RE WSY

HCMH 78/2011 & HCMH 80/2011

[2024] HKCFI 2713

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MENTAL HEALTH CASE NO 78 & 80 OF 2011

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(Consolidated by the Order of Deputy High Court Judge L Chan dated the 21^st day of October 2011)

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J U D G M E N T

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1.  This is the hearing of the summons dated 5 August 2022 taken out by LCK for the Court to direct the Committee of WSY, a mentally incapacitated person (“MIP”), to sell certain assets of WSY to LCK (“Buy-out summons”).

2.  LCK is a stepson of WSY and the applicant for the appointment of a Committee for WSY under Part II of the Mental Health Ordinance (Cap. 136)  (“MHO”)  in HCMH 78/2011.  There was another application under Part II of MHO by LYK, son of LCC, another stepson of WSY, under HCMH 80/2011.  HCMH 78/2011 and HCMH 80/2011 have been consolidated by order of the DHCJ Louis Chan (as he then was).

3.  The Buy-Out Summons sought directions from the Court exercising the mental health jurisdiction under the MHO to direct the Committee of WSY, DLKY, a professional accountant, to accede to LCK’s proposals to buy-out the assets of WSY.

Background

4.  The detailed background of this case was set out in the judgment of Lok J dated 17 February 2017 in HCMH 7/2016 (making of a statutory will for WSY)  and HCA 398/2017 (setting aside certain transactions by WSY)  heard together (“Judgment”).  There is public access to the Judgment.

5.  Suffice it that, WSY aged 89, is the 4^th wife of the late LH.  WSY inherited LH’s estate which is worth about HK$780 million (upwards and downwards at times).  The assets included the shares of 3 private family companies holding properties with the acronyms ET, FC and CH, and properties transferred to another company KH.

6.  WSY and LH have one son, CK, who is also a MIP and whose affairs are also managed by the Committee constituted by DLKY.  Apart from CK, WSY has two other sons by another husband, LCT1 and LCT2.

7.  LH did not have any children by his first wife HLS. LCK is the son of LH and his 2^nd wife SP.  LCK has one son, LYKJ.

8.  LYK, the applicant in HCMH 80/2011, is the grandson of LH.  LYK’s father LCC is the son of LH by his 3^rd wife WSH.  LCC has another son LYK2.

9.  In 2001, WSY had multiple strokes which resulted in significant impairment of her cognitive function.

10.  On 4 December 2003, WSY purported to execute the following documents by appending an “X” sign:

(1)  a will making CK the life tenant of WSY’s estate, and the sons of CK, LCK and LCC as the remainderman after CK’s life (“2003 Will”);

(2)  2 powers of attorney with respect to four properties were granted to LCK and LCC jointly (“2003 POAs”).

11.  On 3 January 2004, WSY purported to execute a general power of attorney in favour of LCK and LCC jointly (“2004 POA”).

12.  On 21 and 28 April 2004, WSY purported to execute a series of documents by appending an “X” sign to put in place a scheme of succession of her properties and shares (Impugned Transactions):

(1)  transfer of 7 properties to the company KH on discretionary trust for CK as beneficiary during his lifetime and then to the sons of CK, LCK and LCC as remainderman (“KH Transfer”);

(2)  transfer her 2,500 shares (25% of the share capital)  in the company CH to LCK and LCC in equal shares (“CH Transfer”);

(3)  transfer her 1 share (33% of the share capital)  in the company ET to LH’s second wife SP (ET Transfer), now held by LCK’s son after SP passed away in 2007;

(4)  transfer of her 1 share (25 % of the share capital)  in the company FC to LKF and LKC1 (LCK’s sisters)  and LKC2 (LCC’s sister)  jointly (FC Transfer);

(5)  assignment of a debt of HK$10,000,000 due to WSY by the company CH to LKC and LCC equally (CH assignment);

(6)  a will revoking all previous wills and giving her remaining 2,500 shares in the company CH (after the CH Transfer)  to the sons of LCK and LCC, and her 1 shares in the company FC to LKC and the LCC’s sisters, and the residuary estate to CK during his lifetime, then to the sons of CK, LCK and LCC as remainderman after CK’s life;

(7)  a second general power of attorney in favour of LCK and LCC (“2^nd 2004 POA”).

13.  On 2 February 2017, LCK commenced proceedings for the making of a statutory will for WSY (HCMH 7/2016).  The defendants included the Committee for WSY and other family members.

14.  On 20 February 2017, WSY suing by the Committee as her next friend commenced an action seeking to set aside the 2003 Will, 2004 Will, 2003 POAs, two 2004 POAs and the Impugned Transactions on the ground that that WSY lacked the requisite mental incapacity at the material times of her execution of the documents (HCA 398/2017).

