LAU CHUN v. HO HIN MING AND OTHERS

HCMP 1038/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1038 OF 2006

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J U D G M E N T

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Issue

1.  This appeal raises an interesting question regarding the court’s probate jurisdiction to issue a preservation grant.

Facts

2.  The plaintiff is the widow of the late Mr Ho Wai Man, who died intestate on 9 July 2005.  His estate comprises, among other things, 5 shares of and in Hang Sang Engineering Factory Limited.  He was the registered holder and owner of the shares.  They remain registered in his name after his death.

3.  Shortly before his death, some shareholders in the company filed a petition under HCCW 456/2005 for section 168A relief under the Companies Ordinance (Cap. 32) or alternatively for the winding-up of the company under the just and equitable ground.  The Deceased and some of his children – who are also shareholders, were joined as respondents.

4.  To cut a long story short, negotiations have been going on in the winding-up proceedings, which if concluded would involve the disposal of the estate’s shares in the company in settlement of the proceedings.

5.  The plaintiff, being the widow of the Deceased, has first priority in entitlement to a grant of administration, by virtue of rule 21 of the Non-Contentious Probate Rules (Cap. 10A).  Her children, the four defendants in the present proceedings, do not dispute that.

6.  She has indeed instructed lawyers to apply for administration of the estate of the Deceased.  However, she has since encountered difficulties in agreeing with the Commissioner for Estate Duty on the assessment of the value of the estate.  It does not appear that the Commissioner will issue estate duty clearance within the near future.

7.  Without the necessary estate duty clearance, there is no question of the court granting administration in respect of the estate to the plaintiff: sections 15 and 23 of the Estate Duty Ordinance (Cap. 111).

8.  However, negotiations amongst the parties to the winding-up proceedings have reached such a stage that it is in the interest of the estate to obtain representation of the estate regarding its interests in the company in order to finalise, if possible, the negotiations and confirm any settlement that might result therefrom.  A usual representation order under Order 15, rule 7 or rule 15, Rules of the High Court (Cap. 4A), in respect of the winding-up proceedings, would not be sufficient for the purpose.  Amongst other reasons, such a representation order would not be wide enough to cover the entire scope of the intended settlement envisaged under the existing negotiations.

9.  This is thus a classic case for the application of a limited grant.  “Limited” because it is limited in terms of asset to the shares that the estate holds in the company and in terms of power to the dealing of the same for the purpose of reaching settlement only (without distribution).  It is “preservative” in nature because the purpose of the grant is to preserve the estate (i.e. the shares or their proceeds of sale) pending a full grant, which will take some time to obtain.  Such particular type of limited grant is usually referred to as a grant ad colligenda bona (preservation grant).

Proceedings below

10.  The plaintiff therefore commenced the present proceedings seeking, in substance, a preservation grant from the court.  She relied on section 36 of the Probate and Administration Ordinance (Cap. 10).

11.  The Master who heard the application dismissed it on the basis that section 36 does not give the court jurisdiction to make the grant sought in favour of the plaintiff – she being the person with the top priority to apply for a full grant.  The Master was not convinced that there were other statutory provisions or inherent jurisdiction that would entitle the court to make the preservation grant.  Furthermore, the Master took the view that the application for grant would not solve the estate duty problem facing the widow.

12.  The matter therefore came before this Court by way of an appeal from the Master’s order dismissing the proceedings.

Section 36 of Cap. 10

13.  Section 36 of the Probate and Administration Ordinance reads:

“Where a person dies wholly intestate as to his estate or leaving a will affecting estate but without having appointed an executor thereof willing and competent to take probate, or where the executor is, at the time of the death of such person, resident out of Hong Kong, or where it appears to the court to be necessary or convenient to appoint some person to be the administrator of the estate of the deceased person or of any part of such estate, other than the person who, if this Ordinance had not been passed, would by law have been entitled to a grant of administration of such estate, the court may, subject to section 25, appoint such person as the court thinks fit to be such administrator, on his giving such security, if any, as may be required under this Part or as the court may direct, and every such administration may be limited in such manner as the court thinks fit.”

