HO SING YIN v. CHAN YIU LING

CACV 173/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 173 OF 2012

(on appeal from HCA No. 90 of 2010)

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J U D G M E N T

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Hon Yuen JA :

1. This is an appeal from a judgment of Deputy Judge Saunders given on 13 July 2012 dismissing the claim of Ho Sin Ying (“Madam Ho”) for financial provision from the estate of Dr Tsang Kwong Lik (“the deceased”) under the Inheritance (Provision for Family and Dependants) Ordinance Cap. 481 (“the Ordinance”).

Background

2. The deceased died in December 2001.  It is extremely unfortunate that nearly 12 years after his passing, members of his family are still bitterly locked in litigation. 

3. The deceased was born to Leung Lai Ling (“Madam Leung”).  However when he was very young, Madam Leung and the deceased’s father divorced, and he was brought up by his father and Madam Ho, his stepmother. 

4. At the time of his sudden death at the age of 51, the deceased was a widower and had no issue.  His father had predeceased him by one year.  As the deceased did not leave a will, his estate fell to his mother under the provisions of the Intestates Estates Ordinance, Cap.73 (“IEO”).

5.1   In HCAP8/2004 (which became CACV3/2007 and eventually FAMV4/2009), the court had to decide whether Madam Leung or Madam Ho was regarded in law as the deceased’s mother for the purposes of the IEO. 

5.2   Madam Leung succeeded all the way, but she died before the hearing in the CFA. 

5.3   The executrix of Madam Leung’s estate is her daughter by a subsequent marriage, the deceased’s half-sister Chan Yui Ling (“Madam Chan”). 

5.4   Accordingly the present proceedings have been brought by Madam Ho with Madam Chan (in her capacity as the administratrix of the deceased’s estate) as the defendant.

Pleadings

6. In her statement of claim, Madam Ho pleaded that she “immediately before the death of the deceased was maintained, either wholly or substantially, by the deceased”

(1)  as a “parent” of the deceased under s.3(1)(iv) of the Ordinance (see para. 5 of the statement of claim) or

(2)  as “any person” under the sweep-up provision, s.3(1)(ix) of the Ordinance (see para. 6 of the statement of claim).

7. The Defence was very brief.  There was simply “no admission” by the defendant to this part of paras 5 and 6. 

Issue at trial

8. However it would appear from the judgment that at trial, Madam Chan did not simply require Madam Ho to prove her case.  Madam Ho’s allegation that immediately before the deceased’s death, she was maintained, either wholly or substantially, by the deceased became a fiercely contested issue. 

9.1   There was no dispute about the deceased’s financial position.  He had been in full time practice as a medical doctor since his graduation 21 years before his death, for the last 16 years he was in private practice, he operated his medical practice from 2 properties held in his own name, and the clinics were profitable. 

9.2   For the tax years ending 1998 to 2000, his clinic had assessable profits of about $1m a year, but for the year ending 2001, he opted for personal assessment as he made only $202,047 (resulting in repayment of provisional tax paid of $158,270).  This drop in income was consistent with the evidence of Madam Ho, who said that the deceased was in and out of hospital for a few months from the middle of 2000, and in the deceased’s final year, the financial support he gave her was “reduced a little bit” (Transcript p76-P). In any event, what has to be considered is the “settled basis or general arrangement between the parties as regards maintenance during the lifetime of the deceased which has to be looked at, not the actual, perhaps fluctuating, variation of it which exists immediately before his ... death” (Jelley v Illiffe [1981] Fam 128, 136-E).

9.3  It is clear that before his death, the deceased was in a very sound financial position.  According to the provisional schedule of property disclosed on his death for the Estate Duty Office, his estate was valued at $10.7m net, of which more than $130,000 was cash in various bank accounts.  He also had access to overdraft facilities.  The valuation at $10.7m excludes his interest in a company called Maryo Development Ltd (“the Company”) which was set up in 1988. 

10. There was no real dispute that Madam Ho did receive cash from the deceased from time to time, but the issue before the judge was whether the cash was money from the deceased personally for her maintenance, or were returns from her “joint investment” with him in properties held by the Company. 