15.  Between February and July 2017, the defendants in HCA 398/2017 have signed various Concessions consenting to set aside the Impugned Transactions and other related instruments upon the execution of a statutory will for WSY.

16.  By the order of Lok J dated 9 February 2021 in HCMH 7/2016, the statutory will for WSY was made and executed by the Committee on behalf of WSY (“Statutory Will”), providing for:

(1)  specific bequest of certain real properties to CK;

(2)  settlement of the residuary estate upon trust to sell and covert the same into money with power to postpone the sale in the absolute discretion of the executors;

(3)  settlement of HK$235 million upon trust for CK (“New CK Trust”);

(4)  the trust to pay HK$80 million to LCT1 and LCT2 in equal shares;

(5)  subject to the trust in (2)  above, to pay the residuary estate in specific shares to 8 beneficiaries including LCK and LCC.

17.  By the order of Lok J also dated 9 February in HCA 398/2017, the Impugned Transactions and related instruments were set aside (Setting Aside Order), namely:

(1)  the CH Transfer, CH Assignment, 2003 POAs, 1^st 2004 POA, 2^nd 2004 POA be set aside;

(2)  the KH Transfer be set aside;

(3)  the ET Transfer be set aside;

(4)  the FC Transfer be set aside.

18.  In the case of KH, 2 of the 7 properties transferred by WSY to KH under the KH Transfer have been sold.  Hence, it is impossible to re-transfer all the 7 properties in specie.  Further, monies have been paid to CK.  There is the question of whether recourse be had to CK for the repayment of the monies paid to him.  There is some broad consensus on this matter which will be dealt with hereinunder.

19.  In March 2021, the Committee wrote to the relevant defendants in HCA 398/2017 to follow up on the transfers under the Setting Aside Order.

20.  During April and May 2021, solicitors for LCK (HTP)  wrote back to the Committee proposing buy-out by LCK of WSY’s interests in ET, FC, CH and properties held by KH at fair value.

21.  On 19 July 2021, LCC has executed transfer of his 1,250 shares in CH to WSY pursuant to the Setting Aside Order.

22.  Meanwhile, solicitors for LCK (HTP)  revised the buy-out proposals in relation to ET and FC.  HTP also made proposal for LCK’s buy-out WSY’s interest in CH.

23.  On 3 September 2021, solicitors for the Committee (HSF)  wrote to HTP requesting LCK to comply with the Setting Aside Order without delay.

24.  Between September and December 2021, HTP revised and further revised the buy-out proposals in respect of the entities in the Setting Aside Order.

25.  On 28 December 2021, LCK sent 3 cheques totalling HK$4,734,974 on a without admission of liability basis in relation to the CH Assignment of debt pursuant to the Setting Aside Order.  On 12 January 2022, the Committee wrote to CH for attention of LCK, stating acceptance on the basis of settlement of the debt owed by CH to LCK as a result of the CH Assignment.

26.  On 24 January 2022, HSF wrote to HTP rejecting LCK’s buy-out proposals.  Instead, HSF wrote to the relevant defendants demanding compliance with the Setting Aside Order.

27.  On 14 April 2022, with approval of the then Mental Health Judge, M Ng J, the Committee took out a summons in HCA 398/2017 for ancillary relief under the Setting Aside Order (Ancillary Relief Summons):

CH Transfer and Assignment

(1)  LCK to convey 1,250 shares under the CH Transfer to WSY;

(2)  LCK, as director of CH, to procure and perfect the conveyance in (1)  and to enter WSY’s name in the register of members of CH;

(3)  Declaration that LCK’s three cheques for HK$4,734,973 to WSY had the combined effect of (i)  reimbursement of the amount obtained by LCK under the CH Assignment,; and (ii)  CH’s payment of 50% of HK$9,469,948 standing as credit in WSY’s shareholder’s account of CH was a consequence of the setting aside of the CH Assignment;

(4)  LCK do exercise all powers and rights as director of CH to procure CH to give full effect to the setting aside of the CH Assignment.

KH Transfer

(5)  KH do convey the 5 properties under the KH Transfer to WSY;

(6)  LCK as director of KH and LYK (CK’s son and remainderman of the CK Trust)  do take all actions to give full effect to the conveyance;

(7)  The setting aside of the KH Transfer is without prejudice to the validity of  any distribution CK under the CK Trust;

ET Transfer

(8)  The estate of SP or LYU (as the case may be)  do convey 1 share in ET under the ET Transfer to WSY;

(9)  LCK and LYK as directors of ET do procure ET to give effect the conveyance including to enter WSY’s name in the register of members of ET;

FC Transfer

(10)  The 3^rd Defendant as representative of the estate of LKF, deceased (daughter of LH and 2^nd wife SP), the 4^th Defendant (daughter of LH and SP), and the 5^th Defendant (daughter of LH and 3^rd wife WSH)  do jointly convey the 1 share in FC under the FC Transfer and execute all documents to give effect to register the conveyance;

(11)  LCK and LYK as directors of FC do procure FC to give effect the conveyance.