The Master’s view

14.  The Master relied on a written decision of his given on 20 January 2006 in another case, namely Re Li Yip Wang, dec’d HCEA 38/2005, for his view on section 36.  In paragraphs 12 to 15 of that decision, he said:

“12. Section 36 PAO allows this Court to select an administrator under certain conditions.  Usually, rules 19 and 21 NCPR govern the priority whereby persons are entitled to the grant when the deceased died testate or intestate respectively.  The applicant may however encounter difficulties in “clearing off” somebody, having prior rights, who are unwilling or unable to take up the task for whatever reasons.  In such case, he may resort to section 36 which allows this Court to issue him the grant by-passing others …

13. Bearing this purpose of section 36 in mind, should I allow the applicant herein to “bypass” others?  I regret to say “no” in the present circumstances.

14. The difficulties of the applicant’s case are multiple.  The fatal point is that, under the present case, she is indeed ranked no. 1 under r 19 NCPR because she can take up the role of the wife in the capacity of her legal personal representative.  The applicant need not by-pass others at all.

15. Upon further thought, I am afraid that the applicant is in fact asking me to let her bypass nobody, but the Estate Duty Office.”

15.  It should be noted that unlike the present case, Re Li Yip Wang, dec’d was not a case concerning a preservation grant, but a discretionary grant – a distinction that I will return to shortly.

16.  In short, under the Master’s construction of section 36, an applicant for the court’s exercise of its jurisdiction under that section cannot be a person “who, if this Ordinance had not been passed, would by law have been entitled to a grant of administration of [the] estate”, such as the widow in the present case.  By way of contrast, if any of her children – all ranking lower in priority for grant than their mother – were to apply, he or she would not have faced the difficulty that their mother has faced.  Indeed this has prompted Mr Jeremy Chan, representing the mother, to ask the Court, by way of a fallback argument, to make a preservation grant not in favour of his client, but in favour of one of the children/defendants – none of whom is opposing the mother’s application for the grant.

17.  The good sense of this subtlety of the law – if it does correctly represent the law – is not immediately apparent.

Plain and ordinary meaning

18.  Mr Chan, in his submission, quite rightly pointed out that as a matter of plain reading of section 36, it applies to a number of different, although to some extent overlapping, situations:

(1) “where a person dies wholly intestate as to his estate”;

(2) “where a person dies … leaving a will affecting estate but without having appointed an executor thereof willing and competent to take probate”;

(3) “where the executor is, at the time of the death of such person [i.e. a person who has died leaving a will affecting estate], resident out of Hong Kong”; or

(4) “where it appears to the court to be necessary or convenient to appoint some person to be the administrator of the estate of the deceased person or of any part of such estate, other than the person who, if this Ordinance had not been passed, would by law have been entitled to a grant of administration of such estate”.

19.  Again on a plain reading of section 36, in any one of those four situations, the court may appoint such person, if any, as it thinks fit to be the administrator and the administration may be limited in such manner as the court thinks fit.

20.  The situation envisaged by the Master, namely the passing over of the person with a prior right, concerns directly, on a plain reading of section 36, only the last situation (situation (4)).  By implication, passing over would also occur in situation (3) (i.e. where the executor named in the will is resident out of Hong Kong).  However, in relation to situations (1) and (2), a passing over may or may not occur.

21.  In other words, on a plain reading of section 36, the conclusion of the Master that section 36 does not apply to an applicant who has first priority in entitlement to administration is too sweeping.  It is only true in relation to situations (3) and (4) identified above.  In cases falling within situation (1) or (2), the conclusion is not true.

Legislative history

22.  So much for the plain reading of section 36.  What about its legislative history?  Section 36 of our Ordinance is based on section 73 of the English Court of Probate Act 1857 (c. 77), which reads:

“Where a Person has died or shall die wholly intestate as to his Personal Estate, or leaving a Will affecting Personal Estate, but without having appointed an Executor thereof willing and competent to take Probate, or where the Executor shall at the Time of the Death of such Person be resident out of the United Kingdom of Great Britain and Ireland, and it shall appear to the Court to be necessary or convenient in any such Case, by reason of the Insolvency of the Estate of the Deceased, or other special Circumstances, to appoint some Person to be the Administrator of the Personal Estate of the Deceased, or of any Part of such Personal Estate, other than the Person who if this Act had not been passed would by Law have been entitled to a Grant of Administration of such Personal Estate, it shall not be obligatory upon the Court to grant Administration of the Personal Estate of such deceased Person to the Person who if this Act had not passed would by Law have been entitled to a Grant thereof, but it shall be lawful for the Court, in its Discretion, to appoint such Person as the Court shall think fit to be such Administrator upon his giving such Security (if any) as the Court shall direct, and every such Administration may be limited as the Court shall think fit.”

