LEE LAI CHING v. LEE MAN FOR AND ANOTHER

HCMP1576/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1576 OF 2003

------------------------------

---------------------------

------------------------------------------

REASONS FOR DECISION ON COSTS

------------------------------------------

Introduction

1.  Mrs Lee Chan Wun Yin (“the Mother”) passed away on 9 March 1993.  She had 2 sons and 5 daughters with her husband, Mr Li Chung (“the Father”).   The plaintiff is 1 of the 5 daughters, Ms Lee Lai Ching (“Nancy”) and the defendants (“Ds”) are Mr Lee Man For (“Dennis”) and his younger brother Mr Lee Man Hok (“Steven”).

2.  These proceedings are concerned with the last will made by their mother on 16 October 1980 (“the Will”).  The Will specified that the estate of the Mother (“the Estate”) should be distributed equally among the 7 children.  It also provides that Dennis and Steven are the executors.

3.  Probate was granted on 9 September 1997 and there had been discussions about the distribution of the Estate.  On 10 April 2003 Nancy took out an Originating Summons. The reliefs sought included an order that Ds should furnish a list of the assets of the Mother and apply for probate of the Estate in respect of the properties situated outside Hong Kong.

4.  The parties eventually agreed that Ds would furnish a list of all the assets of the Mother in and outside Hong Kong.  They also agreed to appoint a trust corporation or a professional trustee jointly and Ds would cease to act as executors.  A consent order was made to this effect on 2 June 2004 (“the 1^st Consent Order”)

5.  The negotiation concerning the replacement trustee was unsuccessful.  Nancy took out a summons on 15 May 2006 to seek the help of this Court.

6.  On 13 June 2006 I ordered that McCabe International Trustee Limited (“McCabe”) be appointed as executor of the Estate in place of Ds and they should pay the cost of the application personally.  Parties were able to agree upon the amount of costs and a consent order was made on 21 December 2007 (“the 2^nd Consent Order”).

7.  On 15 November 2006 their father passed away intestate in Hong Kong. Separate proceedings were brought by Ds regarding the estate of the Father.

8.  Nancy took out a summons on 10 September 2010 for an order that the costs of these proceedings (except the costs covered by the order dated 13 June 2006) together with costs of the application be paid by Ds personally to Nancy.  The 3^rd Affirmation by one Mr Keung Yui Fai (“Kenneth Keung”), a partner of Messrs So Keung Yip & Sin (“SKYS”), was filed on the same day to support the application.  SKYS were the solicitors acting for Nancy.

9.  The original hearing date was fixed to be 15 December 2010.  It had been re-fixed to 10 February 2011.  Ds filed the 5^th Affirmation of Dennis only on 29 January 2011 to oppose the application.

10.  On 10 February 2011 I refused to admit the aforesaid affirmation and ordered that the costs of these proceedings (except the costs covered by the order dated 13 June 2006) as well as the costs of the application be paid by Ds personally.  I now give reasons for this decision.

Applicable legal principles

11.  The applicable legal principles had been cited in length by both counsel, Mr C.Y. Li for Nancy and Mr Alexander Wong for Ds.  These proceedings fall squarely within category 3 (i.e. adverse claims) of the classification in In re Buckton [1907] 2 Ch 406.  Nancy was the successful party and she is entitled to costs.  The remaining issue is whether the costs should be paid by the Estate or by Ds personally.

12.  In determining this issue, regard should be made in respect of Order 62, r.6(2), which provides that a personal representative is entitled to the costs of the proceedings unless he had acted unreasonably or for his own benefits only.

Conduct of Ds

13.  In order to decide whether Ds had acted unreasonably and/or for his own benefits only, it is necessary to consider the conducts of Ds during these proceedings.

