MING SHIU CHUNG and Others v. MING SHIU SUM and Others

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

1998, No. 22
(Civil)

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J U D G M E N T

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Nazareth, V.-P.:

1. This is an appeal by the 1st defendant against the order of Yam J that the 1st defendant give inspection to the plaintiffs' experts of certain share certificates of J.F. Ming Inc ("the Company"), of the register of members and directors and of two minutes of directors' meetings.

2. The background to that order is this. The parties are all children of the testator, Ming John Fook, who died on 21 December 1992. By a will he made on 18 July 1964, he left the residue of his estate to his children in seven equal shares. He appointed three friends as executors, all of whom have since died. The testator signed a Chinese Memorandum dated 29 September 1992 in the presence of two witnesses. In that document he said that in order to solve his future estate duty problems he had had established a company, he had put all his assets into the company, and that he would give each of his children a one-seventh share in the company. He had that memorandum read to his children, i.e. six of them (the 4th plaintiff was absent) by the 3rd defendant at a dinner in October 1992. That was about two months before his death.

3. That Chinese Memorandum is of some importance, particularly the following part:

" Now I have decided to divide all the shares of Ming Cheung Fok Overseas Company [the Company], into seven parts, each of which has the same number of shares and worth. Each of you is entitled to one part (these are all bearer stocks), i.e. Shiu-chung, Shui-sum, Shiu-tong, Shiu-wah, Siu-hung, Shiu-kuen and Shiu-kou shall have one part. While I am still alive, Shui-sum and Ka-fok are required to store these seven parts of shares in a safety box of a bank which can only be opened when they sign for its opening at the same time. The shares shall only be given to you after my death. Let me reiterate: none of you is a shareholder of the company before you are given the bearer stocks. You have no right to interfere with the company's business, internal affairs and policies until you are given one bearer stock. If you want to transact any business which involves Ming Cheung Fok Overseas Company's assets, you have to secure Shui-sum's consent first because he knows all the procedures and is well-informed on Hong Kong's realty."

There was an appendix to the Chinese Memorandum in English which stated that the company held six groups of limited companies in Hong Kong and the net assets of those companies amounted to some HK$288.6m.

4. I pause to say here that plainly from that Memorandum that there is more than a suggestion that the testator meant that all his estate would be divided into seven equal shares of which each of his children would have one. I refer particularly to the words "divide all the shares of Ming Cheung Fok Overseas Company" at the beginning; then the words "Each of you is entitled to have one part" naming all his seven children; and finally the words "none of you is a shareholder of the company before you are given the bearer stocks". It remains to say that at that time the deceased was the majority shareholder of four Hong Kong companies which were four of the six groups of companies mentioned in the appendix. I should also mention that the foregoing extract from the Chinese Memorandum and the words quoted are taken from the plaintiffs' English translation which is in part disputed by the 1st defendant.

5. Over the next few weeks, the testator's shares in the company, together with shares held by others including the 1st defendant on his behalf, were transferred to the Company.

6. In February 1993, i.e. about two months after the death of the testator, the 1st defendant gave each of his six siblings one bearer share certificate of the Company and he took one himself. The plaintiffs at that time believed that they were each holding 1,000 shares of a total of 7,000 shares in the company, numbered B001 to B007.

7. A year later, on 21 February 1994, the plaintiffs and the 3rd defendant met as shareholders of the company and passed a resolution, removing the 1st defendant as a director and appointing themselves in lieu thereof. They obviously seemed to have believed that they were the majority shareholders. I should mention that the testator and the 1st defendant were the only two directors of the company so that upon the death of the testator, the 1st defendant remained as the only director. When the resolution referred to was shown to the 1st defendant, he rejected it and produced for the first time another 10,000 shares and claimed to be the holder of 11,000 shares of the company. The result would be that he would have the majority shareholding of eleven seventeenths of the total shares in the company. The following was then revealed by him:

(1) The company was incorporated on 17 April 1991. The deceased and the 1st defendant were appointed as directors. No shares in the company were allotted or issued at that time.

(2) On 8 August 1992, share certificates No. 1 to 5, comprising 5,000 shares in the company were purportedly issued to the 1st defendant.

(3) On the same day, the company issued a further 5,000 shares in the form of bearer certificates. These were numbered BSS1 to BSS5. These bearer shares, as the registered shares, were [purportedly] issued by the deceased and by the 1st defendant as directors.

(4) Two minutes of meetings of the directors of the company on 8 August 1992. It was resolved in one that the 1st defendant be allotted 5,000 shares and in the other that the application for 5,000 shares in the form of bearer shares was approved. Further, it was resolved that a copy of the register of members detailing the issue of the shares be sent to the registered agent of the company and maintained at the registered office in the British Virgin Islands. In the register, the 1st defendant was noted as holding the five bearer shares dated 8 August 1992, the other five registered shares of 1,000 shares each, and the additional bearer share dated 18 September 1992.