23.  Although similarly worded, there is a substantial difference between the two sections.  It would seem that in the English section, there were only three situations to which the section applied, namely situations (1), (2) and (3) identified above.

24.  Apparently, situation (4) identified above was not a situation by itself to which the English section applied.  Rather, if the case should fall within one of the three situations (i.e. situations (1) to (3)), and the condition which has been described above as situation (4) should also be satisfied, the English court under section 73 would have the discretionary power to make a grant in favour of an applicant.

25.  Moreover, given the wording of the English section, such a grant would, it would seem, necessarily have the effect of passing over the person who would otherwise have been entitled to a grant of administration according to law.

26.  In other words, section 73 of the English Act was, on a plain reading of the Act, exclusively concerned with the passing over of the person who would otherwise have been entitled to a grant.  Put another way, the person who already enjoyed a prior right to a grant could not be the applicant under section 73 of the English Act, on a plain reading of it.

27.  However, our section 36, though no doubt modelled on section 73 of the 1857 Act, does not follow it word for word.  A material change, in my view, has been made by the conversion of what under section 73 was an additional condition for the exercise of the court’s jurisdiction to the 4^th situation to which our section 36 applies, namely where it appears to the court to be necessary or expedient etc.

28.  I cannot assume, in the absence of any evidence to that effect, that the change in wording from that used in section 73 of the 1857 Act to that used in our section 36 was not intentional or for some good purpose.

29.  In my view, the change in wording liberates situations (1) and (2) from serving a passing over situation only.  In other words, situations (1) and (2) have an independent existence free from a passing over situation.

30.  I prefer this construction to the restrictive construction placed on section 36 by the Master.  Regardless of what the true position was in relation to section 73 of the 1857 Act, the wording of our section is significantly different.  Its plain and ordinary meaning does not support the restrictive construction.

Purposive construction

31.  Turning to the purpose of the section, no doubt the restrictive construction of section 36 makes sense or even good sense if the section is viewed merely as a section concerning the making of a discretionary grant.  Circumstances could arise from time to time in which it is inexpedient to follow the ordinary rules of priority and section 36 gives the court a statutory power to grant administration in its discretion to persons who are not primarily entitled to a grant, or even to persons who have no title at all.  The court, in appropriate circumstances, may refuse to allow an executor to take a grant of probate and may commit administration of the estate to another.  In all these situations, somebody having a prior right is passed over.  Almost by definition, the applicant will not be the person who already enjoys a prior right to a grant.

32.  But the restrictive construction overlooks another dimension of section 36.  Apart from giving the court the statutory power to make a discretionary grant, the section also gives the court the statutory jurisdiction to make a limited grant, particularly a grant ad colligenda bona.  In this regard, it should be noted that the court’s statutory power to make a grant ad colligenda bona in England was based on section 73 of the 1857 Act: Re Wyckoff (1862) 164 ER 1178.

33.  Our section 36, modelled on the English section 73, is thus the court’s statutory source of jurisdiction, giving it the general power to make a grant for the preservation of the estate without waiting until an application for a full grant is made. 

34.  Whilst it is true that a preservation grant is often useful where the person entitled to a full grant is abroad or temporarily incapacitated and some urgent step needs to be taken, it is not necessarily so restricted.  The person who applies for the preservation grant may be the person entitled to apply for a full grant.  Circumstances may be such that the estate of the deceased may suffer in the meantime pending a full grant which may take time, if nothing is done and is allowed to be done to get in and preserve the asset in question.  That is the true purpose of a grant ad colligenda bona.  It depends on the need of the estate, not on the identity of the applicant.  It may, in appropriate circumstances, be made even to a stranger connected as an agent or otherwise with the deceased’s affairs.  It may also be issued in favour of a creditor: Re Clarkington (1861) 164 ER 1043.

35.  That a grant ad colligenda bona may be made to a person entitled in his own right to a full grant cannot be doubted.  Thus, Tristram and Coote’s Probate Practice (29^th ed.) para. 25.175 reads:

“25.175   A grant ad colligenda bona may be made not only to a person whom the court considers suitable, but also to the persons who are entitled to a full grant or to entire strangers who have been brought into connection with the matter.  An application by a person entitled in his own right to a full grant must satisfy the court that the interests of the estate cannot await the issue of a grant to the whole estate.”

36.  In the circumstances, section 36, our local version of section 73 of the 1857 Act, being the statutory source of the court’s jurisdiction not only to make a discretionary grant but also a grant ad colligenda bona, should be so construed as to allow an application for a grant ad colligenda bona to be made by a person who is entitled in his own right to a full grant.  This cannot be achieved by the restrictive construction that the Master has placed on section 36.