28.  On 5 August 2022, LCK took out the Buy-out Summons seeking, in gist:

1.  In connection with implementing paras 1, 3 and 4 of the Setting Aside Order:

(1)  The Committee be directed to dispose of the following properties of WSY in the manner specified:

(a)  WSY’s one share in ET (1/3 of the share capital)  be sold to LCK at 1/3 of the full net asset value (“NAV”)  of ET;

(b)  WSY’s two shares of in FC (1/2 of the share capital)  be sold to LCK at 1/2 of the full NAV of FC;

(c)  WSY’s 5,000 shares in CH (1/2 of the share capital)  be sold to LCK at 1/2 of the full NAV of CH;

(2)  For the purpose of facilitating the said sale, the Committee shall use it best endeavours to agree with LCK on the full NAV of the aforesaid companies, failing which:

(a)  The full NAV of ET and FC be ascertained by putting the properties held by them for sale as a bundle in open auction (at which LCK shall be at liberty to bid)  to the intent that:

(i)  if LCK’s bid turns out to be the highest, instead of completing the sale of the bundled properties, WSY’s interest in the shares of ET and FC shall be sold to LCK at a price reflecting their proportionate shares of the full NAV of ET and FC; and

(ii)  in the event of some other party’s bid turning out to be the highest bid, the properties should be sold and their proceeds should be used to determine the full NAV of ET and FC for the purposes of ascertaining the price to be paid by LCK for WSY’s interest in the shares of EC and FC;

(b)  The full NAV of CH be determined by way of an independent valuation of its property holdings by a single joint expert;

2.  In connection with implementing para. 2 of the Setting Aside Order:

(1)  The WSY Committee shall agree to accept from KH a transfer of the following five properties to WSY free of payment:

(a)  Flat A, 6^th Floor, No. 90 Java Road, North Point, Hong Kong;

(b)  Flat A3, 6^th Floor, No. 36 Kam Ping Street, North Point, Hong Kong;

(c)  Flat D8, 1^st Floor, No. 59 Kam Ping Street, North Point, Hong Kong;

(d)  Ground Floor, No. 31 Ming Yuen Western Street, North Point, Hong Kong; and

(e)  Lower Ground Floor including Cockloft therein, 182 Wellington Street, Central, Hong Kong;

(2)  Upon the transfer of the aforesaid properties, and upon KH executing an acknowledgement to CK that any liability on the part of CK to give restitution in respect of the distributions made to him by KH under the CK Trust are to be regarded as fully discharged, the Committee shall execute an acknowledgement to KH that KH’s liabilities to WSY in relation to the KH Transfers are to be regarded as fully discharged;

3.  Save for taking the necessary steps to implement the Setting Aside Order in the manner set out above, the Committee shall not take any further steps to pursue any outstanding claims or relief in HCA 398/2017.

4.  Costs of this application be paid out of the Estate of WSY.

5.  Paragraphs 1 to 4 under the Buy-out Summons be dealt with at the same time by the same Judge (i.e. Lok J)  at the substantive hearing of the Ancillary Relief Summons taken out by the Committee in HCA 398/2017.

Ancillary Relief Summons

29.  In Ancillary Relief Summons, it was sought to place the Buy-out Summons and the Ancillary Relief Summons before the same judge.

30.  On 12 January 2023, Lok J directed that (a)  the Buy-out Summons be heard by the supervisory judge in charge of WSY’s Committee, and (b)  the Ancillary Relief Summons be adjourned to a date to be fixed after the hearing of Buy-out Summons.

31.  The hearing under Buy-out Summons was listed before me as the Mental Health Judge for WSY.  Notwithstanding the direction of Lok J above, it was again suggested that the two summonses be heard together.

32.  I have decided to hear the Buy-out Summons only and to stand over the Ancillary Relief Summons to the Judge seized with HCA 398/2017.

33.  In HCA 398/2017, WSY is suing by the Committee as her next friend.  In civil litigation involving a MIP, the judge exercising the protective or supervisory jurisdiction under Part II, MHO may give directions to the Committee in the conduct of the litigation. As such, I cannot not be the judge of my own cause in such litigation.