Maryo Development Ltd

11.1   The deceased held 99.8% of the shares in the Company. Madam Ho’s daughter, the deceased’s half-sister Tsang Yau May (“Yau May”), held the remaining 0.2%.  There was no evidence of any declaration of trust of any shares. 

11.2   The directors were the deceased and Yau May.  After the deceased’s death, a son of Madam Ho, the deceased’s half-brother Tsang Kwong Kan (“Kwong Kan”) was appointed director.

11.3   The Company financial statements before us (which started only with the accounting period ending June 1999) show the following:

-  the Company was a property investment company;

-  for the years ending 30 June 1999-2001 (the deceased died in December 2001), no dividends were declared;

-  for the same years, incomes (from rentals) were respectively $1.08m, $1.2m and $1.2m, whereas bank loans paid were (for principal plus interest) $646,562 + $674,236 (for y.e. 1999), $706,005 + $558,624 (for y.e. 2000), $738,128 + $505,818 (for y.e. 2001), which exceeded the incomes received;

-  even excluding depreciation, directors’ remuneration and loan interest, other expenses amounted to $133,418 (for y.e. 1999), $119,831 (for y.e. 2000) and $145,297 (for y.e.2001);

-  the “amount due to director” had increased from $6,087,428 (for y.e. 1999) to $6,606,245 (for y.e. 2000) to $6,938,704 (for y.e. 2001).  According to the provisional schedule, there was a debt due to the deceased by the Company in the sum of $6,725,700.

As will be discussed in detail later in this judgment, these facts are relevant to the issue whether payments made to Madam Ho were maintenance payments from the deceased personally or were returns on her investment in the Company.

Evidence at trial

12. At the trial, Madam Ho gave evidence, as did Tsang Yau Man (who, like the deceased, was born to Madam Leung but was brought up by Madam Ho) and Yu Mo Ling, a nurse who worked for Dr Tsang for 15 years until 2 years before his death.  They all testified that the deceased had a close and loving relationship with Madam Ho. 

13. 1   Madam Ho said:

“after [the deceased] had become a doctor, he gave my husband and I about HK$200,000 to 230,000 on average annually as our living expenses. He would give me about HK$20,000 to 30,000 extra during the Chinese New Year as New Year expenses. Ever since my husband passed away, [the deceased] gave me about HK$8,000 to HK$10,000 monthly as living and daily expenses (but not including the gifts and daily necessities that [the deceased] bought for me on a frequent basis” (1^st statement, para. 54).

In her supplemental statement, she said:

“... I only remember that by the year of 1987, the amount [of living expenses the deceased gave his father and Madam Ho] was increased progressively to HKD20,000-odd per month, the average annual basic living expenses amounted to about HKD240,000 and in festivals (he) would give an extra sum of HKD30,000-50,000. When [the deceased’s] business was good, he would give me at least HKD10,000 to HKD30,000 unexpectedly which might happen for 3 to 5 times every year. ... In about 1995 my husband and I were both semi-retired, besides HKD20,000-odd per month, [the deceased] would additionally give more money to me and my husband, totally more than HKD100,000 a year, when his business was good and told us to enjoy ourselves timely ” (emphasis added) (para. 2).

She said the monthly living expenses and other extra expenses were given to her in cash at the deceased’s clinic or at restaurants when they met for lunch. 

13.2   From the above statements and her oral testimony, the judged found that she received payments in the order of $150,000 to $200,000 per year (Judgment, para. 34). 

14. The nurse also said in her Supplemental Witness Statement that she had seen the deceased give Madam Ho money

“from time to time in the amount of several thousand or over ten thousand Hong Kong Dollars each time, and all the money was given in cash. Besides, whenever the business of the clinic was good, [the deceased] would ask me to call [Madam Ho] to the clinic to get money, and each time ten thousand-odd Hong Kong Dollars to thirty thousand Hong Kong Dollars in cash were given to her, that had happened for about 3, 5 to 6 times every year” (emphasis added)(para. 2).