Conclusion on construction

37.  In short, whether the matter is viewed from the perspective of the plain and ordinary meaning of the words used in the section, the legislative history of the provisions or the purpose that the section is designed to serve (and adopting a purposive construction in relation to it), the conclusion one draws is that the section applies even to a case where the applicant for a preservation grant enjoys first priority in entitlement to a full grant of administration.  I therefore reject the restrictive construction placed on section 36 by the Master.

Position of an executor/applicant

38.  For the sake of completeness, I should point out that the four situations identified in section 36, to which the section applies, does not cover the situation where the deceased person leaves a will appointing an executor/applicant who is willing and competent to take probate and who is resident within the jurisdiction.  In such a case, conceivably the need for the executor himself to apply for a grant ad colligenda bona to get in and preserve the estate would seem to be little, given that an executor derives his title to the estate from the will and upon the death of the testator.  He has a limited power to manage the estate even without a grant.  Presumably, under such limited power, he could get in and preserve the estate.  That may well explain the omission of such a case as a triggering situation in section 36 of our Ordinance.

39.  However, in a case like the present, even such an executor may well have to seek a preservation grant from the court in order to be able to enter into the intended compromise with the estate’s opponents in litigation.  Does the court have the necessary jurisdiction to entertain an application for such a grant from him?  Although the point does not arise in the present case and therefore does not call for a final determination, I doubt very much whether the court does not have inherent jurisdiction or power to make such a grant – section 36 would not seem to apply to such a situation without stretching the meaning of its wording to some extent.

40.  Rule 51 of the Non-Contentious Probate Rules clearly provides for the procedure for making an application for an order for “a grant of administration under section 36” or “a grant of administration ad colligenda bona”.  I do not read it as suggesting that a grant ad colligenda bona is not normally made pursuant to section 36 of the Ordinance.  On the other hand, it does leave room for saying that in cases where section 36 does not seem to apply, such as in the type of cases identified in the preceding paragraphs, a preservation grant may still be made, albeit not under section 36, but under the court’s inherent jurisdiction.

Present case

41.  On the materials that have been placed before the Court, and having considered the detailed submission of counsel, I am satisfied that the present case falls within the ambit of operation of section 36 and that the Court’s discretion should be exercised in favour of the plaintiff’s application.  In my view, relief should be granted in terms of the plaintiff’s summons dated 19 June 2006, save that it should be made clear in the order that the grant is a grant ad colligenda bona, that it is limited, amongst other things, until further representation be granted, and that the issue of the grant is subject to compliance with the requirements under the Estate Duty Ordinance (Cap. 111), particularly section 15 and 23 thereof, regarding issue of letters of administration, as well as all usual formalities, procedures and requirements of the Probate Registry.

Payment of estate duty

42.  In relation to the payment of estate duty as is required under section 15 of the Estate Duty Ordinance, I should add one observation: the making of a court order for the issue of a grant ad colligenda bona does not dispense with the requirement under section 15 of the Estate Duty Ordinance for payment of estate duty before issuing a grant, or that under section 23 for a schedule of property to be annexed to a grant.  Both sections apply as much to a limited grant as to a full grant.  It is for the applicant to negotiate and if possible agree with the Commissioner about payment of estate duty with reference to the property to be covered by the preservation grant.  The court’s order for the issue of a preservation grant does not override the statutory requirements under section 15 or 23 of the Estate Duty Ordinance, or for that matter, any other provisions in that Ordinance.

43.  In the United Kingdom, section 109 of the Supreme Court Act 1981 provides that the High Court shall not make any grant except on production of an account receipted or satisfied by the Commissioner of Inland Revenue to show that inheritance tax or capital transfer tax payable on delivery of that account has been paid or that no tax is payable.  That is, however, subject to arrangements made between the President of the Family Division and the Commissioner.  Where a preservation grant is ordered to be made, the grantee may apply to the President of the Family Division to make such arrangements, so that the preservation grant can be sealed without first paying the relevant tax.  See Re Clore, dec’d [1982] Fam 113, 117B to C; Tristram and Coote, op. cit., para. 8.01.  There are no similar statutory provisions in Hong Kong.  But the Commissioner does have powers and discretions under the Estate Duty Ordinance regarding payment of estate duty.

Outcome

44.  In conclusion, the appeal is allowed, and an order is made as indicated above in favour of the plaintiff.