34.  Further, as the Mental Health Judge, the interest of the MIP is paramount over any other’s interests.  It may be awkward for me to also to be the Judge under the civil jurisdiction in case the matter is contentious.

35.  Hence, I shall only be dealing with the Buy-out Summons.

LCK’s submissions

36.  Mr Yin, counsel for LCK, submitted that LCK’s proposals are objectively in the best interest of WSY:

(a)  the immediate liquidation of her non-controlling interests in the private companies at a price substantially higher than what could be achieved from a sale of those interests to unrelated parties on the open market;

(b)  the promotion of proportionality and finality in litigation by ordering non-recourse to the remaining claims in HCA 398/2017.

37.  Mr Yin submitted that the Committee is in a fiduciary position of WSY and must show that they are acting in the best interest of her.

38.  On the standing point, Mr Yin submitted that although LCK did not have an absolute right to be heard, the managerial discretion of the Committee is not unfettered.  The Court will be assisted by the information and arguments from a relative which otherwise will not be available in ex parte communication between the Committee and the Court. 

39.  Mr Yin submitted that the Committee had insisted on the return the shares to WSY in specie, but the Setting Aside did not declare the Impugned Transactions and other 2004 transfers were void ab initio, and is silent on the manner of giving effect to the return of the properties transferred.  Instead, the Court exercising supervisory jurisdiction over the Committee has wide discretion to act in the best interest of WSY.

40.  Mr Yin submitted that the immediate liquidation of WSY’s estate would be in her best interest.  WSY’s shareholding was not more than 50% in any the companies (has 1/3 shareholding in ET, 25% in FC and 37.5% in CH).  ET, FC and CH are private companies for the purpose of holding of the assets by WSY and other family members including LCK.

41.  After successive rounds of negotiations, the Buy-out proposals now offer the acquisition at NAV of the various entities.  WSY will not be stranded in minority shareholding, but instead, be benefiting from a higher valuation than otherwise.  The advantages of the Buy-out proposals are:

(1)  It is inherently difficult to realize the full NAV of minority holding in private companies, and a minority/non-controlling discount has to be given. The proposal to purchase them at NAV will place WSY in a better position than eventually selling them to a third party at a substantial discount.

(2)  The shareholding in private companies is non-liquid assets, and sale of the shares will provide liquidity and flexibility.

(3)  LCK has been involved in the family business of property holding and has more expertise than the Committee who is an accountant by proposition.

(4)  The Buy-out proposals will alleviate the time pressure to liquidate WSY’s assets for the injection of funds into the New CK Trust and payment to LCK1 and LCK2 under the Statutory Will.

(5)  Further, the Committee’s insistence on pursuing the remaining claims not covered by the Concessions (such as account for profits), but to resurrect and prolong those claims would not be in the best interest of WSY as a MIP.

(6)  In any case, the liquidation of WSY’s non-liquid assets and curtailing further litigation would mean huge savings in the fees payable to DLKY, the professional Committee, which had already amounted to millions of dollars.

42.  Mr Yin submitted that the Committee had overplayed the importance of redevelopment potential.  From the experience of LCK’s experience in the real estate market, the redevelopment potential is often more illusionary than real.  The interest of an intended developer depends on many factors, such as the locality and size of the lot, plot ratio, number of old buildings in the vicinity, and whether the undivided shares are scattered amongst many individual owners.

43.  Further the interest of the minority stakeholders may also be subject to compulsory sale under the Land (Compulsory Sale for Redevelopment)  Ordinance (Cap. 545)  once the intended developer has obtained the requisite 80% of the undivided shares in the lot.  Hence, the so-called redevelopment potentials is not something readily realizable. 

44.  In the case of the KH Transfer, KH was named the trustee the 7 properties under the KH Trust.  Since then, 2 of the 7 properties were sold, and CK had received HK$13.5 million from KH.  As such, returning of all the 7 properties would be highly problematic.  The Buy-out proposals will offer a practical way out for the KH Transfer.

45.  While the Committee is content to waive the claim against CK for these proceeds and not to seek recovery of any distribution to CK from the KH Trust, the Committee’s position was misconceived, WSY had not acquired any right against CK as a result of the Setting Aside Order because CK was not a party to those transfers. 

46.  Hence, LCK proposes the proper way forward to protect CK from any claims arising from the sale of the two properties,  both the Committee and KH should give the back-to-back acknowledgment is upon the return of the five unsold properties, the liabilities of CK to give any restitution be regarded as fully discharged.

47.  As to the outstanding claim sin HCA 387/2017 (including the claim for an account), although the consequential accounts and inquiries were never part of the Concessions, the whole point of the Concessions was to obviate a full-blown litigation on the mental capacity of WSY in making those transaction in 2004.  It has been five years since the making of the statutory will, and there is no good reason for the Committee to prolong the litigation indefinitely.