8. I turn now to the position much later when these proceedings were commenced and the plaintiffs provided inspection. It is said that when they saw the documents in respect of which Yam J ordered further inspection, they "felt that" the signatures on those documents "did not appear to be that of their father's". In consequence of that the plaintiffs took out their Statement of Claim seeking first that the court pronounce in solemn form for the true and last will of the deceased; and second that the Court grant to the 2nd and 3rd plaintiffs Letters of Administration with the true and last will of the deceased annexed. The claim was opposed by the 1st defendant who put in a defence. It is common ground that he applies himself to be given Letters of Administration.

9. The matter came before Yam J on 7 January 1998 and, as I have indicated, he made an order that the plaintiffs have leave to inspect the documents mentioned. Their object was to have the documents in question examined by experts.

10. Before us, the 1st defendant is represented by Mr Ronny Tong SC with Mr Horace Wong. He complains that the judge in his judgment was wrong on five points:

(1) In making his order upon the basis of the credibility of the 1st defendant;

(2) That although the plaintiffs had not alleged any forgery, they had sufficiently laid down the groundwork;

(3) That the court at trial should be assisted by experts of scientific evidence;

(4) That the authenticity of the documents is relevant; and

(5) That although O24 r13 is more appropriate to found the plaintiffs' application, such application also comes within O29 r2.

11. Having heard Mr Tong's concise submissions and studied his skeleton submission, it is clear that the objection the 1st defendant has to Yam J's order is that it affords the plaintiff's renewed inspection of the documents in question. He complains that the plaintiffs' have had their inspection and they should not be afforded a second inspection; if they are, he complains, the 1st defendant would in turn have to procure an expert's report, leading to expense, and to the 1st defendant having to arrange for his expert to be present at the plaintiffs' inspection. He takes a number of points. He submits that on the authority of George Ballantine & Son Ltd v Dixon & Son Ltd [1974]1 WLR 1125 at 1132 that credibility is not a matter that the parties are entitled to raise at this stage. Moreover that the judge appears to have confused credibility on a particular issue with general credibility. I do not find it necessary to deal with this particular ground for it seems to me that the appeal falls to be resolved upon a different basis.

12. The second ground complains about the absence of any allegation of forgery. Here it seems to me one comes closer to the real issue in this appeal. And that in this family inheritance dispute seems to me to be to whom the Letters of Administration should be issued. In that regard the Court would have to consider what is referred to as the majority of interest. It is dealt with in the following passage in the 26 Edn of Tristram and Coote's Probate Practice at p.429, headed "Majority of interest" in Chapter 14 which deals with the selection of administrators by the court:

"But, above all, the practice has been to prefer the one who has the largest interest, or whom the majority of the other parties interested selects.

This is not, however, obligatory upon the court. Sir George Lee said:

'Though it is a good general rule to grant administration to the largest interest, yet that is only introduced by practice, and not by any positive law, and the court is not obliged to grant it to the largest interest.' "

Upon the basis of this, I am satisfied that the Court would have to have regard to who had the largest interest although that might not necessarily decide the selection. When the Court comes to address this point, it would perforce have to take notice of the fact that at some stage the 1st defendant will assert a right to eleven seventeenths of the shareholding of the company. When it does so, it will inevitably become aware that in paragraph 3(3) of their Reply the plaintiffs have said this:

"In the Chinese Memorandum the Deceased informed the parties that he had founded JF Ming Inc and had put all his assets and capital (valued by the Deceased as HK$288.6m) into the said company and that each of his children should have a 1 seventh share. After the Deceased passed away the 1st Defendant produced an extra 10,000 shares and claimed legal and beneficial ownership to 11 seventeenths of JF Ming Inc asserting that each of his other siblings are entitled to only a 1 seventeenth share. The Plaintiffs will dispute the 1st Defendant's claim."

Plainly, therefore, the judge would become aware that such a dispute would emerge at some stage. Plainly in that context the authenticity of the documents concerned would be of relevance.

13. Mr Tong takes the point that in disputing the authenticity of the documents in the circumstances, particularly the 1st defendant having been closely concerned in the management of the company, that is equivalent to an allegation of forgery or fraud. These being the serious allegations they are, on the authorities plainly the allegation would have to be pleaded and particulars given. That is certainly the effect of the authorities in my understanding. However, that is not to say that I accept at this stage that the plaintiffs need to have spelt out the matters they referred to in paragraph 3(3) of their Reply in terms of a particularised allegation of fraud before they could be entitled to relevant inspection. It seems to me that in the exercise of his discretion to grant Letters of Administration, the judge would certainly have to have regard to all matters brought to his attention. In that context he would have to take into consideration the questioned signatures and the bearing that might have as to who hold the majority shares. I therefore do not think the judge was precluded from having regard to that matter.