14.  The conducts complained of by Nancy are :

(1)     wilful delay in taking probate in Hong Kong;

(2)     wilful delay in rendering the account of the Estate;

(3)     the unsatisfactory report prepared by Veda Strategus (Hong Kong) Co. Ltd (“Veda”);

(4)     mishandling of matters regarding two companies Lee Tai Enterprises Limited (“Lee Tai”) and Chuen Ming & Company Limited (“Chuen Ming”);

(5)     wilful delay in distributing the assets in Hong Kong;

(6)     failure to account for the missing jewellery of the Mother;

(7)     failure to take probate in Australia; and

(8)     failure to distribute the cemetery lots in Tai Pang Wan, Shenzhen.

15.  It should be noted that some of the allegations above have not been proven.  This is because as of today there is still not yet a satisfactory accounting report about the various assets.  Consequently items 1, 3, 4 and 6 are not considered in this judgment.  However I am able to come to a decision on the remaining items. I shall comment on items 1, 3, 4 and 6 herein below first.

16.  Item 1 is an allegation that Ds wilfully refrained from taking probate in Hong Kong until 1997, more than 4 years after the demise of the Mother.  Ds explained that they needed time to calculate the estate duty and as there was not enough cash they had to resort to their father’s help.  The amount of estate duty is still at issue and it is also not known if the Father paid for it.  If the defendants’ version of story is true it may explain the delay in taking probate in Hong Kong.

17.  Item 3 relate to the unsatisfactory report prepared by Veda.  The complaint had been detailed in the Affirmation of Kenneth Keung, which was filed in support of the summons dated 15 May 2006.  The Veda report formed an important consideration in my order on 13 June 2006.  I do not consider that it can be used in the present application.

18.  Item 4 is related to the two companies Lee Tai and Chuen Ming.  The first allegation is that Ds had allowed Father to take out substantial loans from the two companies by exploiting their office in these companies.  As some shares of these companies form part of the Estate, Ds had in fact allowed the dissipation of assets in the Estate.  The second allegation is related to the draft broad minutes of the two companies shown in NLL-9 given by Ds.  Nancy alleged that the proposed transfer of shares in the two companies is suspicious as it does not reflect the number of shares held by Mother before her death.  These serious allegations are best resolved when there is more evidence regarding the two companies and Father.  At this stage it is sufficient for me to note that Ds failed to account for and distribute the shares and it will be dealt with under Item 5.

19.  Item 6 relates to the valuable jewellery owned by Mother.  The whereabouts of them are undetermined.  There is no strong enough evidence to support the allegation that Ds were responsible for the disappearance of them.

The other items

20.  Items 2, 5, 7 and 8 relate to the delay by Ds to account for and distribute the assets in and outside Hong Kong.  It is trite law that executors are under a duty to account for the assets as speedily as possible.  Nancy’s case is that Ds had never put their mind in administering the Estate until the commencement of these proceedings.  She relied on various conducts of Ds to support this proposition.

21.  The first conduct relied upon is the fact that Ds only produced the first report of all the assets of the Estate only on 25 August 2003.  This report was qualified.

22.  There were various explanations put forward by Ds.  First they accuse Nancy for withholding vital information regarding the Hong Kong companies (Lee Tai and Chuen Ming).  Secondly they accused other beneficiaries/legatees who live overseas of late response to questions asked.  Thirdly they blamed the frequent replacement of bookkeepers by Father.

23.  I cannot accept these allegations of Ds.  It can be seen from the affidavits and affirmations filed from Ds that they have a habit of making bare allegations without support.  At paragraph 16 of Affirmation of Dennis and Steven they accused Nancy and her husband for taking control of the Lee Tai Enterprises (USA) Inc. for their own benefits but not that of the other legatees.  They said “one of [their] sisters” told them they used the family business to obtain a business loan in the region of US$2.5 million from “the bank”.  This allegation was vehemently refuted by Nancy.  She also clarified that Lee Tai Enterprises (USA) Inc. is in fact Lee Tai Enterprises USA Ltd. 

24.  As Ds could not even get the name of the US company right, it is difficult to accept the accuracy of their accusation.  Ds did not repeat this allegation in their later affirmations.  However they came up with fresh allegations in the 3^rd affirmation for Dennis, where it was said that Nancy was withholding information regarding the companies in the US and that at least one-third of the estate is in the US.  They also mentioned “a building belonging to a family company in New York has been sold for US$10 and we have not been able to obtain any explanation from [Nancy].”  These allegations are unsupported by any documents and they were not repeated later.