48.  LCK’s proposal of not proceeding with the remaining claims is in the spirit of promoting proportionality, which is an underlying objective under the Civil Justice Reform.  And it was held in Re L (ob cit)  the costs and benefit deriving from litigation on behalf of a MIP may transcend beyond the merits of a claim.

49.  Mr Yin submitted that while LCK had that the purchase will be at full NAV, the precise valuation is procedural and can be worked out in due course, and the Court needs not be concerned with it.

50.  As there were no admission of wrongful transfer in the Concessions, the Setting Aside Order and the outstanding claim for account are separate, and the account could be spent after the so much had been achieved by the Buy-out and lengthy litigation could be spared.

Committee’s submissions

51.  Mr Pao SC, for the Committee, submitted that:

(1)  LCK should not be heard, not so much as a strictly on locus, but he should not be allowed to transform the supervisory jurisdiction of under the MHO into an adversarial contest;

(2)  The ultimate consideration is essentially whether it is a good business but there are no concrete terms on the key issue of valuation;

(3)  It is fundamentally wrong to compel the Committee to for go the outstanding claims in HCA 398/2017, especially the accounts for the dividends in companies.

52.  Mr Pao submitted that the Mental Health jurisdiction in is not adversarial but supervisory.  It is exclusively for the Committee to decide what is in the best interest of WSY, subject to the Mental Health Judge’s supervisory jurisdiction, and queried the appropriateness for LCK to impose his wishes on the Committee.  The Court should not be invited to step into the arena to resolve what effectively is an adversarial dispute.

53.  The starting position is that the Setting Aside Order required the return of the properties back to WSY under the Impugned Transactions.  This is the entitlement WSY upon the making Setting Aside Order. The other defendants in HCA 398/2017 are either neutral or supportive of returning the shares and properties to WSY.

54.  The persistent delay (for 3 and a half years)  by LCK in complying with the Setting Aside Order is simply for his own and his son LYKJ’s interest.

55.  The Committee appreciated the advantage of liquidation of WSY’s assets.  However, the Committee had legitimate reasons for rejecting the Buy-out Summons and the previous proposals, because they could not be realistically agreed to in lacking in particulars on the joint valuation and auctions.

56.  In any case, the compliance of the Setting Aside Order and any Buy-out proposals are not mutually exclusive.  The Committee is still able to the assets to LCK on appropriate terms after they have been returned to WSY.

57.  Mr Pao submitted that the Court has jurisdiction over the management and affairs of a MIP under Part II of MHO, and the Committee appointed under the MHO derives its authority to act from the Court (s. 11(2), MHO).

58.  More importantly, whether the Committee ought to accept the Buy-out proposals or the Buy-out Summons has already been considered by successive judges exercising the supervisory jurisdiction.  Mr Yin had no real answer to this point except to say that the Court could be assisted with information or arguments which might not otherwise be mentioned or highlighted by a committee in its ex parte communication with the Court.  It is highly inappropriate for LCK to invite this Court to effectively revisit and bypass the views and sanctions by previous supervisory judge(s).

59.  The mere fact that the Committee incurs professional costs do not provide LCK with an excuse to be heard.

60.  Mr Pao submitted one issue that affects the carrying out of the Buy-out Summons is valuation:

(1)  In the CH case, the Committee considered that WSY should be entitled to a premium on the full NAV given that WSY’s 50% shareholding would make her the largest shareholder of the company;

(2)  the Buy-out Summons proposes the appointment of a single joint expert in case the parties cannot agree on the sale price of CH, but there is no details on such appointment and on the basis, date and protocol of the valuation;

(3)  The proper valuation of the shares of the companies should also reflect any potential claims the companies may have  against third parties but due to lack of information from LCK the Committee remains unaware of the true state of affairs of the companies;

(4)  The Committee would not be agree to the Buy-out Summons while the valuation were unresolved, and it might take months or years to iron out such dispute with LCK;

(5)  The last thing the Court exercising the supervisory jurisdiction under MHO would like to be involved in is the disputes of the parties yet to be resolved.

61.  In the case of KH, 2 of the 7 properties have been sold.  In the Ancillary Relief Summons, the Committee only sought the return of the remaining 5 properties, and that the setting aside of the KH Transfer is without prejudice to any distributions to CK from the CK Trust.

62.  Further, the Buy-out Summons sought to prevent the Committee from pursuing the outstanding claim for the account of the dividends in.   However, the Committee is entitled to pursue such claim as it is to fully give effect to the Setting Aside Order by restoring the parties to their original position.