14. Mr Tong has also submitted that the only possible basis upon which the further inspection could have been ordered was the bare suggestion that the plaintiffs upon the first inspection felt that the signatures on the documents concerned did not appear to be that of their father's. That, he submitted, was a totally insufficient or inadequate basis. But this, as indicated, was by no means all that the judge had to rely upon. He was perfectly entitled to have regard to the contents of the Chinese Memorandum and the words therein I earlier mentioned. He was also entitled to take into account that the issue of the various shares preceded or were more or less contemporaneous with the time that the testator caused the Chinese Memorandum to be read to the six of his siblings who were able to be present. That Memorandum was clearly suggestive of each of the seven children having a one-seventh share. These are all matters that go to the effect of the 10,000 shares claimed by the 1st defendant and disputed by the plaintiffs. Likewise, there is the matter that the 1st defendant did not reveal his 10,000 shares at the time the Chinese Memorandum with its incompatible implications was read, and indeed not until more than a year after the testator's death. So that in the proper exercise of his discretion, it seems to me that the judge did have material upon which he could properly make an order for further inspection.

15. Mr Tong also took the point that the order made by the judge purported to have been made either under O29 r2 or r3. It does not seem to me necessary to construe those provisions. Even if they do not empower the order of inspection that the judge made, it seems to me that he would certainly have had the inherent power of the court to make the order. Needless to say I am satisfied that it was an order that was necessary to fairly dispose of the action in the way I have indicated; and also one that would save costs.

16. Upon that basis, it seems to me that the judge was entitled to make the order he made and that there is no good reason to fault the exercise of his discretion. I would dismiss the appeal.

Liu, J.A.:

17. The documents, an inspection of which was ordered by Yam, J., have been discovered. Yet, it is said that they are nevertheless irrelevant. It is also to be noted that they have previously been inspected. This is an appeal against the order of inspection made by the judge.

18. The court's power to order inspection is derived from the old Court of Chancery and the Court of Exchequer in its equitable jurisdiction which had power to order discovery to compel a person "to produce for inspection deeds and documents relevant to a dispute". (Emphasis added). See 1997 White Book Vol 1 p.419, marginal reference 24/1/1.

19. Relevance to a dispute would appear to be the determinative factor if an inspection is, in the opinion of the court, necessary for disposing fairly of the dispute or for saving costs. In this case, paragraph 3 of the Reply affirms the dispute as the suitability or fitness of the appellant. In support of that dispute, the respondents rely on, inter alia, their opposition to the appellant's claim that he is, by far, the majority shareholder. Paragraph 3 of the Reply reads:

"The Plaintiffs aver that the 1st Defendant [the appellant] should not be granted Letters of Administration for the reason that he is not a fit or suitable person to administer the Deceased's estate.

Particulars

(1) ........

(2) ........

(3) In the Chinese Memorandum the Deceased informed the parties that he had founded J F Ming Inc. and had put all his assets and capital (valued by the Deceased as HK$288.6 m) into the said company and that each of his children should have a 1 seventh share. After the Deceased passed away the 1st Defendant [the appellant] produced an extra 10,000 shares and claimed legal and beneficial ownership to 11 seventeenths of J F Ming Inc. asserting that each of his other siblings are entitled to only a 1 seventeenth share. The Plaintiffs will dispute the 1st Defendant's claim.

(4) ......

(5) ......

(6) As at the date of this pleading the 1st Defendant [the appellant] still refuses to provide the accounts of Ming Hsing to the Plaintiffs notwithstanding that the Plaintiffs have a beneficial interest in the company."

20. The dispute has clearly been pleaded and the appellant's claim to be the majority shareholder has thus been made relevant by (3) in the Particulars supplied. Detailed allegations are for further and better particulars.

21. In Tristram and Coote's, Probate Practice 26 Edn, pages 42 and 43 set out the considerations to which a Probate judge would have regard in selecting personal representatives. These considerations include the benefit of the persons interested in the estate (see Warwick v. Greville (1809) 1 Phillim 123 at p.125) and what is described as the "Majority of Interest", just read out from the text by My Lord, the Vice-President. The documents in question as documents relevant to the appellant's eligibility may be, in my view, compelled to be produced for inspection.

22. If a claim based on these documents is a consideration for the granting of Letters of Administration as guided by Probate Practice and Probate Rules, their inspection would evidently enable the proceedings to be fairly disposed of and, most probably, save the costs wasted on extensive submissions in vacuo and perambulating cross-examination on suspicion. The inspection ordered by Yam, J. is, at least for the reasons I have endeavoured to give, justified. The recitation of what is arguably a wrong rule of the Rules of High Court is not really a point of substance. I would also dismiss this interlocutory appeal.

