RE HAQUE SHAQUIL

HCCA129/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CAVEAT NO.129 OF 2011

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J U D G M E N T

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A. INTRODUCTION

1.  Mr Shaquil Haque (“the Deceased”) and Mr Brian Lee Choon Hung (“Mr Lee”) were co-founders of Capital Globe Ltd (“CG”). They were equal shareholders and directors as well.  By a will dated 1 April 2010 (“the Will’), the Deceased bequeathed all his estate (“the Estate”) to Mr Lee as the sole beneficiary and appointed him as the sole executor.  On 1 May 2010, the Deceased and a Mr Charles Yeung, the then Chief Financial Officer of CG, were on a business trip in Pakistan. They were murdered at a hotel there.

2.  Mr Abdul Aziz Essa (“the Caveator”) claimed to have business dealings with the Deceased and CG.  On 30 May 2010, the Caveator’s solicitors issued a statutory demand to CG and to Mr Lee in his capacity as the executor of the Estate, claiming various debts against CG and the Estate.  The Caveator and Mr Lee then discussed the claims in June 2010 but with no avail.  On 9 September 2010, the Caveator issued another statutory demand against CG, claiming some US$12 million under six time charter contracts and Aus$14 million, being first three payments due under an Australian Property Agreement.

3.  The Caveator’s claims against CG resulted in a winding up petition which he presented on 18 October 2010 (HCCW422/2010).  Eventually, after trial, CG was ordered to be wound up by Deputy Judge Jason Pow, SC on 8 July 2011.  He found that CG was in fact insolvent.

4.  While the winding up proceedings were continuing, Mr Lee applied for probate of the Will on 25 November 2010.  Pursuant to the Non-Contentious Probate Rules, Cap.10A, the Caveator entered a caveat on 12 January 2011.  Mr Lee issued a warning to the Caveator on 5 May 2011.  The Caveator entered an appearance to the warning seven days later.

5.  By summons dated 22 June 2011, the Caveator applied for an order that Mr Lee be passed over as executor of the Will and consequently no grant of probate be sealed in his favour; and that the Caveator, or alternatively the Official Administrator, be appointed as the administrator of the Estate.  He sought an alternative order for administration in bankruptcy of the Estate according to the law of bankruptcy.

6.  By summons dated 22 June 2011, Mr Lee applied to discharge the caveat.

7.  The summonses are now before me for determination.

B.      PASSING OVER

B.1.   The Caveator’s case in a nutshell

8.  The Caveator’s application for passing over is based on section 36 of the Probate and Administration Ordinance, Cap.10 (“the Ordinance”), which provides :

“36. Appointment of administrator of Intestate’s estate

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.”

9.  In Re Ho Wai Man [2006] 4 HKLRD 421, A. Cheung J (as he then was) held at para.18 at p.426E-H that on a plain and ordinary meaning, section 36 applies to the following different, albeit 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, 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 deceased’s estate or of any part of such estate, other than the person who, if the Ordinance has not been passed, would by law have been entitled to a grant of administration of such estate. 

The Caveator relied on situation (4).

10.  The words “necessary or convenient” in situation (4) give the court a board discretion, to be exercised in the best interests of the estate : Lefkowitz v The Bank of New York & Ors [1996] 3 HKC 591, per Litton VP at p.594D.  Whether or not the court will exercise the discretion depends on the actual circumstances of the case.  The circumstances are not limited to those in connection with the estate itself or its administration, but can extend to any other circumstances which the court thinks are relevant, which lead the court to think that it is necessary or convenient to pass over the executor : see In re Clore [1982] Fam. 113, per Ewbank J at p.117H.  The burden rests with the applicant to satisfy the court that such circumstances exist : Chang Man v Ma Shou Yung [2002] 2 HKC 213, per Chu J (as she then was) at para.19 at pp.218I-219A.