LYK’s Submissions

63.  Miss Chan, counsel for LYK, applicant in HCMH 80/2011, submitted that the Buy-out Summons should be dismissed with costs.

64.  LYK is the son of LCC, step brother of LCK who took out the Buy-out Summons.  LCC had already re-transferred the 1,250 shares in CH back to WSY on 19 July 2021.

65.  Instead of returning the assets to WSY in specie which is the only way to comply with the Setting Aside Order, LCK made the Buy-out proposals.  It was submitted that the Buy-out proposal is not in the best interest of WSY but for LCK’s self-interest, and the Buy-out Summons was an abuse of process as it has totally ignored the Concessions reached in HCA 398/2017.

66.  Miss Chan submitted that WSY was sensitive to matters concerning the interpersonal relationships, and wanted to keep everyone happy and avoid antagonizing anyone in the big family.

67.  The Setting Aside Order, although not expressly stated to be made “by consent”, was effectively so resultant on the Concessions and the making of the statutory will.  Hence, LCK was in abuse in trying to undermine rather than to implement the Setting Aside Order. 

Legal Context

68.  Section 10A of the MHO provides that:

“General functions of Court with respect to property and affairs of mentally incapacitated person

(1)  The Court may, with respect to the property and affairs of a mentally incapacitated person, do or secure the doing of all such things as appear necessary or expedient—

(a)  for the maintenance or other benefit of that person;

(b)  for the maintenance or other benefit of members of that person’s family;

(c)  for making provision for any other person or purposes for whom or for which the mentally incapacitated person might be expected to provide if he were not mentally incapacitated; or

(d)  otherwise for administering the mentally incapacitated person’s property and affairs.

(2)  In the performance of the functions under subsection (1)  the Court shall have regard—

(a)  as a paramount consideration, to the requirements of the mentally incapacitated person;

(b)  subject to paragraph (c), to the interest of creditors;

(c)  to the rules of common law which formerly restricted the enforcement by a creditor of rights against the property of a mentally incapacitated person under the control of the Court or other judicial authority (if any), which rules shall apply to property under the protection and management of the Court; and

(d)  to the desirability of making provision for obligations of the mentally incapacitated person notwithstanding that those obligations may not be legally enforceable.”

69.  Section 10B of the MHO provides that:

“Powers of Court as to mentally incapacitated person’s property and affairs

(1)  Without prejudice to the generality of section 10A, the Court shall have power to make such orders and give such directions and authorities as it thinks fit for the purposes of that section and in particular may for those purposes make orders or give directions or authorities for—

(a)  subject to section 12, the control and management of any property of the mentally incapacitated person, including such orders, directions or authorities in respect of the transfer or vesting of property or the payment into or lodgment in the Court of money or securities;

(b)  the sale, exchange, charging or other disposition of or dealing with any property (including the business premises)  of the mentally incapacitated person;

(c)  …

(i)  the conduct of legal proceedings in the name of the mentally incapacitated person or on that person’s behalf;

(j)  …”

70.  Section 11 of the MHO provides that:

“Appointment of committees

(1)  If the Court is satisfied that the person who is alleged to be mentally incapacitated is incapable, by reason of mental incapacity, of managing and administering his property and affairs, the Court may, if it shall think fit, appoint a committee of the estate, and for this purpose, the Official Solicitor may be so appointed of such person and may make such order, if any, as to the remuneration of the committee out of such person’s estate, and as to the giving of security by the committee, as to the Court may seem fit.

(2)  A committee of the estate appointed under this Part shall do all such things in relation to the property and affairs of the mentally incapacitated person as the Court, in the exercise of the powers conferred on the Court under sections 10A and 10B, orders or directs the committee of the estate to do and may do any such thing in relation to the property and affairs of the mentally incapacitated person as the Court, in the exercise of those powers, authorizes the committee of the estate to do.

(3)  The provisions of Order 30, rules 5, 6 and 7 of the Rules of the High Court (Cap. 4 sub. leg. A)  which apply to receivers shall apply to a committee of the estate as if the references to ‘receiver’ in those rules were substituted by references to “committee of the estate”

71.  Section 12 of the MHO provides that:

“Powers of management of estate of mentally incapacitated person

The Court may, on the appointment of a committee of the estate of a mentally incapacitated person, direct by the order of appointment or by any subsequent order that the person to whom the charge of the estate is committed shall have such powers for the management thereof as to the Court shall seem necessary and proper, reference being had to the nature of the property, whether movable or immovable, of which the estate may consist:

Provided that such powers shall not extend to the sale or charge by way of mortgage of the estate or any part thereof or to the letting of any immovable property, unless for a term not exceeding 3 years.”

