CLARE HOLLINGWORTH v.THOMAS EDWARD JUSON

HCA249/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 249 OF 2006

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

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

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

DECISION

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

1.  This is the plaintiff’s application by summons for a summary order for account under Order 43 rule 1 of Rules of the High Court.  The defendant opposes the application, arguing that full account had been rendered before the action was commenced.

The facts

2.  On the pleadings and evidence filed in these proceedings, much of the basic facts are not disputed. They are set out below.

3.  The plaintiff is an elderly lady of 94 years old.  She is almost blind and is hard of hearing.  Since about January 2003, the defendant had assisted the plaintiff with her financial affairs.

4.  During the period in question, namely, between 2003 and 2005, she maintained an account with Standard Chartered bank (“SCB account”). 

5.  On 14 January 2003, the defendant was made a signatory to the SCB account and could independently sign cheques to withdraw money from the account.

6.  Since 8 August 2003, the defendant had held and had the use of an ATM card in respect of the SCB account.

7.  All the plaintiff’s mails from the bank, including the monthly statements, were directed to the defendant’s premises.

8.  On 18 August 2003, the plaintiff had a fall.  She was hospitalized for 10 days. 

9.  Between 18 and 28 August 2003, the defendant withdrew a total of $1,465,000 from the SCB account by means of six cheques.  Among them were two cheques dated 20 and 22 August 2003 in the respective amounts of $600,000 and $700,000.  They were paid to the defendant personally.  Another cheque dated 18 August 2003 for $50,000 was paid to his company.  The remaining three were cash cheques.

10.  Between 2003 and June 2005, the defendant had also signed a number of cheques to withdraw funds from the SCB account and also used the ATM cards to make cash withdrawals.  Many of the cheques were made either to the defendant personally or to his companies or associates.

11.  Up to 31 May 2005, the total withdrawals by cheques came up to $2,062,305.30.  Up to 11 June 2005, the total cash withdrawals by the ATM card was HK$170,600.  In total, HK$2,232,905.30 was removed from the SCB account. 

12.  In about March 2005, the executrix named in the plaintiff’s will, Ms Elizabeth Wright, began to be concerned with the level of the plaintiff’s bank balance in Hong Kong and the sudden closure of her Swiss bank account.  Eventually, Ms Wright and the plaintiff’s great nephew, Mr Patrick Garrett, contacted and corresponded with the defendant in relation to their concerns over the plaintiff’s financial position.

13.  Eventually on 15 June 2005, the plaintiff and Mr Garrett made a visit to Standard Chartered Bank.  The defendant’s signing right was revoked and the ATM card was cancelled.

14.  Subsequently, the plaintiff executed an Enduring Power of Attorney dated 22 July 2005, under which Mr Garrett was appointed as one of her attorneys.

15.  Since August 2005, the plaintiff has requested the defendant to return all monies he owes to the plaintiff.

16.  The following sums had been paid by the defendant to the plaintiff thus far:

Amounts (HK$)	Dates
100,000	9 September 2003
200,000	16 January 2004
50,000	9 June 2004
391,593	2 September 2005
104,184	12 September 2005
100,000	15 September 2005
50,000	3 November 2005
50,000	6 December 2005

The action

17.  It is the plaintiff’s case that the balance in the amount of HK$1,187,128.30 has not been returned.  It is also the plaintiff’s case that the defendant has not properly explained or accounted for the withdrawals and payments to himself or his companies or associates.

18.  On  2006, the plaintiff commenced this action against the defendant claiming inter alia for an account for the money removed from the SCB account and any profits or interest made by the defendant as a result thereof.

19.  The defendant disputes the claim, contending that he is not a trustee nor fiduciary in relation to the plaintiff and her funds and that he had acted honestly and in the plaintiff’s best interest.  With regard to the bank withdrawals, he says they were made with the plaintiff’s full consent and authorization.  As for the claim for an account, he defends on the basis that he had already rendered a full account by letters dated 3 January and 3 February 2006 from his solicitors to the plaintiff’s solicitors.

The application for account

20.  On 15 March 2006, the plaintiff took out the present application for a summary order for account.  The plaintiff seeks an account of the defendant’s dealings with the withdrawals he made from the SCB account, which are particularized in Schedules 1 and 2 of the Amended Statement of Claim, and the profits or interests he made from the receipt thereof, and further asks that the account be verified by affidavit.  In his written submissions, Mr Stock also asks for consequential directions.

