BUILD KINGDOM LTD AND OTHERS v. TSANG LIN YAU LINDA as the Executrix of the estate of LEE SING MAN, deceased

HCA 1321/2021

[2022] HKCFI 3247

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1321 OF 2021

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D E C I S I O N

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1.  This is the Plaintiffs’ application for summary judgment against the Defendant Tsang Lin Yau Linda as the executrix of the estate of Lee Sing Man deceased (“the Deceased”). At the conclusion of the hearing, the decision was reserved which I now give.

Background facts

2.  Build Kingdom Limited (“P1”), Hung Fat Cheung Investors Limited (“P2”), Lisco Investments Ltd (“P3”), Tai Kong Tung Company Limited (“P4”) and Wing Ngai Company, Limited (the “P5”) (collectively, “the Plaintiffs”) are companies incorporated in Hong Kong.

3.  The late Dr Stanley Ho (“Dr Ho”) was the majority shareholder in each of the Plaintiffs (indirectly in the case of P3).

4.  The Deceased was a minority shareholder in P1, P2 and P4 and indirectly a minority shareholder in P3 and P5.

5.  Prior to his death, the Deceased was a common director of each of the Plaintiffs. Dr Ho and Shum Ming Cho (“Mr Shum”) were some of other common directors of the Plaintiffs.

6.  The Deceased and Mr Shum were authorised signatories of the bank accounts of the Plaintiffs.

7.  The Defendant is the sole executrix named in the will dated 18 September 2018 (“the Will”) of the Deceased. The Deceased bequeathed his residuary estate to the Defendant and the Deceased’s 2 sons Lee Jun Sing (“JS Lee”) and Lee Jun Wai (“JW Lee”) (collectively, “the Lee brothers”) in equal shares.

8.  The Deceased died on 29 July 2019.

9.  The Plaintiffs claim (in round terms) an aggregate sum in excess of $111 million[1] made up as follows: P1 ($7.4 m), P2 ($34.5 m), P3 ($62 m), P4 ($7.6 m) and P5 ($1 m).

10.  Those sums (“the Sums”) are said to represent funds drawn from the Plaintiffs’ accounts in the form of loans to the Deceased with the consent of Mr Shum the co-signatory. The Sums are unsecured, non-interest bearing and repayable on demand.

11.  Within 3 weeks of the Deceased’s death, on 21 August 2019 the Defendant filed the Schedule of Assets and Liabilities of the Deceased (“the Original Schedule”) as part of application for grant of probate of the Deceased’s estate. Under “Section B Liabilities” of the Original Schedule, the amounts listed as amounts due to the Plaintiffs (“the Scheduled Sums”) correspond to the Sums save for P2’s claim which is shown as $19.9 million instead of $34.5 million.

12.  A month later, on 20 September 2019, the Defendant obtained the grant of probate of the Deceased’s estate.

13.  On 31 October 2019, the Defendant and the Lee brothers signed a Deed of Family Arrangement (“the DFA”). The Lee brothers agreed, inter alia, to share the assets set out in Schedule 2 of the DFA and the “liabilities of the Deceased as particularised in Schedule 3” equally. Schedule 3 listed the Scheduled Sums as amounts “due to” the Plaintiffs.

14.  On 29 November 2019, the Defendant filed the Additional Schedule of Assets and Liabilities of the Deceased (“the 1^st Additional Schedule”) which listed some additional assets but no amendment was made to the Scheduled Sums.

15.  The Plaintiffs commenced this action on 2 September 2021 and filed their statement of claim and amended writ in October 2021.

16.  The Defendant filed her defence on 23 November 2021. On 13 December 2021 she filed an affidavit exhibiting the 2^nd Additional Schedule of Assets and Liabilities of the Deceased which corrected the Original Schedule by deleting, inter alia, the Scheduled Sums from the list under “Liabilities” (“the 2^nd Additional Schedule”).

17.  The present summons was issued on 25 January 2022.

The plaintiffs’ case

18.  As earlier noted, the Sums are said to comprise loans advanced by the Plaintiffs to the Deceased. The Sums are recorded in audit confirmations signed by the Deceased and the audited financial statements of the Plaintiffs as debts owed by the Deceased to the Plaintiffs.

19.  The last audit confirmations were signed by the Deceased in March and June of 2018 save in the case of P1 when it was dated 31 December 2017.