72.  The Court of First Instance has general jurisdiction over the over the management of the property and affairs of a MIP (s. 10A and 10B, MHO).  In the performance of its function, the Court shall have regard, as a paramount consideration, to the requirements of the MIP (s. 10A(2), MHO).

73.  The Committee appointed by the Court has such powers as authorized by the Court in the management of the property and affairs of a MIP (s. 11(2), MHO).

74.  The Court has inherent protective jurisdiction over a wide range of matter relating to the welfare of the MIP even when there is no statutory jurisdiction under the MHO (Re CML (Mental Health) [2020] HKCFI 1232 per Lok J).

75.  Proceedings under Part II, MHO are not adversarial civil litigation. The Court is exercising a protective jurisdiction (Re M HCMP 25/2005, 1 November 2005 per Lam J (as he then was)  para. 13).

76.  In exercising the protective jurisdiction under the MHO, the paramount consideration is the requirements of the MIP.  An MHO application is not the proper forum for the resolution of inter partes disputes (Re L HCMP 1120/2003, 12 May 2006 per Lam J para. 9).

77.  The role of the relatives is to provide the Court and the Committee (after its appointment)  with the necessary information to facilitate the Court and the Committee in reaching a decision in the best interest of the MIP (Re M HCMP 25/2005 op. cit. para. 13).

78.  Although the Committee and the Court may, in appropriate circumstances, consider the views of the relatives of the MIP, such relatives do not have any right that could be enforced in the context of Part II proceedings.  They do not have any absolute right to be consulted or to be heard. It depends on the circumstances of the case and the Committee and the Court shall always be guided by asking what is in the best interest of the MIP.  The beneficiary of the estate is the MIP, not the relatives.  Therefore, a relative is not in a position to impose his or her wish on how the property is to be managed.  Though it would be wise in many cases for the Committee to take the view of a relative into account, it is perfectly lawful and proper for the Committee to reject such view if they consider the same not to be consistent with the interest of the MIP.  In case of doubt, the Committee should apply to Court for guidance and directions as in the case of other trustees.  The Court will decide to what extent the relatives should be involved in the application (Re M op. cit. paras. 8-10).

79.  When the Court appoints a committee to manage the property and affairs of the MIP and grants it extensive powers, the Court generally leaves it to the Committee to decide how such powers should be exercised.  In the absence of allegations of mismanagement or abuse, the Court will not interfere with the managerial discretion of the Committee.  At the same time, the Court expects the Committee to act in the best interest of the MIP, and the Court retains a residual supervisory role and such could be exercised when necessary (Re M op. cit. paras. 6-7).

Analysis

80.  As submitted by Mr Yin, the main issues to be resolved at this hearing are:

(1)  Whether LCK has standing to invoke the Court’s jurisdiction to give directions to the Committee under the MHO on how the Committee should act in administering the property and affairs of WSY (“Standing Issue”);

(2)  Whether the Committee should be directed to sell WSY’s interests in connection with the implementation of the Setting Aside Order (“Setting Aside Issue”); and

(3)  Whether the Committee should be directed to stop pursuing the outstanding claims in HCA 398/2017 (“Outstanding Claim Issue”).

81.  As stated above, proceedings under Part II of the MHO are not ordinary adversarial litigation where parties assert their respective rights.  Proceedings under Part II are for the management of the properties and affairs of the MIP where the paramount consideration is the requirements of the MIP.

82.  The Court exercising supervisory jurisdiction under Part II, MHO may take into account information provided by interested parties. But the object is to foster the best interest of the MIP rather than to accede to the sectorial interests of the relatives.  It is certainly not a curtain raiser of any testamentary contest between beneficiaries of the MIP’s estate.

83.  The jurisdiction under Part II, MHO is protective and conservative, essentially maintaining the status quo and the assets and properties of the MIP, subject to sale or disposal to such extent to provide the liquidity needed in the care and maintenance of the MIP.

84.  When there are proposals on the more involved management of the estate of the MIP, the Court will, where appropriate, consider them from the viewpoint of the best interest of the MIP.

85.  When the nature or size of the MIP’s estate warrant professional management, the Court will usually appoint lawyers or accountant to be the Committee, and rely of them in the ordinary management because the Court do not and cannot micro manage each and every estate of MIPs.  Not only that is not the practice of the Court of Protection, the Court simply lacks the resources to do so, a point echoed by Lok J in para. 62 of the Judgment for the Statutory Will and Setting Aside Order, albeit in a slightly different setting.

86.  LCK is a relative a under the MHO, and a beneficiary under the Statutory Will.  LCK and the Committee have been in negotiations for over three years.  If the proposals and successive revisions were not worthy of any consideration, the parties would not have taken such time.  But in the process, the compliance with the Setting Aside Order was delayed.