Rogers, J.A.:

23. I agree.

24. In my judgment, if this appeal were acceded to, it would have the result of prolonging the disputes between the parties, enhancing their mutual distrust and achieve nothing.

25. At best the 1st Defendant's arguments are highly technical but on analysis are doomed to failure.

26. The first claim in these proceedings, as has been referred by the Vice-President is that "the court shall pronounce in solemn form for the true and last will of the Deceased, the Chinese Memorandum dated 29 September 1992".

27. Crucial to that claim is the plea in paragraph 4 of the Statement of Claim which reads as follows :-

"By a Chinese Memorandum executed on 29 September 1992 and read out in the presence of the Deceased to his children the Deceased informed his children that he had put all his assets into a British Virgin Island company called J.F. Ming Inc and bequeathed and devised to his children each of them a one seventh equal share in the said company."

28. There is also a claim, and I digress here, no. (3) in the prayer for relief that "the Court do grant the 2nd and 3rd Plaintiffs Letters of Administration with the true last will of the Deceased annexed of the estate and effects of the Deceased.

29. Paragraph 4 of the Statement of Claim is denied in the Defence. It is however admitted, inter alia, in paragraph 3(c) of the Defence that :

"the Chinese document provided inter alia that the Deceased had decided to give equal numbers of bearer shares in J.F. Ming Inc. to each of his children,"

The pleading then goes on :

"In truth and in fact, each of the 7 children of the Deceased had subsequent to the Deceased's death, applied for and been allotted 1000 bearer shares of US$1.00 each in J.F. Ming Inc. in accordance with the wishes of the Deceased as expressed in the Chinese document."

30. By implication therefore, if not by direct pleading, the allegation in the Statement of Claim that the Deceased had put all his assets into J.F. Ming Inc. was denied and the allegation that he had bequeathed and devised to each of his children a one seventh equal share in the said company was also denied. The inference from that is that the company owned beneficially the property which it owned and those who owned the shares in J.F. Ming Inc. owned them beneficially.

31. As has been pointed out by the Vice-President and Liu, J.A., paragraph 3 of the Reply and Defence to Counterclaim raises specifically the issue that the 1st Defendant should not be granted Letters of Administration, the particulars in sub-paragraph 3 are referred to.

32. For the reasons already given, I agree that the documents of which further inspection is sought are highly relevant to this case. The documents have been disclosed on discovery. Prima facie therefore they are relevant; and there would have to be very strong grounds shown by the Defendants at this stage to dispute that. The authenticity of those documents, on the other hand, has been specifically not admitted. Inspection would therefore appear to be highly relevant and important.

33. The objection taken by the 1st Defendant to giving inspection is primarily based on the fact that the 1st Defendant considered that it would have to employ an expert since clearly the Plaintiffs may be wishing to rely upon their expert. The short answer to that is that there has been as yet no order for expert evidence to be adduced; as and when such an application may or may not be made, that matter can be addressed. The concerns, therefore, of the 1st Defendant of costs being increased are premature. Any expense involved in the actual inspection of these documents, I hesitate to say, must pall insignificance to the costs of this appeal. The Judge below said at page 9 of his judgment :-

"In the end, I accept that since the fitness and acceptability of the postulant administrators is the issue in these proceedings, the authenticity or otherwise of the 10,000 shares is central to the 1st Defendant's fitness and acceptability."

The Judge went on to say that he considered that Order 24, rule 13 was perhaps a more appropriate basis upon which to found the claim for inspection. In my view, the Judge correctly exercised his discretion and I do not consider that there are grounds to interfere with that exercise of his discretion.

34. Quite apart from that, it seems to me, the Plaintiff would be entitled to inspection sought both under O.24, r.10 and under the Court's inherent jurisdiction. Copies of the documents of which inspection is sought have been exhibited to the affirmation of the 1st Defendant of 26th September 1997. Under O.41, r.11, any "document to be used in conjunction with an affidavit must be exhibited and not annexed to the affidavit". That rule, I would point out, refers to documents and not copies of documents. Obviously, for the most part, copies of documents are frequently permitted and accepted, but, as the notes to the White Book point out, the originals must be produced both for the opposing parties and for the Judge, on demand. It seems to me that the Court must have inherent jurisdiction to enable inspection of documents, copies of which have been exhibited in affidavits. If that were not enough, O.24, r.10 allows for inspection of documents mentioned in affidavits whether exhibited or not.

35. The purpose of inspection, both under the Court's inherent jurisdiction and under O.24, r.10 and O.24, r.13 is clearly to enable the inspecting party to verify the documents.

36. In my view, inspection should be allowed and this appeal must be dismissed.

Nazareth, V.-P.:

37. The appeal is accordingly dismissed. [Having heard counsel] The plaintiffs are to have their costs of the appeal.