CHAN YEUK NAM AND OTHERS v. CHAN YEUK SHAN (as the Executrix of the Estate of Chan Chuk Kan, as the Executrix of the Estate of Leung Lan and in her own capacity)

HCMP 1530/2020

[2021] HKCFI 3649

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1530 OF 2020

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J U D G M E N T

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A.   INTRODUCTION

1.  This is the plaintiffs’ application under section 33(3) of the Probate and Administration Ordinance, Cap 10, for the removal of the defendant (“Cindy”) as the executrix of the estates of the parents of the parties.  The 1^st to 5^th plaintiffs and Cindy are sisters in their 40s or 50s.  They are all the beneficiaries of their parents’ estates under the respective wills.  The plaintiffs seek further reliefs including an order that Cindy forthwith provide a full and proper account of her prior administration of the estates.

B.   BACKGROUND

2.  Years ago, the 1^st to 5^th plaintiffs had gone to the USA for education and subsequently got married and settled down there.  Cindy is unmarried and the only daughter in Hong Kong who had continued to live with their parents until they, the father and mother, passed away on 16 January 2017 and 1 May 2017 respectively.

3.  By their last wills both dated 5 September 2016, the father and mother had, respectively, appointed Cindy as the sole executrix and trustee of their estates.

4.  Probates were granted to Cindy on 15 February 2018 (mother’s estate) and 11 April 2018 (father’s estate).

5.  Pursuant to clause 4 of each of the said wills, one property was specifically bequeathed to Cindy for her own use and benefit absolutely, namely, 4/F, 21A Lock Road, Tsimshatsui, Kowloon (½ share from each parent to Cindy respectively).  As for the residuary estates, they are to be administered and divided equally amongst the 6 daughters for their own use and benefit.

6.  An overview of the assets comprising the estates can be seen by reference to a 24 June 2020 report produced by FTW & Partners CPA Ltd for the period from 16 January 2017 (date of the father’s death) to 30 June 2019 (the “FTW Report”).  The FTW Report was provided to the plaintiffs by Cindy’s solicitors in late June 2020 and included assets in Mainland China.

7.  As can be seen in the Cash Flow Statement of the Probate Assets in the FTW Report, 8 properties in Hong Kong were/are included, 4 of which (according to the FTW Report) have been liquidated by Cindy, ie Hong Kong Property 1, 4, 6 and 7 as defined in the FTW Report, fetching net sale proceeds totalling $24,450,435.30 for the estates.

8.  In other words, the estates have only been partially administered.

9.  According to the above Cash Flow Statement, as at 30 June 2019, there was a net cash surplus of $25,730,388.71 in the estates.  It is common ground that out of the said surplus, $9,000,000 (ie 6 x $1,500,000) was distributed by Cindy’s solicitors to the 6 residuary estate beneficiaries, on or about 4 December 2019.  That round of distribution works out to be around only 35% of the net cash surplus.  No further distribution has since been made by Cindy or her solicitors to any of the plaintiffs.

10.  And according to the FTW Report, Cindy makes provisions/reserves for “future expenses” of $7,423,817.53, including, inter alia, (i) $625,000 for “legal & professional fees of HK and China properties”; (ii) $2,000,000 for litigation expenses (in anticipation of the plaintiffs’ threat of potential/future litigation and disputes^[1]); and (iii) $3,581,845.33 as estimated “future liabilities reserves”.

11.  As the affidavit evidence presently stands, the following properties in Hong Kong remain unsold:

(1)  Property 2 - a cluster of commercial/shop properties in “Tsimshatsui Mansion (華源大廈)” built in 1961, with total floor area of 1,320 square feet (within which 820 square feet is on the mezzanine floor, and 500 square feet is on the ground floor) (collectively, the “TST Shop Premises”).  The TST Shop Premises have been occupied by a partnership business called Shui On Arts & Crafts 瑞安工藝 (“SOAC”) free-of-rent.  SOAC is a partnership between Cindy and her uncle, Chan Chuck Yin (陳焯彥) (“Uncle”).  She had joined this partnership on 12 October 2016, shortly before the father’s resignation.

