HO WAI YIN v. CHENG SUET YEE

HCAP 18/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE JURISDICTION

ACTION NO. 18 OF 2003

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D E C I S I O N

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1. On 21 November 2003, I granted an ex parte injunction in favour of the Plaintiff restraining the Defendant from disposing of asset forming or derived from the estate of Cheng Fong, deceased. The injunction was continued by Chung J on 28 November 2003 pending the determination of the inter parte summons of 24 November 2003 seeking similar relief. The hearing of the inter parte summons has yet to be fixed and evidence has not been closed. In the meantime, the Defendant sought variation of the injunction. There is no summons for that application. It was made orally before Chung J on 28 November 2003. Chung J adjourned the same for argument. It came before me on 12 January 2004. The substance of the application is set out in the Affirmation of the Defendant filed on 27 November 2003 and her Second Affirmation of 30 December 2003.

2. Mr Wong, counsel for the Defendant, summarized the application for variation in Paragraph 3 of his skeleton submissions dated 9 January 2004. The application is in relation to the following items,

(a)	mortgage and instalment payments, rates and management fees in respect of the landed properties identified in Paragraph 3(b), (c) and (d) of his skeleton submissions;
(b)	increase in living expenses from $10,000 to $28,670; and
(c)	increase in legal expenses from $200,000 to $400,000.

Further, Mr Wong also asked this court to make a specific order allowing the Defendant to make withdrawal for her business. Certain undertakings were offered by the Defendant at the hearing. For the sake of proper record and good order, I directed the Defendant to file and serve a summons to set out the relief sought and the undertakings offered. Pursuant to that direction, a summons was filed by the Defendant on 9 February 2004. This was supplemented by a letter dated 11 February 2004 from the Defendant's solicitors to this court.

3. The application is opposed by the Plaintiff. The first point taken by Mr Koo, counsel for the Plaintiff, was that the Defendant failed to comply with my order of 21 November 2003 in providing information as to the value, location, form and details of the estate of Cheng Fong. On the other hand, Mr Wong submitted that the Defendant gave full disclosure of her assets in her affirmations. Although strictly speaking the Defendant did not expressly say so in term, it should be apparent that these assets included assets derived from the estate and it is the Defendant's case that her personal assets had been so mixed up with assets derived from the estate that it is now difficult to separate one from the other.

4. Mr Wong further confirmed to this court on behalf of the Defendant all the landed properties acquired after 1999 were acquired with funds from the estate. In other words, apart from Workshop No. 9 on 16th Floor of Fullagar Industrial Building, all the other landed properties referred to in the application for variation were properties derived from the estate. As for the workshop unit, the Defendant was also prepared to undertake not to dispose of the same and held the same as security for meeting the Plaintiff's claim in this action pending final determination.

5. Mr Koo argued that even accepting Mr Wong's submission as to the information concerning the whereabout of the assets derived from the estate, the Defendant had failed to give full and frank disclosure. He pointed to the fact that the net value of the estate, according to the Estate Duty schedule, should be about $10.5 million whereas the total value of the assets disclosed by the Defendant was only $7 million odd. Hence around $3 million was unaccounted for. He relied on Hadkinson v Hadkinson [1952] P 285 and Liu Ming Sung v Liu Lee Yuk Ching [1983] 2 HKC 412 and contended that in these circumstances, this court should not entertain the application for variation by the Defendant.

6. I cannot accept the submission that as a matter of law this court cannot entertain any application for variation once it is found that the defendant has failed to comply with a previous order. This proposition was rejected by the Court of Appeal in Jademan (Holdings) Ltd v Tony Wong Chun Loong, CACV 71 of 1990, 8 June 1990. It is a matter of discretion and there is always room for consideration of the particular circumstances of the case.

7. Whilst I agree with Mr Koo that adequate information about the assets owned by the Defendant is important for proper consideration of the application for variation (see A v C (No. 2) [1981] 1 QB 961 Note), at the hearing on 12 January 2004 there was no evidence before me to suggest that the Defendant did not give full disclosure of her assets. As accepted by Mr Wong, there is a failure on the part of the Defendant to comply with the order of 21 November 2003. But it seems that the Plaintiff did not regard that as a significant matter. No action had been taken by the Plaintiff until 8 January 2004 when the Plaintiff's solicitor complained for the first time about this. Mr Wong readily rectified the mistake by informing the court that the Defendant's case was that the assets of the estate had been mixed up with those of the Defendant and all the Defendant's assets had been fully disclosed. In view of the apparent lack of interest in this aspect by the Plaintiff and the circumstances of this case, I do not regard this failure on the part of the Defendant as a sufficient reason for dismissing the application for variation.