87.  It is understandable and reasonable that the Committee, as constituted by a professional, regards as duty bound to seek compliance with the Setting Aside Order, a subsisting order of the Court.

88.  The Committee has been in communications previously with judges exercising the supervisory jurisdiction, but LCK was not privy to them. Hence, it is convenient to hear LCK so that the matter be resolved one way or the other to give effect to the Setting Aside Order.

89.  Mr Pao submitted that the Setting Aside Order be complied with first, then maybe the negotiation for the Buy-out to follow. 

90.  Mr Yin suggested that the Buy-out Summons should allowed as a matter of principle, then the parties can proceed onto the terms on valuation as a procedural matter.

91.  With respect, I query whether valuation here is purely as a procedural matter, since whether the deal is in the best interest of WSY much depends on the valuation.  There are still differences as to the modes of valuation, reference to valuation report in related past proceedings,  and appointment of single joint expert, etc. In the Buy-out Summons, it was stated that the parties do use their best endeavours on reaching valuation, and a matter notoriously difficult to gauge.

92.  I think to agree with the But-out in principle first and then to work out the details is to put the cart before the horse.  A fortiori, it is more so in the Part II, MHO context.  It should be for the Committee to come up with the agreed terms, and to seek authorisation from the Court.  It is especially so given that the Court should not be drawn into the business negotiation between the parties.

93.  The Court will of court step in if the Committee were in dereliction of duties, or clearly not acting in the best interest of WSY. However, I do not see that is the case under the Buy-out Summons.

94.  The pursuit of development potentials and/or majority shareholding premium by the Committee in order achieve a higher value for the assets is not something categorically unreasonable and wrong in principle that should be dropped.

95.  The evidence of LYK, another relative and beneficiary and applicant under HCMC 80/2011, is that WSY prefers congeniality as opposed to division in the family, which is not unusual from the perspective of a matriarch of the family.  It is a relevant consideration under Part II of the MHO.  It is not surprising if the other family members were not enthusiastic about the Buy-out proposals.

96.  Even if there were ultimately no deal between the Committee and LCK, the matter could still be pursued, perhaps in a different context under the administration of the Statutory Will.  Of course, that would require the consensus of all the beneficiaries, as in the ordinary case of family arrangement under probate administration.  But LCK’s interest or convenience per se would not be the major consideration of the Court.

97.  As to the outstanding claim of account for profits in HCA 396/2017 (mainly the dividends otherwise due to WSY during the currency of the Impugned Transactions), without prejudging the matter, the question as to liability should not be remarkably difficult notwithstanding that there were not covered under Concessions.  In any case, the consideration of proportionality could equally be applied to LCK so that he could accede to them in the like spirit.  The taking of an account, if ordered, should be a matter of books and records.  Else, it could be a matter for negotiation.

98.  As to the fees charged by the Committee, it goes without saying that a professionally constituted committee will charge by the hours.  Given the different matrimonial lineages in the family, I can see the wisdom of engaging a professional committee.  It was suggested that the substantial fees might perhaps be due to the negotiations under the Buy-out proposals.  In any case, the Committee’s fees are always subject to taxation.

99.  As to the sale of 2 properties by KH, I agree that restitution of them in specie is not possible.  As to and the cash distributions to CK under the CK Trust, I also agree that there should be no recourse to CK.  It is demonstrably clear that CK is the primary focus of affection of WSY, and successive schemes of succession were to provide for the care and maintenance of CK.  Hence, I shall direct that the Committee be authorized not to demand the restitution of the 2 sold properties nor to make recourse to CK under the Setting Aside Order.

100.  Apart from those, I shall make no direction under the Buy-out Summons or any like proposals.  The Committee be at liberty to seek compliance of the Setting Aside Order or to enter into further negotiation with terms in the best interest of WSY.

Conclusion

101.  In the premises, the Buy-out Summons is dismissed.

102.  I order costs nisi that LCK do pay the costs of the Committee and LYK.  LCK may put in written submission within 14 days, thereafter replies within further 14 days.

103.  I consider this Judgment should be open for public access.  The Judgment for the Statutory Will and Setting Aside Order, which to a large extent is in pari materia, is already open for public access.  I have further redacted the names of the parties, companies and properties involved for concealment of their identities. 

104.  I shall also prohibit the publication of any correlation of the identities in this judgment with the Judgment for the Statutory Will except for legitimate purpose of litigation.

105.  May I thank counsel for their helpful submissions.

[Subject to Reporting Restrictions as per Paragraph 104 of this judgment]