21.  Previously, the defendant had issued summonses seeking further and better particulars of the claim, and challenging the plaintiff’s mental capacity to commence these proceedings.  The hearings of the defendant’s summonses had been adjourned as a result of the statutory stay occasioned by the defendant’s legal aid application.  Since then, the Director of Legal Aid had refused his application.  At the commencement of this hearing, I granted the plaintiff’s summons to lift the stay.

The issues

22.  The present application raises three issues.  They are:

(1)    Whether it is appropriate to invoke the summary procedure of Order 43 rule 1 of Rules of the High Court, and whether there are any preliminary disputes that need to be resolved before an account can be properly taken.

(2)    Whether the defendant is under a duty to account.

(3)    Whether the defendant had already rendered a full account such that the plaintiff’s application is otiose.

Order 43 rule 1 of Rules of the High Court

23.  Order 43 rule 1(1) and (3) of Rules of the High Court provide:

“(1)    Where a writ is indorsed with a claim for an account or a claim which necessarily involves taking an account, the plaintiff may, at any time after the defendant has acknowledged service of the writ or after the time limited for acknowledging service, apply for an order under this rule.”

“(3)    On the hearing of the application, the Court may, unless satisfied that there is some preliminary question to be tried, order that an account be taken and may also order that any amount certified on taking the account to be due to either party be paid to him within a time specified in the order.”

24.  Mr Bedford referred to the cases of Ho Lee Man v. Wong Wai Kai [1993] 1HKC 183 and Kids World Limited v. XL Machine Ltd & Others (unreported) HCA No. 125 of 2002, 18 September 2003, Reyes J.  They are illustrations of the operation of Order 43 rule 1(3), viz. if there are some preliminary facts to be tried, then it is inappropriate to make a summary order for account. 

25.  In Ho Lee Man v. Wong Wai Kai, the parties’ disputes over the scope of the partnership business and the duration of the partnership remained unresolved when the inquiry into the account was ordered.  Not surprisingly, the Court of Appeal was of the view that the order was inapt.  Similarly in Kids World Limited v. XL Machine Ltd & Others, Reyes J held that where the parties are engaged in substantial disputes of fact that are fundamental to the manner in which any proposed account is to be taken, the summary procedure under Order 43 rule 1 is not appropriate.

26.  In Mr Bedford’s submissions, Order 43 rule 1 is rarely used.  In my view, this is not material.  What is important is to have regard to the Rules and the cases. In general, if it is established that a party is under a duty to account, the court may order an account unless it is satisfied that there is some preliminary question to be tried.   The question that needs to be answered is whether there are any preliminary questions that required to be tried before an account can be properly taken.

27.  Mr Bedford says the real difficulty in this case is that the plaintiff has thus far not filed any affidavit. He suggests whether the defendant is a fiduciary or trustee rather than a friend and agent acting within the scope of his authority is a trial issue.  For reasons explained below, I am of the view that this is irrelevant to the defendant’s duty to account and in no way render the Order 43 rule 1 procedure inappropriate.

28.  As to the fact that the plaintiff has not made any affidavit in these proceedings, Mr Bedford’s point is that the only person who seems not to be satisfied with the explanations and account given by the defendant is Mr Garrett and it is not known whether the plaintiff herself is satisfied with the account given.  Again, this is immaterial.  For reasons indicated below, until the defendant’s Order 80 rule 2 application is determined in his favour, the court cannot proceed on the assumption that the plaintiff does not or cannot authorize this litigation or the present application.

29.  Mr Bedford further makes the point that the defendant is handicapped by lack of particulars of the plaintiff’s claim that the account he gave is inadequate.  This is one of his requests for further and better particulars, which have yet to be adjudicated upon.   In my view, the plaintiff’s reasons for the dissatisfaction with the account and explanation given by the defendant had been fully set out in the affidavits filed in support of this application, notably that of Mr Garrett.  I do not accept that the defendant would have any real or substantial difficulties in meeting the plaintiff’s case in this regard.     

30.  I am not persuaded that there are any preliminary questions that required to be tried such that it is inappropriate to make a summary order under Order 43 rule 1.