(2)  Property 3 - 1/F, 5A Humphreys Avenue, Kowloon, which has been receiving rental income of $23,000 per month from J&E Salon.

(3)  Property 5 - Flat A, 6/F, Han Hing Mansion (漢興大廈), 38-40 Hankow Road, Tsimshatsui (“Cindy’s Dwelling”), which has been occupied by Cindy as her residential flat free-of-rent.

(4)  Property 8 - Flat F, 9/F, Rich View Terrace, 26 Square Street, Hong Kong, which has been left vacant pending sale, according to Cindy’s Affirmation.

12.  According to the valuation report of Dudley Surveyors, the TST Shop Premises should have a market rental value of about $101,000 per month based on the analysis of the said surveyors.

13.  It is common ground that the estates’ interest in (i) the TST Shop Premises, (ii) Cindy’s Dwelling and (iii) Property 3 is not whole but should only be 50%, as those properties were and are co-owned with Uncle or his wife as tenants-in-common in 50:50 ratio.

14.  Since the commencement of these proceedings, Cindy has disclosed certain “offers” allegedly received by her and Uncle for the TST Shop Premises.  In paragraph 36 of Cindy’s Affirmation, she discloses that an offer of over$300 million has been received.  Her Uncle in paragraph 12 of his affirmation alludes to having received from a developer a potential offer of over $300 million for the TST Shop Premises and trusts such offer reflects the redevelopment potential of the property.

15.  In Cindy’s 2^nd Affirmation, paragraph 20, she discloses that a potential purchaser by the name of Four Seasons Global Investment Limited has made an offer to purchase the TST Shop Premises at a consideration of approximately $6 billion.  At paragraph 21, she informs that the negotiations are now “mature” and there is a “concrete offer on the table”.

16.  By letters from Cindy’s solicitors dated 2 July 2021 and 14 July 2021 to the plaintiffs’ solicitors, the potential purchaser’s offers for the TST Shop Premises are said to have soared to $7.595 billion.  If that were true, then the per square foot price of the property would be a staggering $5.753 million.  Such mind-blowing figures make one wonder how genuine such “offer” can be, especially when popular tourist hubs like Tsimshatsui have been the worst hit areas due to travel restrictions caused by the COVID pandemic.

17.  Up to the date of the hearing, Cindy’s solicitors have not provided any sensible negotiation correspondences with interested parties/agents, let alone an executed Sale and Purchase agreement of the TST Shop Premises.

18.  That is despite clear instructions from the plaintiffs via their solicitors to Cindy’s solicitors to accept the offer forthwith. See letter dated 5 July 2021 from the plaintiffs’ solicitors, Messrs Tsang, Chan & Wong.

19.  In fact, Cindy’s solicitors have gone all quiet in the most recent months insofar as the “offer” is concerned.

C.   RELEVANT LEGAL PRINCIPLES

20.  The duty of an executor to keep and render proper accounts is of paramount importance.  In general, it is the duty of a personal representative, after a grant has been made to him, to collect and get in the real and personal estate of the deceased and to administer it according to law.  He must act with due diligence in the discharge of his duties.

(See : Williams, Mortimer and Sunnucks on Executors, Administrators and Probate, 21^st Ed, §42-20).

21.  In Cheng Tang Kam Yung v Tang Kam Cheung and another, HCMP 147/2008 (unrep, 26/08/2013) per Deputy Judge Leung at §52:

“… the administrator might have formed his view on how the estate should be administered. Nevertheless proper account must be kept and the beneficiaries of the estate kept informed. The account kept must be clear and accurate; and the executor or administrator must always be ready to render such account when called upon to do so: see In Re Estate of Lee Da Kor [2010] 1 HKLRD 415 (at §§16-17).”

