By section 45 the deceased partner's share becomes a debt by the partnership to his estate. If there was no agreement to carry on the businesses for the benefit of the estate, but the 1st defendant used money from Kwong Shau to buy the property, I do not see that this would of itself give rise to any constructive trust. If he used money from Kwong Fook there would only be a constructive trust in favour of the surviving partners and then only if they had agreed to form a new partnership; and there is no evidence that they did. In any event, I have found that I am not satisfied either that there was an agreement to carry on the businesses for the benefit of the estate, or that the 1st defendant used money from the businesses to buy the suit property.

Limitation

53. The question of limitation arises in respect of the claim for an inquiry or account. If, as I have found, there was no agreement to carry on the businesses and the question of division of the estate was simply left hanging, then in the absence of any explicit agreement by the beneficiaries to waive their rights they would no doubt be able to claim an account against the co-Administrators. However section 21 of the Limitation Ordinance, Cap. 347, provides that no action in respect of any claim to the personal estate of a deceased person or to any share or interest in such estate, whether under a will or on intestacy, shall be brought after the expiration of 12 years from the date when the right to receive the share or interest accrued. This is subject to Section 20(1) which provides that no limitation shall apply where there has been fraud or fraudulent breach of trust or where the action is to recover from a trustee trust property in his possession or converted by him, but on my findings of fact this provision does not apply. It follows that in respect of the claim for an inquiry or account, the limitation period is long expired. I do not think it is necessary to consider the question of laches, but if it were, it seems to me that a delay of 20 years in bringing proceedings for an account would be held unreasonable and would in itself, by making it practically impossible for such account to be made up, render it unjust to grant the relief sought.

54. If the 1st defendant had converted trust property by using money from the businesses or the estate to buy the suit property then of course no limitation would apply; but I have found that I am not satisfied that he did this.

Conclusion

55. The plaintiffs' claims must fail. The action is dismissed, with costs (nisi) to the 1st plaintiff to be taxed if not agreed.