11.  The Caveator relied on three factors.  First, Mr Lee is of sufficient bad character.  Second, Mr Lee has a conflict of interest with the Estate which is insolvent.  Third, the Estate is insolvent.

B.2.   Three preliminary points

12.  At this juncture, I digress to dispose of three preliminary points raised by Mr Ng, counsel for Mr Lee.

13.  Mr Ng first submitted that section 36 does not apply where the deceased person leaves a will appointing an executor who is willing and competent to take probate and who is within jurisdiction :  Re Ho Wai Man, supra, para.38, per A. Cheung J and Re Estate of Li Wing Chun [2011] 3 HKLRD 523, at para.14 at p.527, per Master Levy.  As there is no dispute that Mr Lee is willing and competent to take probate and is within jurisdiction, the Caveator’s application under section 36 fails in limine.  With respect, Mr Ng’s reliance on the two judgments is misconceived.

14.  In Re Ho Wai Man, supra, the deceased died intestate. His estate included his shares in a company.  Shortly before he died, some of shareholders brought a winding-up petition against the company.  Negotiations between the parties, if concluded, would involve the disposal of the deceased’s shares in settlement of the proceedings.  His widow had first priority in entitlement to a grant of administration of the estate.  The court could not grant administration because she and the Commissioner for Estate Duty had yet to agree on the assessment of the value of the estate.  The negotiations reached the stage where it was in the interest of the estate to obtain representation regarding its interest in the company so as to finalize the negotiations and confirm any resulting settlement.  The widow applied for a preservation grant under section 36, limited to the power to deal with the shares for the purpose of reaching settlement only (without distribution), pending a full grant.  The Master dismissed the application.

15.  On the widow’s appeal, A. Cheung J first went through the legislative history of section 36 and stated his conclusion on its construction.  His Lordship then went on to say :

“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.”

He then held that the facts of the case fell within the ambit of operation of section 36, which triggered the court’s exercise of discretion.

16.  The issue before A. Cheung J was whether section 36 applied to enable the applicant, who had first priority in entitlement of full grant of administration of the deceased’s estate, who died intestate, to obtain a limited preservation grant on the particular circumstances before the court.  Plainly, what the learned judge said in paragraphs 38 to 40, which directed to the situation where the applicant is an executor appointed under a will, is obiter.  More importantly, the judge was dealing with the need for an executor to apply for a grant ad colligenda bona; and how the court might approach such application under its inherent jurisdiction apart from section 36.  He had not laid down any general proposition that section 36 does not apply whenever the deceased person leaves a person appointing an executor who is willing and competent to take probate and who is within the jurisdiction.

17.  Such a proposition, as Mr Ng maintained in his submissions, is flatly contradicted by the weight of authority, which demonstrates clearly that even if the will appoints an executor who is willing and competent to take probate and who is within the jurisdiction, the court will nevertheless pass him over if the circumstances so justify.

18.  Re Estate of Li Wing Chun, supra, does not take the matter further.  There, the learned master, quoting Re Ho Wai Man, observed at para.14 at p.527 that section 36 was not applicable to in certain circumstances.  She then held that where, as the case before her, a full grant had already been issued to all the executors appointed under the deceased’s will and the grant was still valid and subsisting, it did not fall within section 36.  No such general proposition as contended by Mr Ng can be derived from her judgment, which is in any event not binding on this court.

19.  The second preliminary point raised by Mr Ng is this.  The discretion under section 36 must be exercised in the best interests of the estate.  Since Mr Lee is the sole beneficiary of the Estate, he is the sole “person beneficially entitled” to the Estate.  His interest is identified with that of “the person beneficially entitled” to the Estate.  Passing him over is not in the interests of Mr Lee as executor and the “person beneficially entitled” to the Estate, who is also Mr Lee, the same person.