She also said:

“As far as I saw, in addition to the small gifts given to [Madam Ho] on a regular basis, [the deceased] gave ten thousand-odd, twenty thousand and sometimes several tens of thousands of Hong Kong Dollars to [Madam Ho] every month at that time” (para.3).

The judge also accepted the nurse’s evidence that

“... she had seen the deceased pay cash in sums of several thousand Hong Kong dollars, to even several ten thousand Hong Kong dollars, either from his desk drawer, the cash register, or at lunch meetings” (Judgment, paras. 31-32).

Although the nurse ceased to work for the deceased about 2 years before his death, there is no evidence that he changed his habit of giving Madam Ho cash as she had described although, as noted earlier, his practice was not as profitable as before.

15. So far it would appear that there was clear evidence supporting Madam Ho’s claim that until the deceased’s sudden death, he had been giving her substantial payments from time to time for her maintenance.

16. However a complication arose because of Madam Ho’s assertion that she had a “joint investment” with the deceased in real properties through the Company. 

17. 1   Madam Ho said that she and her husband had a small business trading jade (from which they semi-retired in 1996), and that between 1987 and 1999, they had given a total of $3.9m to the deceased for investment on their behalf in real estate through the Company. 

17.2   She said in her Witness Statement that in 1988 

“[the deceased] supported (sic) that all the money earned by the company could be used for the retirement of his parents, or as my property for supporting the living expenses, or as an emergency fund. I agreed to this suggested arrangement” (para. 40).

17.3   She said during cross-examination at trial (Transcript p.83-R):

“Q. ... There was a mutual understanding between you and [the deceased] that the fruits of your investment would be used to finance your retirement and your living expenses?

A. Yes.

Q. There was no doubt in your mind that that was how it should be done, right?

A. No doubt.

And in re-examination, she said:

“Q. ... Now, according to your evidence, the regular payment by [the deceased] to you during his lifetime was pursuant to some kind of arrangement, that is, you invest money in him for real property or the like and in return he provide you with this kind of regular payment, that was your evidence.

A. Yes” (Transcript p.94-B).

Judgment

18. In his judgment, the judge found that Madam Ho had received between $150,000 and $200,000 a year from the deceased, but he concluded that the “funds for those regular payments came primarily from the income of [the Company]” (Judgement, para. 48).  He said:

“I find that it cannot be said that it was the deceased who was maintaining Madam Ho. It is right that the funds for her maintenance were coming from a company owned by the deceased, but the reality of the situation was that the payments to Madam Ho constituted a return on the investment she had made in the company, albeit there was no separate record in the company’s accounts of that investment”. (emphasis added).

(Judgment, para. 50).

19. The judge based this conclusion on essentially four matters:

(1)  because the Company’s expenses (for y.e. 2000) included depreciation of $704,999 and directors’ remuneration of $102,000, it was

“not operating at a cash loss, but producing an amount of surplus cash in the order of $800,000 per year” (Judgement, para. 36);

(2)  after the deceased’s death, the directors (Yau May and Kwong Kan) caused the Company to sell two properties, subsequently cash of about $13.78m was withdrawn from the Company, and

“in the absence of evidence to the contrary the only inference that can be drawn is that Yau May and Kwong Kan have appropriated the cash fund of $13 million from [the Company], either for their own benefit, or for the benefit of their mother, Madam Ho” (Judgement, para. 47);

(3)  an assumption that the alleged arrangement was being implemented in practice:

“Just as the deceased had said to Madam Ho, [the Company’s] earnings were being used for the retirement of his parents or as her property for supporting their living expenses or as an emergency fund” (emphasis added) (Judgement, para. 48); and

(4)  the fact that the deceased did not make a claim for a dependant parent allowance in his personal assessment tax return for the year of assessment 2000 to 2001 led to the inference that he was not personally making payments to Madam Ho (Judgement, para. 49). 

