CHAN CHIU LAM AND OTHERS v. YAU YEE PING

CACV 209/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 209 OF 2003

(ON APPEAL FROM HCAP NO. 6 OF 1991)

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J U D G M E N T

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Hon Rogers VP:

1. This is an appeal from a judgment and order of Deputy High Court Judge To given on 11 Jun 2003 whereby the judge ordered that the account to be taken of the assets of SUNG CHUEN PAO (孫君豹) alias ROBIN C P SUNG, deceased ("the deceased") in accordance with the terms of the second judgment of Keith J in this matter, that dated 17 September 1999 and amended on 30 April 2002, be on the footing of wilful default and that there should be a costs order nisi that the costs of that application including the costs reserved by Deputy High Court Judge Woolley in respect of the hearing on 9 April 2002 be paid by the defendant to the plaintiffs. At the conclusion of the hearing of this appeal judgment was reserved which we now give.

Background

2. It would be convenient to set out some of the background to this case. This litigation has already involved 2 judgments of Keith J in the Court of First Instance, which to a certain extent conflicted with each other, an appeal to the Court of Appeal, where 3 different conclusions as to the status of the parties was reached and an appeal to the Court of Final Appeal where the matter has been resolved.

3. The deceased married the 1st plaintiff in Shanghai in 1929. Although they had no children of their own they adopted a daughter, the 3rd plaintiff. In 1933 the deceased took a concubine who has been referred to as Madam Sung. The deceased and Madam Sung had two sons and one daughter. The eldest son died before the deceased and the second son, "Momo", survived him and was married to a Madam Lee. The daughter is the 2nd plaintiff in this action. The result of the decision in the Court of Final Appeal was that Madam Sung was not to be considered a legitimate concubine and therefore the 2nd plaintiff had to be treated as illegitimate and a stranger to the deceased's estate.

4. Finally the deceased took the defendant, Madam Chu ("the defendant"), as his second concubine. He did so in Shanghai in 1945. The deceased came and settled in Hong Kong in 1951 and a year later the defendant came to Hong Kong and joined the deceased. Thereafter, until November 1985 when the deceased died, the deceased and the defendant lived together as husband and wife and appear to have been treated as such by all and sundry. Again, as a result of the decision in the Court of Final Appeal, it has been held that the defendant was not a legitimate concubine and, again, she is a stranger to the deceased's estate.

5. In November 1986 the defendant applied for and obtained letters of administration in respect of the deceased's estate. However, the defendant died in November 1987. It was not until July 1991 that these proceedings seeking to revoke the letters of administration that had been granted to the defendant in respect of the deceased's estate, were commenced against the defendant's estate. As well as the revocation of the grant of the letters of administration, an order was sought for an account of the assets of the deceased. At the commencement of these proceedings the defendant, or more correctly her estate, was represented by her sister. Regrettably the sister has also since died and a niece now represents the estate.

6. As a result of the litigation there is now no dispute that an account should be taken of the assets of the deceased which had come into the hands of the defendant and were included in her estate. Furthermore, as a result of the order of the Court of Appeal, which remained intact after the decision of the Court of Final Appeal, the issue must be decided as to whether the account should be taken in the common form or whether it should be taken on the basis of wilful default.

The judgment below

7. In coming to his decision that the account should be taken on the basis of wilful default, the judge below considered the test which should be applied as to whether basis of wilful default was appropriate. The difference between the two bases is that an account in the common form requires the personal representative to account only for what he has received of the deceased's personal estate. Accounting on the basis of wilful default is an account taken which would include assets that the person rendering the account has not actually received but which he or she ought to have received or might have received if he or she had acted with proper diligence. The test which the judge set out in paragraph 5 of his judgment was that:

"A party seeking such a decree has to prove a loss of at least one asset received in the hands of the personal representative or which might have been received but not so received and that the loss or omission occurred under circumstances as to show wilful default on the part of the personal representative. In other words, he must prove a causal connection between the loss and breach of duty."

8. Both parties on this appeal accepted that this was the correct test. Miss Wong, who appeared on behalf the defendant, argued that although the judge set out the correct test in the first part of the judgment, when he came to decide the matter he did not apply that test but applied another. Before analysing that submission it is necessary to consider the matters which are said to constitute grounds upon which the court should order that the account should be taken on the basis of wilful default.

9. The bases upon which the plaintiffs allege that the defendant is liable to account on the footing of wilful default are set out in particulars which were delivered on 20 May 1998. There are essentially two grounds on which that assertion is made. The first ground is that the defendant sold two tranches of Hong Kong and Shanghai Bank Corporation Ltd ("HSBC") shares and kept the proceeds, the second is that the defendant made a fraudulent declaration in November 1986 when applying for letters of administration, that the deceased had died without issue and had no other wife or concubine other than herself. Having done that the deceased then administered or attempted to administer the deceased's estate on the basis that she was the only beneficiary. It would be convenient to deal with those matters separately.