22.  In Re Estate of Lee Da Kor [2010] 1 HKLRD 415, at §17, Jeremy Poon J (as he then was) said:

“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 …”

23.  In Chow Chak Kiu v Chow Man Chit, HCMP 797/2016 (unrep, 17/01/2017), Chow J (as he then was) said, at §40, that to render a proper account of the estate of a deceased person, the personal representative is required to:

(1)  show the opening balance (including capital assets) and closing balance;

(2)  give details of movement of assets, incomes, and expenditure of the estate;

(3)  give details of the whereabouts of all properties (including cash) of the estate which the personal representative is duty bound to administer; and

(4)  support the account with documentary evidence.

24.  Section 33(3) of the Probate and Administration Ordinance, Cap 10, provides:

“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.”

25.  The discretion to remove an executor under s 33(3) is wide.  It involves an assessment and a value judgment, in all the relevant circumstances, of whether removal is required for (a) the due and proper administration of the estate and (b) the interests of the beneficiaries.

(See: Tsang Wing Kwai v Tsang Wing Fai (No 2) [2019] 1 HKRLD 1300, CA §27)

26.  The establishment of specific guilt or misconduct in administering the estate isnot a prerequisite of the discretion.  The main guide must be the welfare of the beneficiaries.

27.  A personal representative will not be permitted to put herself in a position of conflict in dealing with the estate.

(See: Kong Colin Chung Ping v Kong Joanie Chun Mun, HCMP 2045/2012 (unrep, 24/02/2015), §§19, 20)

28.  A personal representative may be liable for devastavit in respect of losses occasioned by her improperly neglecting to realise the estate.  For example, she is liable for consequential loss when she, without any apparent reason or necessity, omits to sell property when it ought to have been sold.

(See: Williams, Mortimer and Sunnucks on Executors, Administrators and Probate, 21^st Ed, §57-11)

29.  Although section 71 of the Probate and Administration Ordinance provides that a personal representative is not bound to distribute the estate before the so-called “executor’s year”, yet if there is delay of more than the executor year, the onus would be on her to show some valid reason for that delay.

(See: Williams, Mortimer and Sunnucks on Executors, Administrators and Probate, 21^st Ed, §§42-20, 64-01, 64-02)

30.  Friction or hostility between an executrix and a beneficiary alone, without more, is of itself not a good reason for removing the executor.  However, if the hostility is grounded on the mode of administration, then it is a factor that cannot be ignored.  This is a relevant factor because the expeditious and economical administration of the estate is always one of the objects that the court keeps in mind.  Thus, if by reason of the hostility, the executrix is rendered unfit to perform her duties as executrix, she may be removed.  Such inability to perform her duties as executrix may be proved if it can be demonstrated that she would, say, by reason of the hostility, (a) administer the estate in a manner not in accordance with the law; or (b) obstruct the due administration of the estate.  The court may also pass over the executrix if the breakdown of relation has caused or has the potential to cause difficulty in the administration of the estate.

(See: Re Estate of Loo Che Chin [2013] 2 HKLRD 739 per Jeremy Poon J (as he then was) at §13)

31.  The court should have regard to the size of the estate, the nature of the assets that need to be administered, the background and the education, training and experience of the remaining and substituted personal representatives and the interest of the beneficiaries.

(See: Yu Hong Ping and another v Kenneth Yuen [2009] 6 HKC 347 at §12)

32.  The discretion in the choice of substitute administrators is wide (See:  Re Estate of Lau Yik Yam [2010] 3 HKLRD 700 at §10).

D.   GROUNDS OF REMOVAL

D1.    Serious Conflict of Interests

33.  Cindy has been in serious conflict of interests in dealing with the TST Shop Premises and Cindy’s Dwelling.  She has effectively converted those properties to her own use (albeit jointly with the Uncle as partners of Shui On Arts & Crafts in the case of the TST Shop Premises) and is clearly acting in a way that is against rather than in favour of the welfare of the beneficiaries as a whole.

34.  As in the case of Kong Colin Chung Ping, Supra, whatever the previous situation might have been, once an executrix has taken on that office, her fiduciary duties altered and she would not be allowed to make decisions or act in relation to those properties that would adversely affect the interests of other beneficiaries of the estate in question.  More than 4 years have elapsed since the passing of the parents.  Meanwhile, Cindy has been enjoying the benefit of these properties rent-free at the detriment of the other beneficiaries.