Appeal and Respondent’s Notice

20. Madam Ho appealed, essentially on the basis that the judge was not entitled to draw the above inferences.  Madam Chan filed a respondent’s notice to affirm the judgment, arguing that:

(1)  the judge did not make any finding of fact as to what level of payments constituted “whole” or “substantial” maintenance in the context of the Ordinance;

(2)  Madam Ho had told the press that her purpose in this litigation was to claim back her money which she had invested in real estate held by the deceased, which was inconsistent with her claim for financial provision under the Ordinance; and

(3)  even if the payments to Madam Ho had been from the deceased’s own resources and were not returns from her investments made through the Company, the payments would have been made for “full valuable consideration”, as her evidence was that they had agreed to “an arrangement – of her investing money in him for real property or the like and in return, him providing her with regular payments”.

Discussion

21.1   With respect, I take the view that the judge was in error when he found that the payments made to Madam Ho “constituted a return on the investment she had made in the company” (Judgement, para. 50).

21.2   One of the factors which led the judge to this conclusion was his finding that the Company had a cash surplus of $800,000 a year, comprising claimed depreciation of $700,000 and directors’ remuneration of $100,000.  However, this was erroneous, because (as can be seen from the figures set out in para. 11.3 above) for each of the three years preceding the deceased’s death, the income ($1.08m, $1.2m and $1.2m respectively) was insufficient to cover even the mortgage instalments ($1,320,798, $1,264,629 and $1,243,946), let alone other expenses averaging $113,000 a year (excluding depreciation and directors’ remuneration).  It would therefore be seen that there was no such cash surplus.

21.3   Further, it is important to note that the Company had not declared any dividends. 

21.4   There was no evidence of the deceased’s director’s current account with the Company showing withdrawals made by him.  Indeed for those 3 years, if the “amount due to director” meant it was due to the deceased (which is consistent with the provisional schedule for estate duty), he had in fact increased his loan to the Company, showing that money was going from him to the Company, and not the other way round.  I would add that if the Company’s documents showed otherwise, one would have expected them to have been adduced in evidence, since Madam Chan is the administratrix of the deceased’s estate and would have been able to obtain copies of the current account. 

21.5   The audited Company financial statements are hard evidence that show clearly that as at the date of the deceased’s death, the Company had not made any distributions and the payments made by the deceased to Madam Ho were not returns on her investment in the Company.

22.1   As for the point based on the realization of two properties of the Company and the withdrawal of cash after the deceased’s death, Madam Ho denied that she knew about it (Transcript pp.57-N, 62-O, 64-O) and the judge did not say that he disbelieved her. 

22.2   Nor did the judge find as a fact that the directors had appropriated the money for Madam Ho.  He said that the cash fund was appropriated by them “either for their own benefit, or for the benefit of their mother, Madam Ho”(emphasis added) (Judgement, para. 47). 

22.3   There was no finding that Madam Ho had knowingly or unknowingly received any part of that money so that she did not need maintenance from the estate thereafter, or so that the estate was somehow entitled to set-off sums so appropriated against Madam Ho’s claim under the Ordinance.  As mentioned earlier, the Defence was a series of non-admissions and no defence based on appropriation of funds from the Company had been pleaded. 

22.4   One must also remember that in law the proceeds of sale belong to the Company, not its shareholders. What became of the money and whether any person(s) should be liable for its use may be the subject of litigation in another action (perhaps a derivative action) in the companies court, but in the absence of the findings mentioned above, mere suspicion of “self-help” by Madam Ho’s children is not enough, and the withdrawal of funds from the Company after the deceased’s death cannot in law affect her claim under the Ordinance. 

23.1   As for the arrangement (or agreement or understanding) asserted by Madam Ho that “the money earned by the company could be used for the retirement of [the deceased’s] parents, or as [her] property for supporting the living expenses, or as an emergency fund”, this was made in 1988 when the deceased suggested that a company be set up to hold real properties.  Madam Ho subjectively thought that that was how it “should be done” (Transcript p.83-T) and that the regular payment made by the deceased was “pursuant” to the arrangement (Transcript p.94-C).  But what the court must do is to see from the objective evidence whether the arrangement was in fact implemented. 

23.2   It is difficult to see how it could have been implemented in the years up to the deceased’s death when the Company had not yet reached the position of achieving net earnings, and there is no evidence that it was so implemented. 