20.  Subsequent to the signing of those audit confirmations, “the Deceased from time to time continued to withdraw monies from (and/or repaid to) the 1^st to 5^th Plaintiffs until his death”[2].

21.  The indebtedness was recorded in the audited financial statements of the Plaintiffs. The Sums accord with the amounts shown in the last audited financial statements available prior to the commencement of the action in respect of each of the Plaintiffs.

22.  The Plaintiffs except for P2 seek final judgment on the Sums. P2 seeks final judgment on approximately $19.9 million being part of the $34.5 million recorded as owing in its audited financial statement.

23.  Apart from audit confirmations and audited financial statements, the Plaintiffs rely on the “admissions” made by the Defendant in the Original Schedule, the DFA as well as the 1^st Additional Schedule in support of their claims.

The defence

(1)  The Defendant’s admissions

24.  The backdrop to the Defendant’s admissions include the following matters:

(a)  the Defendant (who did not receive tertiary education) was the personal assistant to the Deceased for 25 years until his death in 2019;

(b)  she was aware that the Deceased carried out investments[3] with other tycoons of Hong Kong through investment vehicles, including the Plaintiffs and had been introduced to them; however, she was not involved in the operations and investments of the Plaintiffs, had never heard of the loans that are the subject matter of this action and had no access to the books of accounts of the Deceased’s investment vehicles including the Plaintiffs;

(c)  during the Deceased’s lifetime she enjoyed a very close and cordial relationship with the Lee brothers and Janet Wong (a cousin of the Deceased who dealt with and worked closely on the Deceased’s finance/accounting matters). This relationship continued after the Deceased’s death until late 2020/early 2021; and

(d)  after the Deceased’s death, the Defendant retained Stevenson Wong & Co (“SWC”) to prepare the probate (including the Original Schedule). JS Lee and Janet Wong gave instructions directly to Wendy Lam, a partner of SWC.

25.  The “admissions” on which the Plaintiffs rely came about in the following circumstances:

·  On 21 August 2019, only about 3 weeks after the Deceased’s passing, the Defendant was requested by Wendy Lam to sign probate documents. The Defendant “did random checks” of the Original Schedule but did not verify its contents before signing it. She “mostly checked with the bank statements[4]” expecting that Wendy Lam would have checked, inter alia, proofs of debt.

·  On 31 October 2019, the Defendant executed the DFA at the request of the Lee brothers, gifting her interest in the Hatton House and the Merry Court properties to them. The remainder of the assets shown in Schedule 2 and the liabilities particularised in Schedule 3 were to be shared equally between the 3 residuary beneficiaries. The liabilities to the Plaintiffs shown in Schedule 3 of those set out in the Original Schedule.

·  The Defendant investigated into the Deceased’s estate and found additional assets as a result of which she filed the 1^st Additional Schedule on 29 November 2019.

26.  The “admissions” relate to documents dated 21 August 2019, 31 October 2019 and 29 November 2019, all of which occurred within 4 months of the Deceased’s death. As earlier noted, throughout that period and until early 2021, the Defendant was on good terms with and trusted the Lee brothers and Janet Wong.

27.  Having retained SWC to prepare the necessary documents for probate (including the Original Schedule), the Defendant trusted SWC and expected it to have checked the debts and bank statements.

28.  Beginning mid to end 2020 SWC began ignoring her requests regarding the Deceased’s personal tax liability. Eventually, the Defendant obtained the assistance of an accountant who succeeded in reducing the estate’s liability to the IRD by 70%.

29.  The Defendant took the opportunity to ask the same accountant about the interest-free debts in excess of $111 million and was advised to ascertain what they were. She approached Wendy Lam and Janet Wong but neither of them replied to her queries nor provided any proofs of debt.

30.  She then sought the assistance of the Lee brothers[5]. The Defendant’s present solicitors (who began acting in March 2021) also wrote to the Plaintiffs on 18 August and 3 September 2021 requesting for proofs of debt but all efforts to obtain information were to no avail.

31.  In September 2021, the Plaintiffs commenced this action and the Lee brothers commenced proceedings (HCMP 1286/2021) to remove the Defendant as executrix.

32.  On 13 December 2021, the Defendant filed the 2^nd Additional Schedule deleting the amounts shown due, inter alia, to the Plaintiffs.