35.  This ground alone would lead to the conclusion that Cindy should be removed as the executrix of the estates.

36.  In paragraph 28(1) of Cindy’s Skeleton Arguments, Cindy asserted that SOAC “is not Cindy’s own business”.  Cindy asserted that it was not the father’s intention to gift his partnership interests to her, but only for her to continue carrying on the business of SOAC with Uncle.  Thus, although Cindy has been admitted as a partner of SOAC in the father’s place 4 months after he was diagnosed with late stage cancer, she never considered the business of SOAC as her own, and intended to distribute her share of the remaining partnership assets amongst the plaintiffs and herself.  Cindy submitted that this negates the alleged conflict of interests.

37.  Yet, at the hearing, Cindy maintained an opposite view, namely that she was not holding her partnership share in SOAC on trust for the father’s estate.  In fact, Cindy’s counsel made clear that Cindy’s case was that her share in the partnership belonged to her beneficially so that she was entitled beneficially to her share of the profit made by the partnership.  With respect, this is totally contrary to her position set out in her Skeleton Arguments.

D2.    Mismanagement in administering the realisation of the TST Shop Premises

38.  Assuming what Cindy deposed to in her affirmations regarding the “offers” is true, as submitted by the plaintiffs, there can be no conceivable reason not to accept such offers which are said to be “concrete” and “on the table”.  The TST Shop Premises have a current rental value of just $101,000 per month and the latest “offer” is said to be over $7.5 billion.

39.  Besides, the plaintiffs’ solicitors have long ago made it crystal clear that Cindy has the sisters’ mandate to accept any such lucrative offer.

40.  This ground alone also would lead to the conclusion that Cindy should be removed as the executrix of the estates.

D3.    Questionable Integrity

41.  Competence in management aside, I agree that Cindy’s integrity is also questionable.

42.  First of all, let us assume that her solicitors have been acting on her instructions and behalf for all intents and purposes of these proceedings.  In her 2^nd Affirmation, paragraphs 20 and 21, Cindy stated that Four Seasons Global Investment Limited had made an offer of approximately $6 billion, which was a “concrete offer on the table”.  She then exhibited the offer letter and draft agreements in her Exhibit “CYS-2”.

43.  The firm of solicitors allegedly representing the purchasers mentioned in the draft agreements, ie Edward CT Wong & Co, is different from the firm corresponding with Cindy’s solicitors regarding those offers of Four Seasons Global Investment Limited, ie Messrs Peter Mo & Co.

44.  Cindy’s solicitors by their letter dated 25 June 2021 confirms that there was no correspondence from Messrs Edward CT Wong & Co with respect to the TST Shop Premises and the letter of Messrs Peter Mo & Co dated 28 May 2021 was the only letter from that firm of solicitors acting for that potential purchaser, to which her solicitors responded by way of a “holding letter” dated 1 June 2021.

45.  The lack of any further correspondence between solicitors for such a huge potential deal amounting to some $6 to 7 billion is nothing short of highly suspicious.

46.  Furthermore, the style of the draft Sale and Purchase agreements falls short of what one would reasonably expect of a deal of such magnitude to have.  It is shockingly “home-made” looking.

47.  As mentioned above, the per square foot price for the deal, of $5.753 million per square foot, flies in the face of common sense.  The shop premises immediately adjacent to Shui On Arts & Crafts, ie Shop 4, 4A on G/F and M/F, were sold for just $29.5 million on 6 January 2021.  The fact that a flagship bookstore occupying some 16,000 square feet in the same building has just opened for business in July 2021 also indicates that the Tsimshatsui Mansion is still quite far from being a target for redevelopment buyout.

48.  Cindy’s latest “Valuation Report”, disclosed in recent correspondence between solicitors, claims that the TST Shop Premises are worth $7,395,000,000 as at 9 June 2021.  That document, on its face, was prepared by a registered structural engineer, rather than by surveyors or professional valuers as one would normally expect.  As to why Cindy has engaged such an engineer to conduct a valuation of the most precious asset in the estates (whilst most if not all the valuations for the other Hong Kong properties in the estates were done by Jones Lang LaSalle), it is simply mind-boggling and most unusual to say the least.

