AU WAI KWONG, Joint Administrator of the Estate of Au Wah, deceased v. AU SOUK YEE MARGARET, Joint Administratrix of the Estate of Au Wah, deceased

HCMP 900/2019

[2021] HKCFI 1747

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 900 OF 2019

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JUDGMENT

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1.  The plaintiff (“P”) and the defendant (“D”) are the joint administrators of the Estate of the late Mr Au Wah (“the Estate”). By the Originating Summons filed herein (“the OS”), P seeks the following order against D:

(1)  A declaration that the Estate owes a sum of $5,079,151.22 (“the Alleged Debt”) to Wah Sun Electro-Plating Factory Limited (“Wah Sun Limited”);

(2)  D do make repayment of the Alleged Debt on behalf of the Estate and sign a cheque of $5,079,151.22 payable from the joint account held by P and D as Joint Administrators with Chong Hing Bank to Wah Sun Limited within a time the Court deems fit; and

(3)  Costs of these proceedings be to P and be borne by D personally.

BACKGROUND

2.  Mr Au Wah (“the Deceased”) passed away intestate on 3 November 2014.  The beneficiaries of the Estate are the following 5 children of the Deceased (in the order of seniority):

(1)  Mr Thomas Au Wai Ming (“Thomas”);

(2)  Mr Raymond Au Wai Cheung (“Raymond”);

(3)  Ms Margaret Au Souk Yee (ie D);

(4)  Mr James Au Wai Kwong (ie P); and

(5)  Mr Brian Au Wai Chung (“Brian”).

3.  On 11 April 2016, Letters of Administration have been granted to P and D as the joint administrators of the Estate.

4.  The family of the Deceased operated a group of 4 companies owned wholly or partly by the Deceased in a family business of electro-plating:

(1)  Wah Sun Limited, a company limited incorporated in Hong Kong and owned by the Deceased (49.5%), Raymond (25.25%) and P’s nephew Au Chun Ho (25.5%).  Wah Sun Limited operated an electroplating business.

(2)  Wah Sun Electroplating Factory (“Wah Sun Factory”), the trading name under which the Deceased operated as a sole proprietor. Wah Sun Factory operated an electroplating business.

(3)  Multimillion Enterprises Limited (“Multimillion”), a limited company owned by the Deceased (49.997%) and Raymond (50.0002%).  Multimillion held a factory in Panyu, Guangzhou in Mainland (“the Mainland Factory”) through a Mainland subsidiary 廣州市番禺華新精機有限公司 (“Guangzhou Wah Sun”). Multimillion is responsible for production.  Both Wah Sun Limited and Wah Sun Factory would send their orders to the Mainland Factory for production.  The Mainland Factory did not generate any meaningful profits but relied upon capital injunction from Wah Sun Factory and Wah Sun Limited to maintain operation.

(4)  Wah Sun International Industrial Holdings Limited (“Wah Sun International”) is a company owned by the Deceased (31.25%), Raymond (43.75%) and P (25%). Wah Sun International was a supporting company responsible for recruiting and supplying staff to the other 3 companies.  Wah Sun International charged a management fee to set off the employer’s contribution to the Mandatory Provident Fund required by law.

5.  The siblings worked in the family companies respectively:

(1)  D, Raymond and Brian worked in WS Factory;

(2)  Thomas worked in WS Limited; and

(3)  P had worked in Multimillion from 1990-2002.

Bank Loans Repayment by the Estate

6.  At the time of his death, the Deceased owned the following real properties:

(1)  6^th Floor, Mandarin Court, No. 128A Argyle Street & Car Parking Space No. 37, Nos.126, 126A, 128 and 128A (“Mandarin Court Property”); and

(2)  Work Space B on 4/F including Flat Roof, Parking Space No. 5 on G/F, Parking Space No. 30 on G/F, Wing Cheung Industrial Building, Nos. 58/70 Kwai Cheong Road, Kwai Chung (“Wing Cheung Properties”).

7.  The Deceased owed mortgage loans to Bank of China (Hong Kong) Limited (“BOCHK”) and The Hongkong and Shanghai Banking Corporation Limited (“HSBC”).  The Alleged Debt was not included in the Schedule of Assets and Liabilities of the Letters of Administration.

8.  Prior to his death:

(1)  In October 2008, the Deceased used Mandarin Court Property as security to guarantee the loan borrowed by Wah Sun Limited from BOCHK (“the BOCHK Loan”); and

(2)  In October 2013, the Deceased used Wing Cheung Properties as security to guarantee the loan borrowed by Wah Sun Limited from HSBC (“the HSBC Loan”).