20.  Mr Ng’s submission confuses what is the best interest of the Estate, the duty of Mr Lee as sole executor in administering the Estate and his interest in another capacity as the sole beneficiary under the Will.  Take this example.  The best interest of the Estate requires Mr Lee, as executor, to effect an expeditious and economical administration according to law and the provisions of the Will.  In discharging his duty as executor, Mr Lee must pay the Estate’s debts and liabilities before making any contribution to himself as beneficiary : see section 61(1)(a) of the Ordinance; Williams, Mortimer and Sunnucks on Executors, Administrators and Probate, 2008 Edn, para.50-02 at p.691.  His interest as beneficiary under the Will may be affected when paying the Estate’s debts and liabilities will inevitably reduce the eventual distribution to him.  So what is in the best interest of the Estate and what he must do as executor may well conflict with his interest as beneficiary under the Will.

21.  Finally, Mr Ng submitted that the Caveator has no locus to bring the application.  He is not a beneficiary of the Estate.  He is neither a qualified nor proper person to make the section 36 application.  He simply has no legitimate interest in the relief sought, namely, removal of Mr Lee as executor.  Even if, which is denied, the Caveator has any claim against the Estate, he can simply commence proceedings against the Estate but he has deliberately refrained from doing so.

22.  When the court is asked to exercise a statutory power, as the Caveator does here, the applicant must show that he is a person qualified to make the application.  But this does not conclude the question.  He must also show that he is a proper person to make the application.  This does not mean that he has an interest in making the application or may be affected by its outcome.  It means that he has a legitimate interest in the relief sought : Deloitte & Touche A.G. v Johnson & Another [1999] 1 WLR 1605, per Lord Millett at p.1611D-E.

23.  Whether a person is qualified to take out the application must depend on the language of the relevant statutory provision.  The court needs to examine the provision to see whether it identifies the category of persons who may make the application : Deloitte, supra, per Lord Millett at p.1611B.  Here section 36 does not define the qualified persons who may make the application.  The court has to look at the particular circumstances of the case to see if the applicant is qualified.  The same is true for the consideration if the applicant is a proper person in the sense that he has a legitimate interest in the relief sought.

24.  The Caveator claims to be a creditor of the Estate.  If his claims, which amount to some HK$34 million, are sustained, Mr Lee must pay him before making any distribution to himself as beneficiary.  The Caveator alleges that, among other things, Mr Lee had misused the funds of the Estate, amounting to some HK$3.56 million, to finance HCCW422/2010.  Mr Lee had thereby siphoned off substantial assets belonging to the Estate, which would otherwise have been available to its creditors.  Mr Lee’s conduct is therefore detrimental to his interest.  He has a legitimate interest to see that Mr Lee is passed over as executor.  That being the Caveator’s complaint, he is plainly a qualified and proper person to make the present application.

25.  Whether the Caveator should commence proceedings against the Estate separately is neither here nor there.  An executor is under a duty to take proper steps to ascertain all creditors of the estate and to pay all debts and liabilities of the estate.  (Where necessary, the executor may place advertisements in accordance with section 29 of the Trustee Ordinance, Cap.29.)  A creditor is quite entitled to lodge the claim with the executor without commencing any separate proceedings against the estate.

B.3.   Bad character

26.  I now return to the first of the three factors that the Caveator relied on, that is, Mr Lee’s bad character.

27.  It is trite that an executor may be passed over on account of his bad character : Williams, Mortimer & Sunnucks, supra, paras.26-05 and 26-14 at pp.377 and 380.  Mr Kwok attacked Mr Lee’s character by referring to his conduct in HCCW422/2010 in two aspects.

28.  First, as noted above, the Caveator served a statutory demand on CG on 9 September 2010.  On 7 October 2010, CG obtained an ex parte injunction from Harris J restraining the Caveator from presenting a winding up petition. The supporting affirmation was filed by Mr Lee in his capacity as director.  He raised a number of allegations to bolster CG’s defence that Mr Essa’s claim was suspicious and possibly fraudulent.  He said CG was a successful and solvent company with substantial assets.  He relied on a one page balance sheet taken from CG’s 2009 audited accounts.