The HSBC shares

10. As has already been indicated the defendant died in 1987. It has since been discovered that that there were 22,359 HSBC shares belonging to the deceased which were sold in January and February 1986. The proceeds of sale of those shares were in respect of the first tranche $55,598.70 and in respect of the second tranche $115,481.70. It is impossible now to be sure as to how the defendant came to be able to sell those shares. It seems, however, that the signature on the transfer forms for both parcels of shares was the same signature. The first inference which might be drawn from that is that the deceased had signed the transfer forms in blank before his death. This would, by no means, have been unusual. In those days shares were dealt with in scrip form and it was very common to have blank signed transfer forms. That this is quite likely to have happened might be gleaned from a letter that the defendant wrote to the 1st plaintiff in December 1985, a month after the deceased had died. In part of that letter she had mentioned the difficulties that the deceased and herself had experienced in particular with regard to making ends meet having to pay for medical expenses. The letter went on:

"Fortunately we did not spend too much and could still get along. Afterall, he was a decisive person. He transferred the remaining stocks into my name two months ago. He told me the reason he put them in my name was that he trust(ed) me and he knew my character. In case anything happened, he hoped I could make good arrangements. This was a smart move. The stocks are now in my name, and I can sell them to get money. If they were still under his name, we would have to wait for the government's approval two to three years before we got the money. At the present market value, the stocks are worth about $600,000. I want to sell a portion of them in the next few days and give the money back to second aunt."

It would appear that there was thus a total received in respect of the HSBC shares of $171,080.40. In addition there were cash assets which were available of $216,702.52. The defendant appears to have spent some $339,677.75 in respect of estate duties, after taking into account a refund of $731.60. The estate duties would, of course, have to be paid before any of the assets in the name of the deceased could have been released. In addition to that the defendant appears to have spent some $135,000 on funeral, burial and various worship expenses in respect of the deceased. The plaintiffs also concede that, in addition, a total of $100,000 which was distributed to the 1st plaintiff should be taken into account.

11. Putting all those figures together it is clear that the defendant had spent in relation to estate duties, funeral and other expenses, as well as distributions, some $357,975.23 more than she obtained from the cash assets and the sale of the HSBC shares not even taking into account a distribution made to the 2nd plaintiff. Since the expenses were all legitimate and there has been no indication that at the time the defendant had other assets belonging to the deceased from which those expenses could have been recovered, in my view, any allegation that in respect of the HSBC shares there has been a misappropriation of assets or that assets, which should have been received by and on behalf of the estate, have not been so received fails.

12. The plaintiffs also allege that all the shares which had been in the deceased's name found their way into the defendant's name and it has been demonstrated that some 40 percent of the shares which were in the defendant's estate after she died some two years after the deceased had come from the deceased. In this respect the plaintiffs rely on the following paragraph in their particulars of alleged fraudulent conduct:

"The Plaintiffs will rely on the following as constituting fraudulent conduct on the part of Chu Lee entitling the Plaintiffs to an account on the basis of wilful default: --

(a) Chu Lee had fraudulently declared in her Oath of Administratrix dated 25th November 1986 that the Deceased had died without issue and had no other wife or concubine other than herself, thus making her the only beneficiary entitled to the estate of the Deceased;

(b) Chiu Lee did not administer or attempt to administer the estate of the deceased after obtaining the grant of Letters of Administration and before her death."

13. This manner of presenting the case appears to have caused confusion below and, perhaps, was the factor which led the court to deal with the matter in a way which Miss Wong said was in error. In the first place, in paragraph 7 of the judge and it is said:

"Since a causal connection between the loss and wilful default must be proved, it is more convenient to deal with both issues together."

As Miss Wong pointed out there are two separate issues. The first is whether there was loss and the second is whether there was wilful default. By running the two issues together sight can easily be lost of the importance of the questions which must be asked in deciding whether the account should be taken on the basis of wilful default.

14. Regrettably, it would appear that the judge has concentrated on the question as to whether the defendant administered the estate in accordance with the distribution entitlement as has ultimately been found by the Court of Final Appeal. In paragraph 10 of his judgment the judge said:

"The real question is whether by not including those shares in the Schedule and by selling them, Chu had appropriated those shares or the proceeds of sale to herself with the intention of permanently depriving the estate of those shares or proceeds of sale."

This was taken up in paragraph 14 of the judgment where it was said:

"That effectively means, the majority if not all the shares belonging to Sung's estate had been appropriated by Chu to herself. She could have appropriated the shares to herself as administrator of Sung's estate or to herself personally. But the fact is that she did not distribute them to the beneficiaries, such as the 1st and 2nd plaintiffs or to Momo and the 3rd Plaintiff. This fact and the inference I drew earlier that she was deceiving the 1st and 2nd plaintiffs out of their entitlement to Sung's estate points to the irresistible inference or conclusion that when appropriating the shares belonging to Sung's estate to herself, Chu did so by way of distribution to herself in her personal capacity with intention to permanently deprive the estate or the beneficiary of the shares and that since the transfer she held the shares in her personal capacity and not as administratrix of Sung. The shares were not held by her as administratrix pending distribution. She has therefore misappropriated the shares to herself and Sung's estate suffered significant loss."