These loans are collectively referred to as “the Bank Loans”.

9.  Subsequently, due to Wah Sun Limited’s failure to repay the Bank Loans, BOCHK and HSCB took enforcement actions against Wah Sun Limited and the Estate.

10.  In respect of the BOCHK Loan:

(1)  On 24 April 2015, BOCHK issued HCMP 1005/2015 against Wah Sun Limited and the Estate.

(2)  By an order dated 19 July 2016, judgment was entered against Wah Sun Limited and the Estate with an order for delivery of vacant possession of Mandarin Court Property.

(3)  In November 2017, BOCHK exercised the right of sale to sell Mandarin Court Property at HK$15,600,000.  After repaying the BOCHK Loan in the total sum of HK$12,546,863.32 and deducting the expenses, the surplus was about HK$3 million.

11.  In respect of the HSBC Loan:

(1)  In May 2015, HSBC commenced HCMP 1257/2015 against Wah Sun Limited and the Estate to enforce the mortgage in respect of Wing Cheung Properties.

(2)  Subsequently, HSBC discontinued the above proceedings and commenced another set of proceedings under HCMP 2438/2016 in September 2016.

(3)  By an order dated 19 January 2017, judgment was entered against Wah Sun Limited and the Estate in the sum of HK$20,243,771.72 and USD 638,950.58 plus interest.

(4)  In order to repay the HSBC Loan, P and D sold Wing Cheung Properties at the price of HK$31,800,000.  After deducting the HSBC Loan in the total sum of HK$27,905,000 and the expenses, the surplus was about HK$3.45 million.

12.  The total repayment for the Bank Loans by the Estate is therefore HK$40,451,863.32 (“the Bank Loans Repayment”).

The Alleged Debt

13.  By a letter dated 15 June 2018 (signed by Raymond), Wah Sun Limited demanded P and D (as administrators of the Estate) to repay a sum of HK$4,928,472.34 allegedly owed by Wah Sun Factory to Wah Sun Limited as of 31 March 2017.

14.  By another letter dated 26 June 2018 (signed by Raymond), Wah Sun Limited revised the indebtedness as of 31 March 2017 to HK$5,079,151.22 (ie the Alleged Debt).

15.  Between 21 June 2018 to 30 October 2018, P and D discussed the matters relating to the Alleged Debt, and D proposed to claim the Bank Loans Repayment against Wah Sun Limited.

16.  On or about 13 July 2018, P alone signed a written confirmation on behalf of the Estate to Wah Sun Limited agreeing the Estate to repay the Alleged Debt.

17.  By a letter dated 26 July 2018, Messrs Li, Wong Lam & WI Cheung (“LWL”), acting for Wah Sun Limited, demanded D to cause the Estate to repay the Alleged Debt within 7 days.  A running account between Wah Sun Factory and Wah Sun Limited from 1 April 2013 to 2 March 2015 (“the Running Account”) was attached to the letter.

18.  By letters dated 17 August 2018 and 31 August 2018, LWL repeatedly demanded D to cause the Estate to repay the Alleged Debt.

19.  By a letter dated 14 December 2018, Messrs Danny Ma & Co. (“DM”), acting for D, requested P to explain the basis of his agreeing the Estate to pay the Alleged Debt and provide “all relevant documents and information to enable [D] to carry out her duty to confirm that those are just debts of the Deceased”.

20.  By a letter dated 24 December 2018, Messrs Kevin L.H. Kwong & Co, acting for P, said that P had explained the Alleged Debt to D but D refused to cooperate with P.

21.  By a letter dated 27 December 2018, DM again asked P the basis of his agreeing to repay the Alleged Debt and to provide all relevant documents in his possession to enable D to carry out her duty.  P was also asked whether he would agree to send a formal demand to, inter alia, Wah Sun Limited for financial reports.

22.  By another letter dated 15 January 2019, DM indicated that D needed “to obtain for the purpose of verification at least the management and audited accounts of [Wah Sun Factory] and [Wah Sun Limited] during the relevant periods in order to properly carry out her duty to confirm that those are just debts of the Deceased”.

23.  Up to now, Wah Sun Limited has not commenced any proceedings against the Estate for repayment of the Alleged Debt.

THE PARTIES’ RESPECTIVE CASES

24.  P’s stance is as follows:

(1)  After considering the documents produced by Wah Sun Limited, P is satisfied that the Alleged Debt is indeed a debt owed by the Estate to Wah Sun Limited and the Estate should repay the same.