8. Mr Koo however submitted that this court should infer that there had been concealment of assets by the Defendant due to the alleged shortfall in the total value of Defendant's asset as compared with the value of the estate. This point was not made in the Plaintiff's evidence and was only made for the first time in the skeleton submissions of Mr Koo filed on the Saturday morning before the hearing on Monday. Mr Koo accepted that the order of 21 November 2003 did not require the Defendant to give an account as to how the estate had diminished in value since 1999. He however submitted that the difference is so great that the Defendant should give an explanation. A lot of people in Hong Kong have lost 30% or more of their assets between 1999 and 2003. I was not prepared to infer by the mere difference in the value of the estate in 1999 and the total value of assets disclosed by the Defendant that she had concealed assets. It is noteworthy that the Plaintiff had made an allegation of the Defendant failing to disclose her means fully and frankly in paragraph 11 of his affirmation of 5 December 2003. Yet nothing was said in that paragraph as to the difference between the two figures. If the Plaintiff had alluded to this and the Defendant still omitted to offer any explanation about the difference, I might be more inclined to draw adverse inference against the Defendant. But this is not what happened here.

9. In any event, the Defendant was willing to give an account about the difference between the two figures. Having regard to how this point had been brought up by the Plaintiff, I considered that it would not be unjust to allow the Defendant to have an opportunity to do so. For this reason, the matter was adjourned part heard on 12 January 2004 with directions for filing of further evidence. I also granted limited variations to the injunction to deal with certain mortgage payments in the interim and increase of personal expenses solely for the month of January 2004 on account of added expenditure for Chinese New Year.

10. The Defendant filed her further evidence on 26 January 2004. The parties came back before me on 4 February 2004. In that affirmation, the Defendant gave an account of her expenditure between 2000 up to today. She tried to show that she had in fact spent more than $3 million during this period although due to the time constraint, she said that the picture was not very complete. Mr Wong summarized the expenditure in Paragraph 4 of his skeleton dated 4 February 2004. Putting aside the $5 million for trading in the stock market (on which there is not much corroborating evidence), the expenditure runs up to $3,919,584.92. Mr Wong submitted that the evidence was sufficient to account for the $3 million difference relied on by Mr Koo.

11. At the hearing on 4 February 2004, Mr Koo focused his attack on two items included in that summary. The first was a transfer in the sum of $600,000 by the Defendant to Flowerbees Production Company. This was deposed to in Paragraphs 44 to 47 in the 4th Affirmation of the Defendant. The Defendant said the sum was transferred "on or about 21 November 2003" and the purpose was to maintain the operation of Flowerbees Production Company Limited ["Flowerbees"], a business operated by the Defendant and her husband.

12. I was not given information as to the shareholdings of Flowerbees and its directorships. The Defendant described it as her business but it seems that her husband also has some interest in it. In paragraph 55 of her Second Affirmation, the Defendant said the company commenced business on 4 April 2001. However, the Defendant did not produce any audited financial statements of the company to this court. According to the draft profit and loss account produced by the Defendant in respect of this company, it was a small scale business with a turnover of only $44,358 between 1 April and 30 November 2003. The loss sustained during the period was said to be $171,591.40. The issued capital of the company was $10,000 and from the balance sheet as at 30 November 2003, the company had a net current liabilities of $270,621.40, of which $202,278.90 was due to its directors. The bank statement of this company produced by the Defendant showed that there was not much cash in its bank account. According to "CSY-19", the monthly expenses of this company is $21,586. All in all, it does not appear to be a healthy business. It seems to me to be commercially unsound for a business to sustain a loss of $171,591.40 to achieve a turnover of only $44,358.