23.3   No documents, records or accounts of the deceased have been put in evidence to show that after withdrawing sums from the Company, he had channeled those funds to Madam Ho by way of distribution. 

23.4   On the contrary, the evidence of Madam Ho and the nurse were that if the business of the  clinic (the deceased’s personal source of funds) was particularly good, Madam Ho would receive larger or extra payments.

23.5   Accordingly the evidence did not support the assumption made by the judge in para. 48 of the Judgment that “just as the deceased had said to Madam Ho, [the Company’s] earnings were being used for the retirement of his parents or as her property for supporting their living expenses or as an emergency fund” (emphasis added).

24.1   Finally there is the fact that the deceased did not make a claim for a dependant parent allowance (“DPA”) in his personal assessment tax return for the year of assessment 2000/2001.

24.2   Although the judge also referred to the return for 2001/2002, that was made after the deceased’s death, and although the assessment was addressed to Madam Ho as putative administratrix, cross-examination on this document was aborted (Transcript p.70-E to p.71-P). 

24.3   Madam Ho’s counsel argued that the judge should not have inferred from the omission of a claim for DPA that the deceased had not made payments to Madam Ho from his personal income, because he would not be entitled to make the claim if it had already been made by a sibling.  However in my view, the matter having been raised during Madam Ho’s cross-examination on the first day of trial, it would have been open to her team to call such evidence (had it existed) on the following days, but they did not do so. 

24.4   It was also argued that perhaps the deceased simply did not bother to make the claim.  The judge discounted this because he found the deceased was a person who was conscious of the advantage of tax deductions. However with respect what the judge failed to consider was the difficulty the deceased would have encountered had the Revenue required him to provide documentary evidence that Madam Ho was his parent.  He would not have been able to produce either a birth certificate or an adoption certificate. 

24.5   In light of these circumstances, it would seem that the omission of a claim for DPA (in a year of assessment when no tax was payable in any event) should not have led to the inference that the deceased had not made payments to Madam Ho from his personal income.

25.1   As for the points made in the respondent’s notice, first it is difficult to see how the fact that the judge failed to make any finding as to what level of payments constituted “whole” or “substantial” maintenance for “reasonable needs” could be regarded as affirming the judgment. 

25.2   Further it seems clear from the transcript that the judge was not impressed by the questions posed in this respect in cross-examination of Madam Ho by Madam Chan’s counsel.  The judge remarked that “the legislation does not require somebody to live at a subsistence level” (Transcript p.89-T) and that “$10,000 is not a lot of money” (Transcript p.90-B). 

25.3   Moreover, in answer to a question from the judge, counsel for Madam Chan made it clear that he was not suggesting that because Madam Ho was maintained by one of her sons after the deceased’s death, the claim would be defeated (Transcript p.89-L).

25.4   Given that Madam Ho’s evidence of her lifestyle was not seriously challenged in cross-examination, it is clear that the deceased “was making a substantial contribution in money ... towards [her] reasonable needs” within the meaning of s.3(3) of the Ordinance. 

26. As for Madam Ho’s assertion in and outside court that the only reason why she commenced this litigation was to claim back her money which she had invested in real estate held by the deceased, the Transcript shows that she wanted to qualify her answer but was unable to complete it before counsel asked another question (Transcript p.80-B).  However she did subsequently go on to explain that her provision of money for investments and the deceased’s contribution to her household expenses were different matters (Transcript p.82-R).

27.1   Finally, there is the argument that even if the payments to Madam Ho had come from the deceased’s personal funds, and not from the Company, she had provided full valuable consideration by reason of the arrangement for returns on joint investments in real estate. 

27.2   I accept that as a matter of principle, it is not necessary for there to be a contract for a person to have provided “full valuable consideration” for maintenance.  However Madam Ho’s evidence was that her contribution towards joint investments was a different matter from the maintenance the deceased gave her periodically.  There is no evidence otherwise. 

27.3   Madam Chan’s counsel referred to the properties which were not held by the Company (ie the two clinics held under the deceased’s own name) which Madam Ho said she paid for.  However there is no evidence whether a rent (even a notional rent) was charged and if so, how much, and how that correlated to the payments the deceased made to Madam Ho.