(2)  Lack of particulars of the loans

33.  Despite the Defendant’s complaints about lack of particulars as to the individual loans making up each of the Sums, all the Plaintiffs can say is that Mr Shum “cannot now recall the specific nature of each and every withdrawal by the Deceased given that there have been many such withdrawals spanning a long period of time[6]”.

34.  Other than the production of 5 cheques[7] as “examples” of the cheques drawn in favour of the Deceased from P2 and P3’s respective bank accounts and signed by the Deceased and Mr Shum dated between August 2006 and April 2015, the Plaintiffs who alone could be in possession of or have control over the books and papers[8] relevant to the loans have refused to provide any particulars or evidence pertaining to the same.

35.  The cheques produced do not evidence loans that remain outstanding. Those amounts may have been repaid as it is Mr Shum’s evidence that the Deceased from time to time “repaid” monies to the Plaintiffs[9]. In other words, the traffic was not all one-way.

36.  The Defendant considers that as administratrix, she has a duty to obtain proofs of debt from the Plaintiffs instead of blindly paying them off.

(3)  The purpose of the loans

37.  Mr Shum explained the nature of the loans made to the Deceased in Shum 1^st (at §7) in these terms:

“… I can confirm that these loans were in general advanced by the Plaintiffs to the Deceased with a view to enabling the Deceased to conduct business activities for the Plaintiffs vis-a-vis third parties without exposing the identity of the Plaintiffs or their shareholders, including the late Dr Stanley Ho. The loans were duly recorded as debts owed by the Deceased to the Plaintiffs and confirmed by the Deceased by way of audit confirmations from time to time.”

38.  It is apparent that the loans were not made to the Deceased for his personal use or benefit but were to be applied “to conduct business activities for the Plaintiffs”. In that scenario, it defies common sense that the Deceased alone was to be responsible for repayment of the loans when those loans were to be applied for the benefit of the Plaintiffs in which the Deceased was but a small minority shareholder (directly or indirectly). One would not have expected such loans to engage any personal liability given their purpose.

39.  Be that as it may, it stands to reason that there must have been some (undisclosed) arrangement(s)/agreement(s) between the Deceased and the Plaintiffs regarding the application of the loans and whether the same required repayment.

40.  Since the purpose of the loans was “to conduct business on behalf of the Plaintiffs”, it is reasonable to assume that profits would have been in contemplation and one would expect there to be some arrangement in place for the treatment/distribution of profits from that activity.

41.  When the court remarked on those matters at the hearing, Mr Nip SC, leading counsel for the Plaintiffs, could not elaborate or provide any explanation being constrained by the evidence that is before the court.

Whether the defence is credible

42.  The Plaintiffs were highly critical of the absence of any supporting affidavit from Wendy Lam or Janet Wong concerning their respective roles and the Defendant’s approaches to them for information regarding the loans that are said to make up the Sums. This was particularly so in the case of Janet Wong who is alleged to have worked closely with the Deceased on his financial and accounting matters.

43.  The Plaintiffs also remarked on the Defendant’s failure to produce any correspondence with either Wendy Lam or Janet Wong in support of her various unsuccessful attempts to obtain their assistance. It was submitted that the absence of any direct or objective evidence from those individuals (who are critical to the Defendant’s pleaded defence) is fatal to her opposition to summary judgment.

44.  Further, the Original Schedule and the 1^st Additional Schedule are court documents sworn by the Defendant under oath. The DFA was, likewise, a legal document which was “signed, sealed and delivered” by the Defendant in her capacity as executrix and as a beneficiary.

45.  To disown a signed legal document, facts constituting the particular vitiating factor relied on must be pleaded and established by the evidence: see Ming Shiu Chung v Ming Shiu Sum (2006) 9 HKCFAR 334 at §§84 and 87.

46.  The Defendant was also criticised for not explaining why she waited for more than 2 years after the death to file the 2^nd Additional Schedule.

47.  While some of the criticisms made by the Plaintiffs are valid, the Defendant’s relationship with Wendy Lam and Janet Wong, the trust and confidence the Defendant reposed in them endured until late 2020/early 2021, followed by a change of solicitors.

48.  Mr Jerome Liu, counsel for the Defendant, accepted that some delay to the Defendant’s investigations may have resulted from the change of legal representation, but any such delay was insubstantial.

49.  In so far as it was suggested that her 3 years as executrix was more than ample for investigations to be carried out into the Deceased’s estate, the fact of the matter is that no meaningful investigation into the loans could be carried out by the Defendant when her requests for information regarding the loans/proofs of debt have been stonewalled.