15. This approach, based as it is, on an assessment of the morality of the defendant's conduct, loses sight of the important question as to whether it has been demonstrated that there are any assets of the deceased's estate which have been lost or not recovered. This, it seems to me, is a fundamental question which has to be decided if there is to be an accounting on the basis of wilful default. Miss Wong submitted that she herself has seen envelopes containing the relevant shares which came from the deceased's estate. The real complaint which is being made against the defendant is not that she did not get in the assets or failed to get in assets which she should have done but that she considered that she was entitled to the whole of estate. However, that was the effect of the letters of administration which she succeeded in obtaining.

16. It might be thought easy to attribute improper motives to the defendant in claiming to be entitled to the estate. But before doing so it must first of all be remembered that there is no indication that the defendant was a well-educated sophisticated person. She became a second concubine in Shanghai in 1945 at what seems to have been the age of 21. Again, it should be borne in mind that, at that time, the Mainland had endured many years of war and consequential severe disruption. The likelihood of the defendant having had any significant education can only be considered dubious. That the defendant would have been aware of the legal implications in the Mainland of becoming a concubine in 1945 is, again, a matter of speculation. Whether the defendant would have appreciated her legal status in Hong Kong is again highly questionable. Although, as the expert witnesses have been able to testify, concubines were an unrecognised entity in the Mainland, that was not so in Hong Kong. Concubinage was recognised in Hong Kong for almost 20 years after the defendant arrived here. What is more, those who had been concubines prior to the abolition of concubinage in Hong Kong still had their status recognised as a matter of law.

17. Whilst it is a fact that there is no evidence, as such, from the defendant, there are letters. These reveal that the defendant was a person who stood by the deceased, in the position of a wife, with considerable loyalty. One of the letters talks of the deceased being over 50, some 20 years before he died. In respect of that period the defendant said:

"... we had no reliable income and had to live in a servant's bedroom and eat in someone's courtyard. We were young and could bear with all this. I did not grumble. It was not his fault but the circumstances. Second aunt used to give us tales of gold every month for living but we could not carry on like this. We are actually thought of moving back to Shanghai. But then we had a friend doing trade in Japan. He asked Pao (the deceased) to join him. We raised some money from different sources and he then went to Japan. I lived in my second sister's home alone and helped her take care of all matters at home. He spent more than a year there but did not made any progress. Somebody took his tweed away and did not give him money."

18. The letter then goes on to describe difficult times when the deceased became a car salesman. Furthermore, it would appear that the deceased was, perhaps, not always a loyal husband. The letter speaks of him not coming home at night but staying at the Far East Hotel. It does so in such words as:

"Frankly, Hong Kong is such a dazzling society, it would be difficult for a person like him to behave himself. But I managed to cope with him. We carried on year after year........ He sometimes asked me to bear with him when he lost temper. But I am just a human being with my own personality. Then I thought, we have been married for over 40 years. Despite his age, I still treated him like a kid. I even told him about this and he was so happy. I expended a lot of patience. This situation was very unacceptable but I still put up with it."

19. In an earlier letter the defendant had told of the time when the deceased was ill and did not wish to spend any more money on doctors' fees because they were high. She had encouraged him to go to see the doctor because she felt that health was most important, no matter what. "We could save on something else.".

20. There is also the fact that she had made a distribution in 1986 and 1987 totalling $20,000 to the 2nd plaintiff believing that as the deceased's daughter she should be provided for out of the deceased's estate although, ultimately, some 15 years later, it was held that as a matter of law, the 2nd plaintiff was not so entitled because she was illegitimate as her mother was not considered a legitimate concubine. There is also the fact that the defendant had purchased a property for $650,000, financed partly from the deceased's estate and partly from the defendant's own monies so that Momo who was the deceased's son could live with her.

21. Taking all these matters into consideration it would appear that the defendant had considered that she was married to the deceased. She had considerable justification for that thought albeit, as already noted, with the help of expert witnesses, the legal conclusion has been arrived at that that was incorrect. One might add that the arrival at that conclusion was by no means a straight road. Before the Court of Final Appeal had arrived at that solution there had been no less than five different judicial pronouncements as to the legal effect of the state of affairs. In relation to the suggestion that the defendant had cheated the 1st plaintiff by saying that there was only $600,000 worth of shares, that statement was in a letter written a mere month after the death of the deceased. Clearly the defendant may well have not known the exact amount of the shareholding at that stage.

22. In those circumstances it would be a travesty to approach the case on the basis that the defendant had given a "fraudulent preference" either to herself or to Momo. In any event, that conclusion is not the key factor which is important in deciding whether there should be accounting on the basis of wilful default. As Miss Wong has pointed out, there has no evidence of any funds which should have been gathered and which have not been. The only evidence is that the defendant wrongly thought that she was entitled to the whole of the deceased's estate albeit, as the evidence shows, she was intending, and had every intention of benefiting not only the 1st plaintiff but the 2nd plaintiff and the 2nd plaintiff's offspring whom she justifiably thought was entitled, at least morally if not legally, to part of the deceased's estate.

23. In the circumstances I would therefore allow this appeal and make an order that the account should be taken in common form and that there should be an order nisi the defendant should have her costs here and below.

Hon Le Pichon JA:

24. I agree.