29.  On 15 October 2010, Harris J discharged the injunction on the ground of material non-disclosure. In the reasons for decision handed down on 29 October 2010, Harris J, after summarizing the evidence before him, said :

“9. I am satisfied that Mr Lee should have known at the time his affirmation was made that the case summarized in paragraph 31of his affirmation was misleading in the sense that it presented not only a partial view of the facts but one which could not be justified on the basis of the information he either had or should have been capable of obtaining. It seems to me quite clear that at the time of the application was made ex parte before me the highest that Mr Lee could properly put his case was that he had certain concerns about the details of [the Caveator’s] claim. At the time he made the affirmation he had no reason to doubt the majority of what [the Caveator] was alleging was correct….

10. In my view, there has been material non-disclosure which justifies setting the original order aside.”

30.  In short, Mr Lee misled the court by non-disclosure.

31.  Second, on 17 February 2011, To J ordered CG to produce its 2009 audited accounts within three days.  The petition was due to be heard on 17 March. CG did not do so but applied to the Court of Appeal for leave to appeal on 25 March.  On 13 May 2011, the Court of Appeal dismissed the application and criticized CG’s conduct.  On 30 May 2011, the Court of Appeal ordered Mr Lee to pay indemnity costs personally for CG’s failed application.  CG eventually disclosed the 2009 audited accounts in May 2011. By then, the trial of HCCW422/2010 had already concluded.  (Deputy Judge Pow, SC found CG’s conduct in refusing to disclose relevant documents, including the 2009 audited accounts, most unsatisfactory.  He ordered CG to pay indemnity costs.)  The failure to produce the 2009 audited accounts for the purpose of the trial of HCCW422/2010 is no doubt deliberate, for they readily exposed the fallacy in Mr Lee’s assertion that CG was solvent.

32.  In my view, Mr Lee’s conduct in HCCW422/2010 shows quite clearly that he is amenable to and will in fact resort to unscrupulous means to further what he perceives to be his advantage, justified or not.  He is thoroughly an unfit person to act as the executor for the Estate.

33.  Mr Lee is further guilty of misusing the Estate’s funds.  It is Mr Lee’s assertion in his affidavit evidence that he paid all the costs incurred by CG in HCCW422/2010 by his own funds.  What transpired later is that in fact he had, in his capacity as executor, caused the Estate to reimburse him the costs and expenses that he paid for CG.  He had again misled the court. Further, the Estate had no obligation to pay for CG’s legal expenses.  And it is in any event not in the interest of the Estate to oppose the winding up petition.  As rightly submitted by Mr Kwok, the Deceased’s shareholding in CG was an asset which devolved to the residual Estate, and not to a specific beneficiary.  Mr Lee, as executor, should have simply realized the value of that shareholding, either by selling those shares, or else petitioning for winding up.  If CG was wound up, then the Estate would receive a distribution of surplus assets as a contributory, if it was solvent.  If it was insolvent, as the court had now held, the Estate’s shareholding was worthless anyway.

34.  Mr Lee placed his personal own interest over and above the Estate’s. He is not qualified to act as executor.

B.4.   Conflict of interest

35.  The Caveator next relied on conflict of interest.  As I have said, Mr Lee had misused the Estate funds.  He has put himself in a clear conflict with the Estate.

36.  Mr Kwok further submitted that a full investigation into this incident and the general affairs of the Estate by an independent person administering the estate is necessary.  I agree.

B.5.   Estate insolvent

37.  Insolvency is an established ground for passing over : Williams, Mortimer & Sunnucks, ibid.  The evidence on the Estate’s insolvency is overwhelming.  In fact, it comes from Mr Lee’s own lawyers in Australia.  (The Estate involves several companies in Australia.) In a letter dated 2 December 2010, the Australian lawyers said that “[Mr Lee] advises that the Estate is insolvent.” In another letter dated 17 January 2011, the Australian lawyers responded to the request of Caveator’s Australian lawyers for documentation confirming the insolvency of the Estate by saying that “[it] is currently awaiting receipt of further information from the Estate lawyers in Hong Kong before finalising delivery of the same.”