27.4   Moreover there is no evidence of records or accounts which one would have expected the deceased to have kept as accounting party had the payments been made as returns to Madam Ho.

27.5   The evidence was to the contrary.  The nurse testified that the deceased had a close and loving relationship with Madam Ho, that he would ask her (the nurse) to buy handbags and such other gifts for Madam Ho from time to time, and that when business at the clinic was good, he would give Madam Ho some extra money.  That is clearly indicative of an affectionate personal relationship, and not a situation where maintenance was given by the deceased to Madam Ho in exchange for her alleged payments towards property investments.

28.1   For the reasons set out above, I take the view that the appeal should be allowed and the judge’s order dismissing the claim should be set aside. 

28.2   As for the question whether the claim should be allowed under s.3(1)(iv) or s.3(1)(ix) of the Ordinance, the judge did not make a finding.  There is no definition of “parent” in the Ordinance, nor in the Interpretation and General Clauses Ordinance, Cap. 1. However as it may be inferred from the proximity in application of this Ordinance with the Intestates Estates Ordinance that the deceased person’s parent referred to in this Ordinance should mean the father or mother referred to in the IEO, I am inclined towards the view that this claim should be allowed under s.3(1)(ix) rather than s.3(1)(iv).

28.3   However in the unique circumstances of this case, I do not think it really matters under which subsection the claim should be allowed, because on all the evidence, whatever the situation in law, Madam Ho was in fact treated by the deceased as if she were his parent.  The extent, basis and length of his provision of maintenance for her was equivalent to that of a successful adult child who enjoyed a close relationship with an elderly parent, matters which are relevant to quantum (see s.5(5) and s.5(6) of the Ordinance).

29.1   As far as quantum is concerned, Madam Ho’s counsel has suggested a lump sum, to be calculated based on the median of the judge’s findings of payment at $175,000 pa as multiplicand, and a multiplier based on the average life expectancy of women in Hong Kong of 87 years.  Madam Chan’s counsel has not challenged this approach or the figures.  Having had regard to the matters in s.5(1) and also s.5(5) and s.5(6) of the Ordinance, I see no reason to reject the figure proposed.

29.2   The sum for past payments rounded up to December this year for convenience would be $2.1m ($175,000 x 12). 

29.3   Madam Ho was born in 1929 and is now 84.  The sum for future payments would therefore be $525,000 ($175,000 x 3). 

29.4   The total sum would therefore be $2,625,000. 

Order

30. 1   Accordingly, I would allow the appeal and set aside the judge’s order. 

30.2   Being of the opinion that the disposition of the deceased’s estate under the IEO is not such as to make reasonable financial provision for the plaintiff, I would make an order pursuant to s.3(1)(ix) of the Ordinance that a sum of $2,625,000 be paid to the plaintiff out of the deceased’s net estate. 

30.3   There is no claim for interest. 

30.4   As agreed by counsel, the costs should follow the event, and therefore the defendant should pay the costs of the plaintiff here and below, with the plaintiff’s own costs to be taxed in accordance with Legal Aid Regulations.  For the avoidance of doubt, the defendant’s costs should be borne by the estate. 

30.5   A copy of this order should be sent to the Probate Registry for entry and filing, and a memorandum of the order should be endorsed on or permanently annexed to the letters of administration pursuant to s.21(3) of the Ordinance.

Pleadings

31. Finally, a word about the pleadings.  The Defence did not at any stage allege that the payments made to Madam Ho were returns for joint investments or put forward any of the arguments which were run before the judge and this court.  This was unsatisfactory.  It is true that in most cases, claims for reasonable financial provision are straightforward and would not require detailed pleadings, but this was no ordinary case.  Those advising the defendant must have known after the witness statements were filed what the issues between the parties were by then, and had a duty to amend the Defence so that the real issues were properly placed before the judge.

Hon. Barma JA:

32. I agree with the judgment of Yuen JA.

Hon. McWalters J:

33. I agree with the judgment of Yuen JA.