50.  By September 2021, only a little over 2 years after the Deceased’s death, the Plaintiffs commenced this action relying on audit confirmations, audited financial statements and the admissions.

The 2^nd limb of o 14, r 3[10]- there ought for some other reason to be a trial

51.  Mr Liu submitted that given the circumstances of this case, the 2^nd limb of O 14, r 3 is applicable: summary judgment should not be granted if “… there ought for some other reason to be a trial of that claim or part …”.

52.  That limb was applied in Samwa Co Ltd v Lau Cho Cheong, HCA 671/1982, unrep., 29 November 1983, the circumstances of which are said to be very similar to the present case.

53.  In that case, the plaintiff sued for profits accountable by the deceased who had acted as the plaintiff’s agent for the purchase and sale of films. The writ was issued less than a month after the deceased’s death. The profits claimed had been acknowledged in a letter signed by the deceased some 5 years earlier.

54.  The defendants (who were the personal representatives) successfully submitted that they should have an opportunity to investigate whether the amount was due under the 2^nd limb, citing Miles v Bull (1968) 1 QB 258, where Megarry J considered the wording of that limb to be “very wide” and that they were applicable where most of the relevant facts were under the control of the plaintiff as was the case before him.

55.  Mr Nip sought to distinguish the Samwa case by highlighting the fact that it involved a 5-year gap between the deceased’s acknowledgment and his death whereas in the present case his last audit confirmation to P2 and P5 occurred only a few months prior to the Deceased’s death.

56.  It was also drawn to the court’s attention reliance on “some other reason” does not absolve the defendant from the burden of establishing a credible defence: Nice Plan Development Limited v Ke Jun Xiang, CACV 259/2014, 25 June 2015 at §25 and Tianjin Jinfu Expressway Company Ltd v Lucky Extend Ltd, CACV 266/2007, 9 April 2008 at §38.

57.  Whether or not the 2^nd limb of O 14, r 3 is applicable in any given case is highly fact-sensitive. Identifying factual differences with another decided case is often not a useful exercise. The question is whether the particular facts and circumstances of the case under consideration warrant the application of the 2^nd limb.

58.  In my view, the Achilles’ heel of the Plaintiffs’ case is their own evidence of the purpose of the loans. In the face of that evidence, it is simply not open to the court to grant summary judgment.

59.  There are other curious features that require further investigation.

60.  P2’s claim in the writ is for $34.5 million. However only $19.9 million is the subject matter of its claim in this application. Despite audit confirmations signed by the Deceased in March 2018 and March 2019 confirming an amount of $33.1 million and $33.6 million respectively as being due to P2 as at 30 June 2017 and 2018, and $34.5 million is shown in the audited financial statement dated 30 June 2020 as the amount by the Deceased, it is inexplicable why in the Original Schedule prepared by SWC/Wendy Lam/Janet Wong, the Deceased’s liability is shown as only $19.9 million.

61.  The fact that there are many inter-company and related person loans is evident from a perusal of the Plaintiffs’ financial statements. For example, in the case of P2, significant amounts are shown owing to an “investee company” and “related parties” who are not identified. In the case of P4, significant amounts are owed to “related companies” and P5[11] is shown to have significant liabilities for “Loan from a related company”, “Amount owing to a shareholder” and “Amount owing to an associate”. Again those entities/persons are not identified.

Conclusion

62.  Taking a holistic view of the circumstances that prevail in the present case, I have little doubt that they warrant the application of the 2^nd limb.

63.  On the question whether leave to defend should be conditional, given the magnitude of the aggregate amount in issue, to grant conditional leave on the payment into court of that amount is little short of emasculating the grant of leave to defend, and any other amount would be wholly arbitrary.

64.  Given the overriding reason for dismissing the Plaintiffs’ application for summary judgment, I consider that the appropriate order is to grant the Defendant unconditional leave to defend.

65.  Accordingly, the Plaintiffs’ summons for summary judgment is dismissed. There is to be an order nisi of costs in favour of the Defendant with certificate for counsel, such costs to be summarily assessed and payable forthwith. It is further directed that the Defendant lodge its statement of costs within 7 days of this Decision, the Plaintiffs their objections within 14 days thereafter and the Defendant its reply (if any) within 7 days thereafter.

66.  Summary assessment will take place in Chambers.