25.  For reasons apparent below, I hold that the real reason for the late attempt to account for the assets is Ds’ wilful forbearance in administering the Estate.

26.  The second conduct complained of is the failure to take action to distribute the shares in Lee Tai and Chuen Ming.  Ds explained as the Father was against the distribution of shares, they would not distribute the shares for fear of his wrath.  Ds explained that the Father was the majority shareholder in these companies and he had the controlling power of these companies.  They said as “the value of the Hong Kong companies have no significant change, it would not have been beneficially [sic] to the value of the shares if they were distributed earlier or now”.  They also rely on “the costs to the Estate involved or the foreseeable litigation that might result from the entrenched position of [the Father]”.

27.  It is difficult to make any sense of these explanations.  Nancy was not asking Ds to sue Father in relation to the loans made by the companies to Father.  Nancy was simply asking Ds to take action to collect and distribute the shares, according to the Will.  The damage from the purported threat from Father had never been assessed.  It is also uncertain what cause of action Father might have.  Ds’ case was simply that some expenses might be incurred, and that appeared to be enough to deter Ds from carrying out the Will.  In any event the so-called threat from Father, like the bare allegations against Nancy and other legatees, was unsupported by any other evidence.  I do not accept their father ever made such threat.  In any event, even if their father had made such threat, it is the duly of the executors to overcome such threat.

28.  The third conduct complained of is the late application for probate in Australia.  Ds only applied for probate in Australia in 2003, more than 10 years after the demise of Mother and some months after the commencement of these proceedings.

29.  Ds explained that they received conflicting legal advices from two solicitors firms about the proper procedure for applying the probate in Australia.  They said it was the “primary reason that there had been some delay in dealing with the Australian assets”.

30.  They also blamed Father for non-cooperation and non-approval.  They explained that as “the Australian companies are in great debt to [Father] and thus the distribution of the shares at an early stage would serve no real gain and purpose to the beneficiaries”. They said as Father was now “gradually reducing his direct control over the Australia companies” they could now apply for probate.

31.  It is difficult to see how the conflicting advices could not be resolved speedily.  Indeed Ds were unable to tell the duration of the delay caused by the advices.  In my judgment, the main reason relied upon by Ds is not the conflicting advices but the purported resistance by Father.  For the same reasons above regarding the Hong Kong companies, I reject Ds’ explanation in relation to the Australian companies.

32.  The fourth conduct complained of is the failure to have the cemetery in Tai Pan Wan, Shenzhen transferred to Ds earlier.  Ds only arranged for the transfer of the lots to them in 2003.

33.  Ds explained that they were “of the view that the cemetery cannot be divided usefully and also cannot be co-used by the beneficiaries” and that there were “no urgency in dividing the cemetery lots”.  They also had regard to Father’s view that the original position had been that “such cemetery was to be used by the family for burial”.  They needed time for “all the beneficiaries to vote on what they wanted to do and to decide on the future management” and sharing of expenses.

34.  It is uncertain whether Ds had inquired other legatees about their positions.  They did not appear to have done so, and they were quite happy to go along with their view which is to not distribute the cemetery lots.  They acted upon their view and decided not to collect the lots until the commencement of these proceedings.

35.  None of the explanations of Ds is satisfactory.  The truth is they have their own agenda in administering the Estate, and this agenda goes opposite to the law.  The attitude taken by Ds can be accurately described as “no threat no action”.  On their own account Ds were satisfied to leave the assets “untouched” instead of actively collect them and distribute them.

36.  The primary concern of Ds is not to carry out the Will.  Their primary concern is not to distribute the assets, so far as practicable, and as late as possible.  They could be deterred by resistance of any kind, difficulty of any magnitude, expenses of any amount or threat however remote.  They were more influenced by their own consideration, or that of Father, than by their duty as executors.

37.  As Ds themselves pointed out in the Affirmation of Dennis and Steven, paragraph 34, they “have sought to conduct a difficult balancing act and at the same time safeguard all the interests of the Estate whilst without upsetting the will and decision of [Father]”.