13. Yet according to the Defendant this company had entered into a contract with one Sun Tat Development Company on 26 September 2003 for the purchase of machinery at the price of $1,220,000. A deposit of $122,000 had allegedly been paid, leaving a balance of $1,098,000. The sales agreement ("CSY-9") does not contain any term as to the date of delivery. In Paragraph 48 of her Fourth Affirmation, the Defendant said the machineries were second hand machinery and part of the payment obligation would only arise when Flowerbees Production Company Limited was informed that the same were available. She however did not tell the court whether notice had been given by the vendor as to the availability of the machines. The Defendant did not produce any bank statement or other evidence to show when and how the deposit of $122,000 was paid. The Defendant said she had told the supplier that she could not honour the contract and the supplier would forfeit the deposit.

14. The ex parte order was made on 21 November 2003 upon notice being given to the firm of solicitors who had previously acted for the Defendant in another matter. The Defendant's own evidence showed that the solicitor was still able to contact her (see Paragraphs 9 and 10 of her 2nd Affirmation). Hence, this court has every reason to believe that after that solicitor learnt of the Plaintiff's intended ex parte application on 20 November 2003, the Defendant would learn of the same within a reasonable time notwithstanding that the solicitor did not have proper instructions to act for her to resist the ex parte application. In Paragraph 19 of that affirmation, the Defendant said she formally instructed this firm to act in this action on 22 November 2003 and learnt of the application on that day. She also said she learnt of the ex parte order on 24 November 2003.

15. It is against these backgrounds that the transfer of the $600,000 was made to Flowerbees Production Company. Mr Koo highlighted the fact that the Defendant did not produce any evidence to show how and when was the $600,000 transferred. I agree that the transfer is very suspicious. Apart from these backgrounds, I take into account that the transferee was not the limited company but a firm of the same name, viz. Flowerbees Production Company. The only document produced by the Defendant in respect of the firm was a business registration certificate commencing from 11 October 2003. This court was not given any information as to the financial position of the firm. The Defendant said it as an associate company formed by her husband and her son and she was not involved in it. She said the firm was formed to support the limited company in respect of its publication and support order. I fail to understand how such a small scale operation of the limited company could require the "support" of a firm in the same name. Further, if the transfer of the $600,000 was for the maintenance of the operation of the limited company, I fail to see why the transfer was not made to the bank account of the limited company instead.

16. Mr Wong conceded that the transfer was made with the knowledge on the part of the Defendant as to the Plaintiff's intention to issue proceedings against her. However, he submitted that it was made to secure funds for bona fide business operation. He stressed that there was no forensic need for the Defendant to disclose the transfer in her Fourth Affirmation since without the reference to the $600,000, she could still account for the $3 million difference to deal with Mr Koo's submission. He informed the court that $70,000 out of the $600,000 had been spent. To further demonstrate the good faith of the Defendant, he undertakes on behalf of the Defendant that she would procure $530,000 to be transferred back into the Plaintiff's specified bank account (and hence subject to the scope of the injunction) and to file an affirmation within 7 days to account for the use of the $70,000.

17. Whilst I still have doubts about the bona fide of the Defendant in the initial transfer of the $600,000, I am satisfied that the undertakings offered by her are acts indicative of her good faith in the future, now that she had the benefit of the very sensible advice of Mr Wong. In the circumstances, I think it would not be unjust for me to entertain her application for variation. I am not prepared to infer from the episode relating to the transfer of the $600,000 that she is still hiding other assets.

18. The next item attacked by Mr Koo was the personal loans made by the Defendant to her friends in the total sum of $400,000. These loans were disclosed in Paragraphs 36 to 30 of the 4th Affirmation of the Defendant. She said there was no time limit for repayment and had forgotten about the same when she made her earlier affirmations. The documents in support of these loans were exhibited as "CSY-35". Although they were not very satisfactory evidence (and borrowing notes were apparently signed by only on borrower regarding loans in the total sum of $30,000), the documents showed that the transactions took place in 2000. At that time there was no question of the Defendant disposing of assets to defeat the Plaintiff's claim.

19. Mr Koo's argument was that these loans should be regarded as receivables and the Defendant could utilize the repayments to meet her expenses. That argument is fallacious. As soon as the loans are repaid to the Defendant, they would be subject to the injunction. To meet the concern of the Plaintiff, the Defendant undertook that she would deposit such repayments into her specified bank account. The same applies to the rental income in respect of some landed properties to deal with a similar point raised by Mr Koo.

