HCCA 196/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CAVEAT NO. 196 OF 2010

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J U D G M E N T

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(I) BACKGROUND

1.  The Deceased died in December 2001, domiciled in Hong Kong, and was survived by his widow, and two adult sons from his first marriage.

2.  Prior to his death, he had executed a home- made handwritten Chinese will dated 23 March 1998 (‘the Will’) without appointing an executor but disposing, amongst others, some of his properties in Hong Kong to his two sons and the sons’ wives and their children.  Apart from some of the properties in the Mainland China, the widow was not bequeathed any of the properties in Hong Kong.

3.  However, the Will fails to dispose the interests in part of his estate. There will therefore be a partial intestacy, under which the widow would become a major beneficiary.

4.  The validity of the Will is not disputed.

5.  Based on the Will, the younger son together with his wife applied in “the capacity of the person applying for letters of administration with” the Will annexed in July 2009 under HCAG 6986 of 2009.

6.  The widow entered a caveat, and filed a summons asking to be appointed as the sole administratrix of the Deceased’s estate, which summons was later withdrawn by consent.

7.  The older brother also entered a caveat and filed a summons (“the Summons”) under rule 25(2), Non-Contentious Probate Rules (Cap.10) (“NCPR”) asking to be appointed as the sole administrator or alternatively to be appointed with the widow as joint administrators of the estate of the Deceased.  The widow supports the Summons.

8.  At the hearing of the Summons, the solicitors for the younger brother and his wife informed the court that the latter would withdraw the existing application for grant, and the younger brother (if allowed by the court) would make the application alone.

9.  I have granted leave to the younger brother and his wife to withdraw the application.

10.  The only matter that I need to determine in the Summons is therefore whether the older or younger brother should be allowed to make an application for the grant in preference to the other.

(II) DISPUTES

A. DISPUTED DEBT

11.  In their application for grant (which application has since been withdrawn) by the younger brother and his wife, the capacity (as set out in paragraph 5 above) they have stated in the Oath is clearly incomprehensible.

12.  In this application, both brothers are in agreement that they have equal entitlement to apply for grant either under Rule 19, NCPR the proviso in sub-rule (iv) or sub-rule (v) as specific legatee or devisee.

13.  The main plank of their disputes relates to the value of assets in items 3 and 4 of the Schedule of Property of the Deceased dated 24 January 2003(“the Schedule”) filed by the younger son in his application for grant.

14.  Item 3 is a debt stated to be approximately in the sum of $2.942 million due by a Tabine Investments Limited (“Tabine”).

15.  Item 4 concerns 837 shares in Tabine, and their value is stated to be approximately in the sum of $1.9 million.

16.  There was initially an agreement among the beneficiaries of the estate that the younger son was to make an application for grant.  The older brother even made a contribution towards the legal costs.  Eventually the widow and the older brother entered caveats against the sealing of the grant, and eventually issued their respective applications for appointment as administrators as a result of their distrusting of the younger brother in handling administration of the estate.

17.  The main bone of contention, among others, is the amount of debt being owed by Tabine to the Deceased.  The amount of debt as stated in the Schedule was certified by the younger brother, however he has turned around disputing the accuracy of $2.942 million stated in the Schedule owed by Tabine, and further contends that it should be $130,838 instead. It is further contended that the value of the 837 shares in Tabine should accordingly be adjusted upwards from the present stated amount of $1.9 million to $3.995 million.

18.  Tabine is a limited company formed for the purpose of holding investment properties. It is common that the younger brother together with his family hold over 90% of the shares of Tabine (while the older brother holds the remaining 9% approximately). From this, it is immediately apparent that the amount of debt owed by Tabine would have a direct impact on the value of the shares in the said company, and the younger brother (and his immediate family members) would stand to benefit by any increase in value.  Conversely, the amount of debt owed by Tabine will impact on the value of the Deceased’s interest undisposed of by the Will, and which undisposed interest would be shared by the widow, and the two brothers as intestate beneficiaries.

19.  Despite the Inland Revenue having already issued the Certificate of Receipt of Estate Duty, which amount of duty was based on the value stated in the Schedule, the dispute in relation to the amount of debt owed by Tabine remains unresolved.

B. RENTAL INCOME OF MAN SHING PROPERTY

20.  Under the Will, the older brother, his wife and children are devised a unit in Man Shing Building in Tuen Mun (“Man Shing Property”), which was previously leased to Tabine for abount 9 years until February 2009 at a rent of $20,000 per month.  The younger brother has been handling rental matters.

21.  The older brother, as one of the devisees of the Man Shing Property alleges that the younger brother has failed to account for the rental income to him.  This has further intensified the older brother’s mistrust of the younger brother.

C. OTHER ALLEGATIONS

22.  In addition to the above disputes, there are also allegations against the younger brother such as his having delayed in making an application for grant, his having manipulated Tabine’s accounts in order to increase the value of his and his family’s testate entitlement etc.

(III) APPLICABLE PRINCIPLES

23.  When there is a dispute between persons said to be equally entitled to a grant, and a court, when exercising its discretion in an application brought under Rule 25(2), NCPR, will take into account various considerations.  These considerations (as set out in the leading textbook on probate practice in UK[1]) include, among others, whether one of the applicants have an interest incompatible with the due administration of the estate.