The defendant’s duty to account

31.  It is clear from the pleadings and the evidence before the court that the defendant accepts that he had since January 2003 assisted the plaintiff to manage her financial affairs.  He also does not dispute that he had made the withdrawals from the SCB account as pleaded in the Amended Statement of Claim.  A considerable amount of the payments went to his personal bank account and his companies.  On his own case, he had made investments on the plaintiff’s behalf and appointed accountant to manage the plaintiff’s finances.  In his statement dated 6 January 2006, the defendant stated he had complete control of the plaintiff’s money and had taken over the handling of the plaintiff’s affairs and funds.

32.  On these unchallenged facts, Mr Stock submits that the defendant is a trustee or fiduciary in relation to the plaintiff’s funds in the SCB account.  The defendant does not accept this.  In his solicitors’ letter dated 3 February 2006, it was said that the defendant was merely an agent for the plaintiff and he had acted within his authority.  Mr Bedford makes the same point in his submissions.  He further argues that the defendant was acting in the capacity of a friend and was helping the plaintiff with her finances.

33.  I do not agree that the defendant never stood in the position of a trustee or fiduciary when he had, among other matters, signed cheques and used ATM card to make withdrawals from the SCB account and to transfer large sums into his personal account.  To say the least, he must be a constructive trustee of the plaintiff’s funds in the SCB account that he caused to be paid out and /or were received by him.  Even if he was not a trustee and was only an agent of the plaintiff, as he argues, he is still under a duty to account.  An agent owes a fiduciary duty to his principal and is under an obligation to account for funds of the principal that he was entrusted with: Bowstead & Reynolds on Agency (Seventeenth edition, 2001) paras.6-032 to 6-093.

34.  Indeed, I do not understand Mr Bedford as arguing that the defendant needs not account to the plaintiff for her funds.  What he argues is that because he was acting as a friend when he dealt with the plaintiff’s funds, his duty should not be as onerous as somebody who is a trustee or fiduciary.  I cannot agree.  If the defendant is, as I find him to be, under a duty to account, then he is obliged to give a proper, complete and accurate account of all his dealings and acts in respect of the funds in question, no matter how the duty arises. 

35.  Mr Bedford also argues that the defendant had acted within his authority and that so long as the plaintiff was happy and satisfied with what he did, that would be sufficient.  In my view, the defendant’s legal duty to account is unaffected by whether he was acting within his duty.  Although the defendant had made an application under Order 80 rule 2 of Rules of the High Court, challenging the plaintiff’s mental capacity to maintain this action, until it is determined in the defendant’s favour, the court cannot assume that the action was commenced without the necessary authority.  Still less can the court assume that the plaintiff does not wish to have an account from the defendant as to what has happened to her funds.   

36.  Mr Bedford also makes the submission that when the defendant took up the role of assisting the plaintiff with her finances, neither Ms Wright nor Mr Garrett had made it clear to him that he was acting in some trustee or fiduciary capacity.  This is, in my view, irrelevant to the defendant’s liability to account.  What is of significance is that the defendant had by his own act and conduct, including transferring the plaintiff’s funds to his personal account and making payments to his companies and associates, placed himself in a fiduciary position and come under a duty to account.  It matters not whether he had or had not been told of his duties by Ms Wright or Mr Garrett.

Had the defendant already rendered a proper and full account?

37.  It is the defendant’s case that a full account had been given by his solicitors’ letters dated 3 January and 3 February 2006.  The plaintiff however contends the account and explanations he had given were inadequate and incomplete.  The plaintiff also doubts the accuracy and truthfulness of some aspects of them.

38.  It is important to point out that for the purpose of considering this application, it is not necessary for the court to conclude on the propriety or otherwise of the defendant’s dealings with the plaintiff’s finances, including the withdrawals and applications of the money from the SCB account.  In fact, it would not be appropriate to pass any such conclusion at this stage of the proceedings.  What I need to determine is whether the defendant had by the two letters and the enclosures already given an adequate and full account, such that there is no room for the plaintiff to press further. 

39.  In this regard, I have no doubt that the plaintiff has by affidavits and counsel’s submissions demonstrated that the defendant’s previous account is inadequate, whether assessed on its own or against other materials, and that a full and consolidated account is called for.  

40.  I set out below the more prominent aspects of the inadequacies in the defendant’s previous account and explanations.