20. On the whole, having considered the submissions of counsel and the evidence, although there were some unsatisfactory aspects in the evidence of the Defendant, I would not conclude that there is concealment of assets by the Defendant. In the circumstances, I would exercise my discretion to entertain the Defendant's application for variation and proceed to deal with the other points raised by Mr Koo. As pointed out by Mortimer JA (as he then was) in Assets Investments Pte Ltd. v United Islamic Investments Foundation [1995] 1 HKC 560 at p. 563I to 564A, the court is exercising a discretion and one has to balance between the avoidance of deliberate dissipation on the one hand and abuse of Mareva injunction to put pressure on a defendant on the other.

21. Mr Koo contended that by reason of Order 76 Rule 4(1), there is a special rule for injunctive relief in probate action. He submitted that once an action for revocation of a grant has been commenced, the spirit of this rule is that the estate has to be preserved pending the final disposal of the action. The ordinary principles governing Mareva injunction should not be applied. He cited no authority for this proposition.

22. I do not accept this submission. Order 76 Rule 4(1) requires the lodgment of the grant in court after the commencement of an action for revocation. This is to ensure that nothing could be done on the strength of the grant in the meantime. It does not however mean that in every case where there is a claim for revocation of the grant, the assets of a defendant have to be frozen. If the administration of the estate has not been completed, the personal representative would not be able to continue to administer the same pending the determination of the action. On the other hand, the situation would be quite different after administration has been completed and the estate has been distributed to the beneficiaries. In my judgment, the principles governing the grant, continuation and variation of injunctive relief against a beneficiary in such context should be the same as in other types of action. I fail to see any reason why a plaintiff in an action for revocation for grant should be in a better position than other plaintiffs seeking injunctive relief.

23. In the present case, on the evidence before me, the administration of the estate had been completed. The assets are no longer held under the name of the deceased. In effect, the Plaintiff is seeking to prevent the Defendant from enjoying the benefit of the estate which had been distributed to her.

24. Having disposed of the allegation of concealment of assets by the Defendant, and bearing in mind that the Defendant undertook that the landed properties concerned would be held as security for meeting the Plaintiff's claim herein and she would not dispose of, create any further encumbrance on or otherwise diminish the value of the same in the meantime, I do not see any prejudice to the Plaintiff by allowing the Plaintiff to pay for those instalment payments and expenses relating to the landed properties. To the contrary, it seems to me to be in the interest of all the parties to preserve the value of these properties by making these payments. Since the payments are in effect transformation of the assets from cash to landed properties, there is no dissipation of assets and to allow the same would not be inconsistent with the underlying policy of the Mareva injunction. To refuse that would lead to forfeiture of deposits causing diminution of the assets. That would not be in the interest of any parties.

25. Mr Koo expressed concern about some of these properties being outside jurisdiction. The Defendant undertook to provide for the safe custody of the title deeds in respect of these properties in mainland China coupled with arrangement for payment of the balance of purchase price and collection of title deeds through her own solicitors. The solicitors for the Defendant also undertook to collect these title deeds and stakehold the same. That should be sufficient to allay the legitimate concern of the Plaintiff.

26. In Wang Jian v Zhang Tien Feng, HCA No. 607 of 2001, 27 August 2001, Recorder R Wong SC had summarized the relevant principles in respect of variation of Mareva injunction at p. 7 to 9 of the judgment. Bearing in mind the underlying rationale of Mareva injunction, I am of the view that it is not a dissipation of assets by the Defendant to make these payments and authorizing the same would be in line with those principles. I therefore grant the variation sought with regard to these payments in respect of the landed properties.

27. As regards living expenses, Mr Koo submitted the figures provided by the Defendant failed to take into account that there were other family members who were in gainful employment. The figure of $28,700 was expenses for the entire household. That is a valid criticism. In the absence of any disclosure about the husband and the children's means apart from the brief reference in Paragraphs 57 and 58 of the 4th Affirmation of the Defendant as to their current income (but without any disclosure as to their savings and assets), I am not prepared to accept that the Defendant had to shoulder the entire burden of the family. The Defendant had made a gift of $1,116,760 to one of her son Cheung Chin Yan in 2000 for purchasing a flat in Tai Po. Yet this son is still living with the Defendant. There should be income generated from this flat.