D4.    Unreasonable delays in making distributions

49.  Even on Cindy’s own case, according to the FTW Report, as at 30 June 2019 a sum of some $18,306,571 was available for cash distribution (see: paragraphs 9 and 10 above).  Even taking into account the subsequent distribution of $9,000,000, there is no explanation as to why there was no distribution of the balance of $9,306,571.  There is simply no reason for Cindy to keep so much of the estate’s money in her or her solicitors’ hands undistributed.

D5.    Lack of supporting documents and up-to-date accounts

50.  Cindy only produced the first set of detailed accounts by way of the FTW Report, which had a cut-off date of 30 June 2019.  By the time that report was disclosed to the plaintiffs, it was 12 months out-of-date.

51.  Cindy has not given any substantial response to the plaintiffs’ solicitors’ letter dated 17 July 2020 nor has she produced any further accounts to update her sisters.

52.  According to Cindy’s solicitors’ letter dated 7 July 2021, she has engaged FTW & Partners CPA Ltd to produce an updated accountant’s report for the period up to 31 May 2021, expected to be available 1 month from the date of that letter, ie around 7 August 2021.  No such report has been put forward at the hearing before this court.

53.  By the said letter, Cindy is effectively declining to allow the plaintiffs to inspect the accounting records, not until the updated report is ready for publication.  When the plaintiffs’ solicitors wrote to her solicitors to seek clarification of the meaning of “until then” in the said letter, no response was forthcoming from Cindy’s solicitors.

54.  In the circumstances, having regard to Chow Chak Kiu, Supra, it is clearly appropriate that an order be made for the rendering of a true and proper account and for inspection of the supporting documents.

D6.    Hostility leading to dysfunctional mode of administration

55.  The expeditious and economical administration of the estate is always one of the objects that the court should keep in mind.  Cindy has exhibited clear hostility against the rest of the beneficiaries and there has been a complete breakdown of trust between the two sides.  Her conduct in dealing with the TST Shop Premises is clear sign that she is rendered unfit to perform her duties as the executrix.  She has also refused to distribute funds so as to keep the plaintiffs out of pocket but as the same time keeping herself more than fully funded to litigate.

56.  At paragraph 12 of the 1^st plaintiff’s 2^nd Affirmation, the 1^st plaintiff deposed to the fact that Cindy’s “occasional ‘personal’ communications with us were rare and sometimes hostile, to the extent that she once told me on the phone that she would rather spend all money left in the estate for legal fees (to fight us) than to distribute them to us, the lawful beneficiaries”.  This allegation has never been refuted by Cindy.

57.  I agree that Cindy should be removed so as to clear any obstruction in the due administration of the estates.

E.   CHOICE OF ALTERNATIVE PERSONAL REPRESENTATIVE

58.  The court has a wide discretion over the choice of replacement personal representative upon removal of an existing executor.

59.  The remaining unadministered estates are of substantial value and can readily justify the engagement of independent administrators.

60.  At paragraph 54 of Cindy’s Affirmation, Cindy expressed the view that the plaintiffs have “put forward two candidates to be appointed as an administrator in my place, although they consider that only one will be sufficient.  I have no reason to doubt that either candidate is qualified and competent to act as an administrator of the Estates”.  In the circumstances, the court would choose the candidate who has quoted a lower hourly rate for his fees.

F.   CONCLUSION

61.  Accordingly, I would make an order in terms of the Originating Summons as follows:

(1)  The defendant be removed as the executrix of both the estate of Chan Chuk Kan and the estate of Leung Lan;

(2)  Mr Wong Tak Shing be appointed as the administrator in place of the defendant; and

(3)  The defendant do forthwith provide an account of her prior administration of the two aforesaid estates.

62.  I further order that the costs of and occasioned by these proceedings be paid by Cindy personally, such costs are to be taxed on the party-and-party basis if not agreed.

63.  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.

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