(1)    Withdrawals in August 2003

41.  As noted above, some $ 1.4 million was withdrawn from the SCB account in August 2003 when the plaintiff was hospitalized. The money was put into a bank account in the defendant’s name.  The defendant does not dispute this.  What he stated was he considered if the plaintiff had another fall or became seriously ill and helpless, then a great deal of her money would become inaccessible to meet charges such as tax, medical fees, rents and domestic helper’s wages.   He said he discussed this with the plaintiff and transferred a large sum from the SCB account into a newly opened bank account that would be handled by him personally.  

42.  However, it is not disputed that the defendant already had signing rights to the SCB account and had the use of an ATM card in respect of it.  The money in the SCB account was readily accessible to him.  There was no apparent need for the withdrawals and transfers to his personal account. 

43.  Both Ms Wright and Mr Garrett deposed in their affidavits that they were not informed of the withdrawals at the time.  Ms Wright had been in regular contact with the defendant in relation to the plaintiff’s finances.  Further, Mr Garrett was in Hong Kong when the plaintiff was hospitalized. 

44.  At one stage, Mr Barry Lau, an employee of one of the defendant’s companies and the accountant hired by the defendant to oversee the plaintiff’s finances, explained to Mr Garrett that some of money transferred into the defendant’s personal account was used for purchase of stock and investment into the defendant’s company.  As of the date of the hearing, the total amount returned by the defendant is clearly less than the $1.4 million that was removed from the SCB account in August 2003.   

45.  In these circumstances, it is plain that there is much room for a full and sworn account by the defendant on the money removed.

(2)    Investment into Corporate Communications Ltd (CCL)

46.  It is the defendant’s case that $300,000 of the plaintiff’s money was invested in CCL or its projects.  CCL is one of the defendant’s companies.  The defendant had produced a letter dated 16 July 2004 signed by the plaintiff as the plaintiff’s agreement to the investment.  In his Defence, the defendant pleaded that $200,000 had been returned.  Mr Bedford says that the balance of $100,000 and the interests accrued are held by the defendant’s solicitors, ready to be returned to the plaintiff.

47.  In a document entitled “Analysis of Investment to CCL: 30/6/05” given by Mr Lau to Mr Garrett, the investment dates were recorded as 31 August, 1 November and 31 December 2004.  No receipts for them have been produced.

48.  As noted in the preceding section of this Decision, Mr Lau had at one stage indicated that this $300,000 investment came from the money withdrawn from the SCB account in August 2003 and held in the defendant’s account.  However, in an email dated 13 July 2005, the defendant explained that the $300,000 did not come from his account into which money from the SCB account was transferred in August 2003, but came from his other personal account.  On this basis, $300,000 was deducted from the calculation of the money due from him to the plaintiff. 

49.  The position is to say the least confusing. That aside, the defendant has given no details of the nature or contents of the investment and what returns had been achieved. 

50.  Further, while Mr Bedford in answer to my question says that the three sums of $100,000, $50,000 and $50,000 returned to the plaintiff on 15 September, 3 November and 6 December 2005 represent the return of $200,000 of the investment, there is no mention of this at all in the previous account given by the defendant, let alone any documentation in support of this. 

51.  As submitted by Mr Stock, there is a potential conflict of interests in relation to this $300,000 investment.  This together with the problems in the defendant’s explanations as identified above warrant a sworn account from the defendant.

          (3)    The book “Captain if Captured”

52.  It is the defendant’s case that some $145,000 of the plaintiff’s money was lost on the production of a book called “Captain if Captured”, which is a new autobiography of the plaintiff.  It is, as Mr Garrett put it in his affidavit, a vanity-publishing project. 

53.  The defendant said $50,000 was paid as a sweetener to a Mr Simon Taylor to entice the interest of the owner of the UK’s Daily Telegrapher newspaper in the book.  In his statement provided to the plaintiff’s solicitors in January 2006, the defendant said that the idea of the publication was first raised in 2001 or 2002.  He went on to say that the plaintiff introduced Mr Taylor to him, Mr Taylor asked for the sweetener and they “shook hands on the deal”.  Yet the payment out of the SCB account was said to be by a cash cheque dated 19 August 2003, a date well after 2001 or 2002 and when the plaintiff was admitted into hospital.

54.  Similarly, a cash cheque of $20,000 dated 21 August 2003 was said to be a deposit for the printer.  However, the quotation from the printer was dated 7 November 2003.  There is no explanation from the defendant on these obvious time differences.

55.  Additionally, there is thus far no breakdown or account of the costs of the production of the book and the sales and royalties received in respect of it as well as the number of books in stock.  Neither has the defendant provided the documentation relating to the publication, distribution and sale of the book.  A full sworn account is thus called for.