28. Accordingly, I am not persuaded that there should be any variation of the amount for living expenses set out in the exception to the injunction order of 21 November 2003 apart from the one off variation ordered by me on 12 January 2004.

29. As regards legal expenses, I would first say that although this is a case where proprietary claim is made by the Plaintiff (as a beneficiary to the estate of the deceased), I am not satisfied on the material before me that there is a strong probability that the Plaintiff's claim is well-founded. The Plaintiff had knowledge and acquiesced in the application for Grant by the Defendant in respect of the estate of the deceased. In a way, he collaborated with the Defendant with regard to the issue to the Grant and he said there was a promise on the part of the Defendant to give him half share of the estate. Whether he could apply for revocation of the Grant in such circumstances or he should be confined to a claim for breach of contract (if there was such a contract and if the contract is legally enforceable) is an issue which has yet to be canvassed. No doubt the question would be ventilated in the context of whether the Plaintiff could show a good arguable case in the application for the discharge of the injunction (see Hong Kong Civil Procedure 2004 Para. 29/1/58) and I would not pre-empt the parties from making submissions in this regard at that hearing. But I would say that the picture before me is quite different from that at the time of the ex parte application. For example, the Plaintiff did not refer to the joint meeting with a solicitor of Messrs Chan, Evans, Chung & To in July 1999 seeking advice on the succession of the estate of the Deceased. I understand that the Defendant would also argue that the injunction should be discharged on the ground of material non-disclosure. Paragraph (5) of the principles set out by Recorder R Wong SC in Wang Jian is not applicable in the present case.

30. As to the quantum, at the hearing of 4 February 2004, Mr Koo withdrew his previous concession that the DNA test application were to be adjourned pending the resolution of the application for the discharge of the Mareva injunction. I therefore should take the costs of that application into account in considering the appropriate level of costs to be incurred by the Defendant. The Defendant asked for a sum of $400,000 to deal with the preparation of the Defence, the discharge of the injunction, the DNA test application and of course, the present application for variation. It is anticipated that expert would be engaged for the DNA test application. The draft bill of the Defendant runs up to $386,905. I take into account of the fact that the variation applications took two hearings instead of one as anticipated in the draft bill and the complexity of the case. I think the figure of $400,000 is justified and I grant a variation accordingly. For the avoidance of doubt, this variation is meant to cover costs up to the application for discharge and the Defendant could make further application in the future in respect of later costs.

31. As regards business expenses, Mr Wong submitted that the Defendant has difficulties in withdrawing money from the bank by relying on exception (2) of the injunction. As I have said, the evidence is not clear as to the Defendant's shareholding in Flowerbees and the capital she had already injected into this business. For all I know, the husband has an interest in the company and the Defendant is not the only shareholder. In these circumstances, the business of Flowerbees cannot be equated with a business of the Defendant. Further, in view of my observations about the lack of commercial purpose in running the business, I doubt whether this is just a business set up to support the business of another entity in which the Defendant has no interest. The two sons appeared to be the two employees of this business and the plan to engage another two replacement staff was shelved in the meantime. There is no concrete evidence as to the business operation of this company and the available evidence casts serious doubt on its viability as a going concern. In the circumstances, on the material before me, I am not satisfied that it could be said to be in the ordinary and proper course of business for the Defendant to inject further funds into this business. I therefore refuse to grant further relief in this regard.

32. To sum up, I grant variation in respect of the payments of the outgoings and instalments for the landed properties and adjust the sum that could be withdrawn for legal expenses to $400,000. I refuse variation in respect of living expenses and refuse to make further order for business expenses. Upon all the undertakings set out therein and in the letter of 11 February 2004, I make an order in terms of paras. (A), (B), (D), (E), (F) and (G) of the summons of 9 February 2004. For the sake of completeness, I also record that I had made an order by consent regarding the sale of the Cairnhill property on 4 February 2004.

33. I will also make a costs order nisi that the costs of the application be costs in the cause since Mr Wong has partly succeeded and partly failed.

34. Lastly, I wish to observe that the application for discharge should be proceeded with as soon as possible.

35. I intend to release this judgment for circulation and if any party has any comments, the same should be sent to me in writing within 5 days.