CHUN HON WAI AND ANOTHER v. JUNICHI TAKASHIMA

HCMP 6794/98

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 6794 OF 1998

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JUDGMENT

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1. This is a Vendor and Purchaser Summons. It is common ground that the Agreement has been terminated. What is at stake now is the Purchasers' claim for refund of the deposit, costs of investigating title, estate agent's commission and stamp duty; and the Vendor's counterclaim for damages for breach of Agreement, interest and for the registration of the Originating Summons against the property to be vacated.

The property

2. The matter arises in this way. The registered owner of a property in Parc Oasis ("the property") was Leung Po Wan, who died in August 1997.

The Will

3. Probate of her Will was granted to the Defendant ("the Executor" or "the Vendor") on 20 October 1998. The Will provided:-

"4. Subject to the payment of all my just debts, estate duty, funeral and testamentary expenses, I GIVE DEVISE BEQUEATH AND APPOINT all my estate whatsoever and wheresoever not by this Will or by any codicil to it otherwise disposed of to TSUYOSHI TAKASHIMA, my lawful and natural son ("the Beneficiary") absolutely.

5. The Executor may not sell or otherwise dispose of any of the assets forming any part of my residuary estate before the Beneficiary attains the age of 18".

The Agreement

4. By an Agreement dated 14 November 1998, the Executor agreed to sell the property to the Plaintiffs ("the Purchasers"). Clause 5 of the Agreement provided that the Vendor was selling and shall assign the property as personal representative. Completion was due on 15 December 1998.

The requisition

5. In view of the restriction against sale of the residuary estate in cl. 5 of the Will, one of the requisitions raised by the Purchasers' solicitors was whether the Beneficiary had survived the Deceased and if he had attained the age of 18.

6. I do not propose to go through the lengthy correspondence that passed between the Purchasers' solicitors and the Vendor's solicitors after this requisition was first raised. I should however mention with regret that the tone and contents of some of the correspondence, whether initiated or reciprocated, were not worthy of professional advisers.

7. What is clear from the correspondence is that the Vendor has never informed the Purchasers of the age of the Beneficiary (despite requests), but the correspondence does disclose (by reason of the Executor's references to having to maintain the Beneficiary) that the Beneficiary had survived the Deceased.

The issue

8. The issue between the parties at heart was whether the Executor was obliged to show, and had succeeded in showing, that the property was capable of being sold by him in light of cl.5 of the Will.

9. In my judgment, the Executor was under such an obligation and he had failed to discharge it.

Section 54(4) & (5) Probate and Administration Ordinance

10. Sections 54(4) and (5) of the Probate and Administration Ordinance cap. 10 ("the Ordinance") provide:

"(4) A personal representative may ... dispose of any property vested in him, as he may think proper, subject to any restriction which may be imposed in this behalf by the will of the deceased and to the provisions of this section:

Provided that an executor may dispose of any property notwithstanding any restriction so imposed, if he does so in accordance with an order of the court.

(5) The disposal of property by a personal representative in contravention of the provisions of this section shall be voidable at the instance of any other person interested in the property".

11. Clause 5 is a restriction, imposed by the Will, of the Executor's otherwise complete right to dispose of property vested in him.

12. It was therefore, in my judgment, perfectly proper and legitimate for a purchaser's solicitor to ask if the property falls within the ambit of that clause - in other words, whether the property was part of the residuary estate of the Deceased.

Section 66(4) Probate and Administration Ordinance

13. I should note here that whilst s.66(4) of the Ordinance does provide that:

"A conveyance of a legal estate by a personal representative to a purchaser shall not be invalidated by reason only that the purchaser may have notice that all debts, liabilities, funeral and testamentary or administration expenses, duties, and legacies of the deceased have been discharged or provided for",

that provision cannot assist the Vendor here. The important words in s.66(4) are that the conveyance should not be invalidated "by reason only" that the purchaser may have notice that all debts, etc. had been paid.

14. So, if the Purchaser here had notice that all debts, etc. had been paid, under s.66(4) generally, that notice would not invalidate a conveyance from the Executor. However, if all debts, etc. had been paid, under the terms of this Will, the balance of the property would fall into residue, and under cl. 5 of the Will, the Executor would not be authorized to dispose of the property until the Beneficiary attained 18, and consequently any disposition by him would be voidable at the instance of the Beneficiary under s.54(5).

Wo Yu Wai v Chan Wei Tsun distinguishable

15. Thus, the case of Wo Yu Wai v Chan Wei Tsun 1992, MP 3561 (unrep.), on which the Vendor's solicitors relied (as per their letter dated 14 December 1998), is clearly distinguishable.

16. In Wo, there was no restriction of the executor's right to dispose of property. The purchasers there submitted that there might have been an implied restriction. That was not found by the judge. Therefore in that case, s.54(4) and (5) did not operate to render the disposal at risk of avoidance by the beneficiaries.