          (4)    Fees paid to Mr Barry Lau

56.  According to the defendant, Mr Lau was engaged to maintain proper accounts for the plaintiff.  Mr Lau at the same time works for one of the defendant’s companies, Abbey International Accountancy Limited.  He was paid a total of $16,000, based on a monthly fee of $1,000.  Thus far, only five monthly statements of account were produced to show the work he had done.  Suffice to say, they are short and simple accounts with no supporting documentation or annexure.  The defendant has not produced any record kept by him as to the inflow and outflow of the plaintiff’s funds at any particular time.  It also appears that receipts on purchases said to be for the plaintiff from supermarkets, wine stores or pharmacies were not kept.  The justification and purpose of the payment to Mr Lau is in doubt.

57.  Additionally, it appears from a comparison of the five monthly statements said to be prepared by Mr Lau and the statements enclosed in the defendant’s solicitors’ letter dated 3 January 2006 reveal large differences in the amounts for domestic helpers’ salaries and the item “cash + wine”.  This had been set out in details in Mr Garrett’s second affidavit at paragraph 91.  These differences show that either Mr Lau’s monthly accounts are wrong or the defendant’s account is incorrect.  In either case, an explanation is called for.   

          (5)    Domestic helpers’ fees

58.  On the defendant’s case, on average $18,000 was paid each month for the services of foreign domestic helpers.  It is common ground that a full time domestic helper was engaged for the plaintiff at the salary of $8,000.  On top of this, the defendant said that part-time services of other foreign domestic helpers were engaged and arranged through his owner domestic helper at the hourly rate of $25.  It is said that the extra services were required because the full-time helper did not work on Sundays, statutory holidays and, according to Mr Bedford, was not expected to work during nighttime.

59.  Quite apart from the legality of engaging the part-time services of foreign domestic helpers, including the defendant’s own helper, there is simply no breakdown or quantification of how the amount spent on a monthly basis was arrived at.  There is also the question of the necessity and reasonableness of the said arrangement. 

          (6)    Other considerations

60.  Mr Garrett had mentioned in his affidavit several other matters that he relied upon to show the inadequacies and the incredible nature of the defendant’s previous account.  They include the fees paid to the defendant, at $400 per hour and totalling no less than $96,000, for what were said to be long interviews with and telephone calls from the plaintiff to discuss current affairs and politics.  There is also the $100,000 investment portfolio which turned out to be a margin trading account in the defendant’s own name and the sponsorship fees paid to another of the defendant’s company.   Mr Stock also places emphasis on the defendant’s erroneous statement to Ms Wright in March 2005 that the plaintiff only had a bank balance of $767,000 when it is evident from the monthly bank statement sent to his address that there was much more in the plaintiff’s bank accounts. 

61.  As said above, it is not necessary for me to conclude on the reasonableness or propriety of these aspects of the defendant’s case or of the credibility of the defendant’s explanations.  It is sufficient to say that the plaintiff’s criticisms of these aspects of the defendant’s case and his previous account cannot be said to be groundless.

62.  In any event, given that the explanations and account previously given came in bits and pieces and are at times self-contradictory, it is justifiable for the plaintiff to seek a consolidated and sworn account of the withdrawals made from the SCB account and the use to which they had been put.   Further, the account will have the clear benefit of identifying the precise issues of dispute between the parties.

Conclusion

63.  For the above reasons, I grant the plaintiff’s application. 

64.  The orders I make are as follows:

(1)    The defendant do within 21 days, or such longer period as the plaintiff may by writing agree,

(a)     file and serve on the plaintiff an account in respect of the sums set out in Schedules 1 and 2 of the Amended Statement of Claim and the defendant’s dealings with them and the profits or interests made as a result of the receipt of the said sums by the defendant with all necessary vouchers and supporting documentation, and

(b)    verify the account by affidavit. 

(2)    The plaintiff may file and serve within 21 days thereafter, or such longer period as may be agreed between the parties, affidavit(s) in answer to the defendant’s account.

(3)    There is liberty to apply to a Judge for further directions on the further conduct of the account or the action on a date not earlier than 60 days from the date of this order.

65. Applying the normal rule of costs follow event, I make an order nisi that the defendant pays the plaintiff the costs of this application, to be taxed if  not agreed.