38.  In my view, these constitute clear prima facie evidence that the estate is insolvent.  Mr Lee has adduced no positive evidence to counter but a bare assertion that the Estate in Australia is insolvent but it is solvent in Hong Kong.  The distinction is simply disingenuous.  In any event, even taking the value of the Estate at its face value, it is insufficient to repay the Caveator’s claims, which Mr Lee has so far been unable to dispute with credible evidence.

39.  Inexplicably, Mr Lee remains adamant up to now that the Estate is solvent.  Plainly, he will not administer the Estate according to the provisions applicable to insolvency estates.  That is contrary to the best interest of the Estate.  Mr Lee should therefore be passed over. 

B.6.   Conclusion

40.  For the above reasons, it is a just and obvious case to pass over Mr Lee as executor.  Mr Kwok submitted, and rightly so in my view, that the Caveator should not be appointed because of his claims against the Estate.  Instead the Official Administrator should be appointed.  I so order.

41.  To complete the discussion on this topic, I would mention this.  The Caveator sought to invoke the court’s inherent jurisdiction in passing over Mr Lee as well.  Mr Ng submitted that the court has no such inherent jurisdiction.  For present purposes, in light of my conclusion under section 36, it is not necessary for me to decide this point.  My provisional view is that the court does have such inherent jurisdiction : see A. Cheung J’s reference to the court’s inherent jurisdiction in Re Ho Wai Man, supra, at paras.38-40.

C.      ADMINISTRATION IN BANKRUPTCY

42.  This limb of the Caveator’s application can be disposed of shortly.

43.  Section 112 of the Bankruptcy Ordinance, Cap.6 stipulates :

“(1) Any creditor of a deceased debtor whose debt would have been sufficient to support a bankruptcy petition against the debtor, had he been alive, may present to the court a petition in the prescribed form praying for an order for the administration in bankruptcy of the estate of the deceased debtor, according to the law of bankruptcy.

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(3) A petition for administration in bankruptcy under this section shall not be presented to the court after proceedings have been commenced under the Rules of the High Court (Cap 4 sub. leg. A) for the administration of the deceased debtor's estate but the court may, when satisfied that the estate is insufficient to pay its debts, make an order for the administration in bankruptcy of the estate of the deceased debtor and the like consequences shall ensue as under an administration order made on the petition of a creditor. …”

The procedure under subsection (3) is by way of summons filed in the pending administration proceedings.

44.  Mr Ng contended that the Caveator should have presented a petition under subsection (1).  Mr Kwok relied on subsection (3) and submitted that a summons would suffice.  The difference between counsel is whether administration proceedings have already been commenced under the Rules of the High Court.  An administration action means an action for the administration under the discretion of the court of the estate of a deceased person or for the execution under the direction of the court of a trust : Order 85, rule 1, Rules of the High Court, Cap.4A.  Administration proceedings for the purpose of subsection (3) should be so construed.  So contrary to Mr Kwok’s submission, the filing of a caveat, warning and appearance pursuant to the Non-Contentious Probate Rules is not administration proceedings within the meaning of subsection (3).  Since no administration proceedings are afoot, the Caveator should have filed a petition under subsection (1).  This part of the application is improperly constituted.  The procedural mistake is so fundamental that it cannot be cured by the provisions in Order 2, rule 1, Rules of the High Court.  It must fail on this ground alone. 

D. OTHER ORDERS

45.  Mr Lee’s application to discharge the Caveat is dismissed.

46.  Costs should follow the event.  I make an order nisi that Mr Lee do pay the Caveator’s costs of the present application, to be taxed if not agreed.