Answer that "residuary estate not yet ascertained"

17. The Vendor's solicitors' further answer (in their letter dated 10 December 1998) was that the Executor was "in the course of ascertaining the estate and residuary estate of [the Deceased], the express restriction (if any) which may prohibit sale of property would not come into effect until the residuary estate has been ascertained AND the beneficiary cannot object to any disposition of property before the residuary estate has been ascertained. Accordingly [the Executor] as the proving executor has the necessary power to sell the subject property".

18. I accept that the restriction in cl. 5 of the Will only applies to the residuary estate, and that the words "residuary estate" mean the estate which remains after payment of debts, estate duty, funeral and testamentary expenses (Trethewy v Helyar (1876) 4 Ch D 53).

19. That must be the case on the true construction of this Will, because there is a restriction on disposal of the residuary estate until the Beneficiary attains 18. If the words "residuary estate" were to include the estate even before payment of debts, etc., that would mean that the Executor would be restricted from disposing of any part of the estate even for funeral expenses, unless he immediately applied to Court. That could not have been the intention of the deceased testatrix.

20. The case of In re Wilson, deceased [1967] 1 Ch 53 does not assist the Purchasers because it merely showed that on those facts of that case, the words "all my property" meant the residuary estate. It does not follow that the words "residuary estate" in all cases mean everything left by the deceased at the time of death, even before payment of debts, etc.

21. As for the case of In re Harland -Peck [1941] 1 Ch 182, I do not find that case to be of much assistance, because it was concerned with the incidence of debts, etc. as between different legacies. Here, there is no such issue. As a matter of construction of this Will, it is clear that the "residuary estate" meant whatever remains after payment of debts, etc.

22. But that does not mean, in the light of a requisition as to whether this property fell within the restrictions imposed by the Will, that the Executor could simply say in correspondence that he was still "ascertaining the residuary estate". Such a statement by the Executor shows that this property might or might not be part of the residuary estate. Since it might be part of the residuary estate, I fail to understand how that the statement could be a satisfactory answer to the requisition.

Answer that Executor was "duty bound to sell"

23. The Vendor's solicitors' answer in their letter dated 6 November 1998 that the Executor was "duty bound to sell under [the Ordinance] " was in my judgment too cryptic to provide any satisfactory answer to the requisition.

24. If what the Executor wanted to say was that the property was being sold to settle the debts, etc. of the Deceased, then he should have provided a statutory declaration or other conveyancing evidence to this effect clearly.

25. There was no such statutory declaration or evidence. And the information provided by the Executor does not assist, because one cannot see that the property was obviously being sold to settle debts, etc.

26. It would have been different if e.g. the schedule showed that the property was the Deceased's only asset. In that case it would have been apparent that sale was required, if only to pay funeral and probate expenses.

27. But that was not the case here. The schedule to the Probate showed there was estate duty of just short of $3.6m. and mortgages on two properties. But there was cash of some $2.2m., and shares, and the correspondence showed that the Executor had received $1.5m net from the sale of one of the properties (there being no dispute as to this figure from the Vendor's solicitors).

28. Thus there was no conveyancing evidence from which it could be inferred (in the absence of express conveyancing evidence) that the sale was obviously to provide funds for settlement of debts, etc.

No waiver

29. Finally the Vendor submitted that the Purchasers had waived the requisition by sending a draft assignment and inspecting the property.

30. It is clear from a review of the correspondence that that was not the case. The letter enclosing the draft assignment was expressly without prejudice to the Purchasers' right to insist on requisitions already raised and expressly stated that there was no waiver. References were made to "if [the Vendor's] title to the property is accepted eventually ...", showing that there was no acceptance yet.

31. This letter and other correspondence up to the termination of the Agreement make it abundantly clear that these Purchasers were far from accepting title.

Order

32. In the light of the matters set out above, I would grant an order in terms of paragraphs 1, 2, 3, 5, 6 (subject to the caveat that the amount paid as stamp duty by the Plaintiffs would be payable by the Defendant if not refunded by the Stamp Duty Office despite reasonable efforts to obtain refund, with liberty to apply for both parties as to the working out of this order), 7 (with interest to be at savings rate from date of Originating Summons to date and thereafter at judgment rate until payment) and 8 of the Originating Summons.

33. I make an order nisi that costs follow the event, i.e. that the Defendant pay the costs, save and except for the separate order as to the costs of the Defendant's successful application to expunge part of the 3rd Affirmation of the Plaintiffs' solicitor filed 24 March 1999 if referable thereto.

34. The Defendant's Counterclaim is dismissed and I make an order nisi that costs of the Counterclaim be to the Plaintiffs, again save and except for the separate order as to the costs of the Defendant's successful application to expunge part of the said Affirmation.