(2)  P agrees that Wah Sun Limited was the borrower of the Bank Loans.  However, P takes the view that the Bank Loans were necessary for use by the family business, which consisted of Wah Sun Factory, Wah Sun Limited, Multimillion, and Wah Sun International.  P verily believes that the Deceased treated the mortgages as investment into family business and never intended for the amount to be repaid by Wah Sun Limited. 

25.  D’s position is as follows:

(1)  The documents provided by Wah Sun Limited are insufficient to prove the Alleged Debt as the nature of payments or transfers to Wah Sun Limited was unknown.  Wah Sun Limited should provide further documents such as Acknowledgment of Debt signed by Wah Sun Factory, payment vouchers authorizing the payments or transfer, etc., but Wah Sun Limited has failed to do so.

(2)  Even if the Alleged Debt is proven, Wah Sun Limited owes the Deceased the Bank Loans Repayment which far exceeds the Alleged Debt.  There is no reason why the Estate should rush to repay the Alleged Debt to Wah Sun Limited. 

ANALYSIS

26.  The court may determine any question in the administration of an estate.[1]  As to whether the Estate should repay the Alleged Debt to Wah Sun Limited, P and D cannot agree with each other.  There is a deadlock between the two administrators on this issue.  Accordingly, it would be necessary for the court to determine this matter.

27.  In an Order 85 application, the court is essentially engaged solely in determining what ought to be done in the best interests of the trust estate and not in determining the rights of adversarial parties.[2]

28.  An administrator has a duty to safeguard the assets of the estate.  Any loss to the estate caused by willful or negligent acts by the administrator is capable of amounting to a devastavit.  In Re Rownson[3], Bowen LJ said:

“…… The duty of executors or administrators is, after paying the funeral expenses and collecting the assets, to pay the just debts and to satisfy just claims against a testator’s estate. But it is clearly his duty not to waste an estate not his own, which he is administering for the benefit of others, in satisfying demands that are equally untenable in law and in equity.”

29.  Having consider the evidence and the submissions, I am of the view that D is plainly correct.

30.  I agree with D that there is insufficient evidence proving the existence of the Alleged Debt or any part thereof.

(1)  The documents produced by Wah Sun Limited in support of the Alleged Debt are as follows:

(a)  the Running Account;

(b)  bank statements of Wah Sun Factory with BOC and HSBC; and

(c)  invoices issued by Guangzhou Wah Sun (which was owned by Multimillion and formed part of the family business) to Wah Sun Limited, covering April 2013 to September 2014.

(2)  With respect, these documents can only show some fund movements, but the nature of the fund movements is unknown.  To ascertain the existence of the Alleged Debt, documents such as the audited accounts of Wah Sun Limited or acknowledgement(s) of debt(s) signed by the Deceased should be produced.  However, none of these documents has been provided by Wah Sun Limited.

(3)  Since Wah Sun Limited is a company incorporated in Hong Kong, Wah Sun Limited must have audited accounts.  There is no reason why the audited accounts are not produced by Wah Sun Limited in support of its claim for the Alleged Debt.

31.  I also agree with D that in any event, the Estate should not be required to repay the Alleged Loan to Wah Sun Limited, for the amount of the Bank Loans Repayment far exceeds the amount of the Alleged Loan.

(1)  The Bank Loans were loans owed by Wah Sun Limited to the banks and guaranteed by the Deceased.  Wah Sun Limited failed to repay the Bank Loans.  The Bank Loans were eventually repaid by the proceeds realized by selling the properties owned by the Deceased, for the Deceased was the guarantor of the Bank Loans.

(2)  As a matter of law, the Estate has the right to claim against Wah Sun Limited for the repayment of the Bank Loans based on a restitutionary claim.[4]

(3)  P claims that the mortgages were the Deceased’s investment in the family business and the Deceased never intended Wah Sun Limited to repay the Bank Loans Repayment.  However, there is no satisfactory evidence (for example, a written waiver signed by the Deceased) in support of this contention.

(4)  If the Bank Loans were meant for family business and not meant to be repaid, why should the Alleged Debt be treated differently and be repaid by the Deceased?  There is no satisfactory answer from P on this question.

32.  With respect, there is no merit in P’s application.  The OS must be dismissed.

DISPOSITION

33.  I dismiss the OS.

34.  This application is unmeritorious and should never be brought.  There be a costs order nisi that costs of these proceedings (including costs reserved, if any) should be paid by P personally to D, to be taxed if not agreed.[5] The costs order nisi will become absolute unless an application is made by a party to vary the same within 14 days.  The parties are reminded that any unmeritorious application would be met by an adverse costs order.

35.  I thank counsel for the assistance rendered to the court.