Other consideration

38.  Mr Wong submitted that as McCabe (the executors succeeding Ds) struggled in turning out a “true and perfect” inventory with a complete list of assets, the administration must be so complicated that even professional trustees had difficulty in dealing with them.  Accordingly Ds should not be blamed for the delay.

39.  I do not think Ds were merely guilty of delay.  Ds forbore from taking many actions to administer the Estate.  Their case was essentially that they did not administer the Estate primarily because of Father, and as such it was not dependent upon the practical difficulty. 

40.  The joint account owned by Mother and Father, and the joint account owned by Mimie Li serve as a prime example of Ds’ determination in not administering the Estate. Despite the lack of any practical difficulty, Ds only inquired the relevant banks about these accounts in 2003.  They did not see fit to ascertain the amount of cash held by Mother before her demise when the issue of estate duty arose, but they were content to rely on the cash payment by Father.  They then went on to praise Father for playing a “pivotal role” in helping with the administration and his wish should be respected.  Again this shows that Ds had not properly directed their minds to carry out the administration.

41.  The most decisive factor is not the negligence or incompetence of Ds in administering the Estate, but the wilful forbearance in administering the estate.  I do not therefore consider any practical difficulty can be helpful to Ds.

42.  Ds also rely on the various proceedings taken in Hong Kong and in the United States against Nancy.  I do not consider them as relevant at all.  Whatever the outcome of these proceedings may be, they cannot assist Ds in the current proceedings. The present proceedings could be resolved by reference to the admission made by Ds alone.  I cannot see how the conduct of Nancy can be relevant to the present proceedings when I have held that Ds were guilty of wilful forbearance in administering the Estate.

43.  Lastly Ds rely on their co-operative conducts during these proceedings.  They refer to 1^st and 2^nd Consent Orders to show that Ds had taken a reasonable stance throughout these proceedings.  I think the stance taken in the 1^st and 2^nd Consent Orders is relevant insofar as the basis of taxation is concerned.  The truth remains that Nancy eventually obtained the reliefs sought in the Amended Originating Summons, and these proceedings were wholly necessitated by the unreasonable inaction on the part of Ds in administering the Estate.

The 5^th Affirmation of Dennis

44.  On 10 February 2011 I refused to admit the 5^th Affirmation by Dennis.  The primary reason is the very late filing of this affirmation.  This summons was taken on 10 September 2010 and the original hearing date was 15 December 2010.  Ds only filed this affirmation more than a month later than the original hearing date (29 January 2011) and 11 days before the re-fixed hearing date (10 February 2011).  This was an unreasonably long delay on the part of Ds and the impact from this delay is more aggravated by the numerous allegations therein.

45.  In the affirmation Ds had once again turned to their creative minds and came up with fresh allegations without support, including Nancy’s obstruction in the administration of Estates, her refusal to return the jewellery until after 2007, and delaying the US proceedings in the hope of profiting from the US companies.

46.  It is difficult to see how Nancy could have responsibly replied to these allegations within such a short time.

47.  Further, some of the explanations could have been raised earlier, including lack of time and experience on the part of Ds, but were not raised earlier.

48.  I refused to admit the 5^th Affirmation of Dennis because of his serious delay.  This is also an indication of the executors’ delatory attitude.

Conclusion

49.  On their own admissions, Ds were far from eager to administer the Estate.  In relation to the assets both in and outside Hong Kong, Ds were quite happy to relegate their duties as executors if they cannot obtain the approval by Father. 

50.  I have difficulty in accepting the purported resistance by Father in light of the numerous unsubstantiated allegations against Nancy.  The true motives behind Ds’ inaction remain at issue.  In any event as the explanations offered by Ds were wholly unsatisfactory, I was able to conclude that Ds acted unreasonably nonetheless. Their unreasonable inaction necessitated the current proceedings in the first place and they should bear the costs out of it.  For the aforesaid reasons, I have ordered that the defendants should bear the costs of these proceedings.