(IV) DISCUSSION

24.  Common to the problems of most of the home-made wills such as non-compliance with the formalities and lacking clarity in the disposition clauses, the Will also appears to be suffering from such difficulties.  For the purpose of this application therefore, I would assume that both brothers enjoy equal priority in their entitlement to apply for a grant of letters of administration (with the Will annexed).

25.  The older brother has made a number of allegations against the younger brother concerning his unsuitability to act as an administrator, which allegations the younger brother has denied.

26.  In exercising my discretion in selecting what in my view is a more suitable administrator, I do not think it is necessary for me to determine the disputed allegations.

27.  In my view, it is patently clear that the underlying problem between the brothers is the complete lack of trust between them.  It is therefore definitely not possible for them to act jointly.

28.  In this case, I think the following considerations are relevant:

A. INCOMPATIBLE INTEREST

29.  As I mentioned above, the issue of the disputed debt concerning Tabine is the substantial source of disputes between the brothers.  Hence, after a grant is issued, the administrator would likely be required to take out necessary proceedings such as an administration action to resolve the disputed debt before distribution.

30.  On the undisputed evidence, Tabine is controlled by the younger brother (and his wife and two children).  Therefore, should the younger brother be appointed as the administrator, he would no doubt be placed in a position of conflict.

31.  Further, since most of income of the estate is in fact held by Tabine, the administrator of this estate would in the course of administration need to inquire into all the books and accounts of Tabine in order to establish the total amount of assets available for distribution, and to ascertain the entitlement of the beneficiaries. As there are already on-going disputes regarding the accuracy of such accounts, it would not, in my view, conducive to the interest of the estate to appoint someone who (together with his immediate family) is now in control of these accounts. It would only deepen the suspicion of the younger brother.

32.  For these reasons, I agree with counsel for the elder brother that the younger brother has incompatible interest with the due administration of the estate.

33.  Whilst the younger brother has definite advantage over the older brother in the administration of the estate for the reason that he has been handling the Deceased’s financial affairs, there is however no suggestion that the older brother is not fit to be an administrator.  I would therefore on balance prefer the older brother to act as the administrator.

B. OTHER CONSIDERATIONS

34.  Though this has not played any significant part in influencing my decision, I should also mention two additional matters that have made it less desirable to appoint the younger brother as the administrator:

B1. The Affidavit verifying the value of the estate

35.  For the purpose of making an application for grant, the younger brother was required to clear estate duty.  In so doing, he would be required by Section 3, the Estate Duty Ordinance (Cap.111) to lodge an affidavit for the Commissioner in the prescribed form verifying the particulars and value of the estate of a deceased person.  It was based on such an affidavit that the Commissioner had assessed the chargeable amount of estate duty.

36.  However, after having filed the affidavit, the younger brother is now disputing the accuracy of the value of the estate without however taking any necessary steps to rectify the alleged error of the Schedule, or giving sufficient explanation for the alleged error.

37.  In the circumstances, such conduct, in my view, is far from satisfactory. I have great misgivings that whether the younger brother is suitable to act as an administrator.

B2. Shoddy application for grant

38.  The estate duty was cleared in January 2003, and the younger brother (together with his wife) only lodged an application for grant in the Probate Registry in July 2009.  The younger brother explained that he had been pre-occupied with the litigation with the widow in Mainland China concerning the Deceased’s properties in Mainland China.

39.  The younger brother’s application for grant is non-contentious. Since he has engaged solicitors in handling the application for grant, I am therefore unable to accept his explanation for the delay. Furthermore, after a delay of more than 5 years, I find it inexplicable that the application was prepared so badly that the Oath in support (as stated in paragraph 5 above) does not even disclose a capacity known to the law of non-contentious probate. 

40.  Hence, although such defect is strictly speaking not the fault of the younger brother, I tend to think that his solicitors have not prepared the application for grant with due diligence and care. Were the younger brother be appointed, I am concerned that similar defect may be found in the application for grant, which may further delay the issuance of the grant.

41.  For the aforesaid reasons, I conclude that the older brother should apply for a grant of letters of administration.

42.  In the Summons, the older brother has asked, in the alternative, to be appointed together with the widow.  I do not think a joint administration with the widow is suitable.  First, it is doubtful whether the widow has the equal priority in the application for grant.  Secondly, the widow has since withdrawn from the disputes regarding appointment as an administrator.  She would therefore not be considered.

(V) CONCLUSION

43.  The Summons is allowed.  I order that the older brother, if entitled to, shall take the grant in preference to the younger brother.

44.  I make a costs order nisi that the younger brother shall pay the costs of the Summons, together with all costs reserved and certificate for counsel. The costs are to be summarily assessed in lieu of taxation if they cannot be agreed.

45.  Upon the costs order nisi becoming absolute, and if costs cannot be agreed, there shall be a hearing for gross-sum assessment with ½ hour reserved. The receiving party shall lodge and serve a Statement of Costs 7 days before the hearing, and the paying party shall likewise lodge and serve his Response 3 days before the hearing.

(VI) DIRECTIONS ON APPLICATION FOR GRANT

46.  In order to ensure that the grant will be issued as soon as possible, I direct that the solicitors for the older brother to lodge an application for grant within 14 days upon the sealing of this order.

47.  For the avoidance of doubt, I further direct that all existing caveats (be they entered by the widow, the older brother or the younger brother) that have not expired shall cease to have effect upon 14 days of the service of this order on the respective parties mentioned in the bracket herein.