MUI PO CHU v. MOI OAK WAH

IN THE COURT OF APPEAL

1997, No. 7
(Civil)

- Headnote -

Administration of deceased's estate - Duty of administrator to render accounts - Failure to keep and render proper accounts - Judge erred in dismissing beneficiary's claim.

Interim distribution of surplus cash of estate - Administrator entitled to half-share in estate - Without interim distribution administrator would not have been entitled to treat money in his hands as his own and would have been obliged to account for the assets acquired with such money.

IN THE COURT OF APPEAL

1997, No. 7
(Civil)

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J U D G M E N T

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Litton, V.-P.:

Introduction

1. This appeal concerns the estate of Madam Chan York-yu who died intestate on 14 February 1987 leaving surviving her the respondent (her husband) and three children: namely the appellant Miss Mui Po-chu and her two younger brothers.

2. On 17 January 1989 Letters of Administration were granted to the respondent who then came under a legal duty to administer the estate and distribute the assets in accordance with the Intestates' Estates Ordinance, Cap 73. Under the Ordinance the respondent is entitled to a sum of $50,000 and half the residuary estate and the three children are entitled equally to the other half. In other words, the appellant is entitled to 1/6 of the residuary estate.

The estate

3. The estate consisted essentially of three properties: (i) a Ground Floor shop at Aldrich House, 371 Shaukeiwan Road; (ii) Flat E on 3/F, Aldrich House, 371 Shaukeiwan Road and (iii) Shop No. 4, Ground floor, Tak Lee Building, 993 King's Road. Flat E was the matrimonial home and the respondent together with one of the brothers and his family lived there rent-free for many years after the death of the deceased. The other two properties were let. The Ground Floor shop 371 Shaukeiwan Road was let to one of the brothers below market rent. Shop 4 was let to an unrelated party. The respondent received all the rent but rendered no accounts to the beneficiaries.

Issue of proceedings

4. In June 1995 solicitors acting for the appellant wrote to the respondent seeking accounts of his administration. In July 1995 the respondent furnished a set of accounts which, with accompanying documents, amounted to 137 pages. It was over 8 years since his wife's death and over 6 years after the grant of Letters of Administration. The appellant was dissatisfied and on 17 July 1995 took out an originating summons for an account including an accounting for the rents of the three properties and for orders that the respondent should administer the estate by selling the remaining two properties: Flat E on the 3/F Aldrich House having been sold in September 1992, before proceedings were instituted.

The action

5. At some stage after the issue of proceedings, the appellant became unrepresented and continued the litigation thereafter in person. Numerous affirmations, with exhibits, were filed and, by interlocutory orders made in October 1995 and March 1996, the proceedings were treated as having been started by writ and the affirmations were treated as pleadings. Not surprisingly, when the matter went for trial before Woo J in December 1996, the judge had difficulty in identifying the issues. The judge formulated the matter in this way:

" There are two broad issues the determination of which would help resolve most if not all of the disputes:

(a) What is the extent of the defendant's duty to account to the plaintiff regarding the estate, and has he discharged that duty?

(b) What is and at various times was the amount due to the plaintiff as her entitlement in the estate and did the defendant fail to pay her the amount due, and if so, how much? Or alternatively, was the plaintiff overpaid by the defendant, and if so, how much?"

6. The judge gave judgment on 3 January 1997 dismissing the appellant's claim but gave judgment in the respondent's favour on his counter-claim in the sum of $537,048.48 and awarded "costs of the action" and of the counter-claim to the respondent. By "costs of the action" the judge meant the costs of the proceedings apart from the large number of interlocutory matters the costs of which were separately dealt with. This appeal does not concern those interlocutory matters.

7. As mentioned earlier the appellant (who holds a degree in law from an English University) was unrepresented at the hearing. The evidence she led went far beyond the issues sought to be identified by the judge and there were exaggerations in her claims.

The issues at trial

8. Stripped of the irrelevant material, the appellant's case at trial was in essence as follows: (i) The respondent had not properly administered the intestate estate and had failed to render any or any proper accounts; (ii) in the course of dealing with the assets of the estate there had been acts of wilful default: the respondent must therefore account on the basis of wilful default.

The judge's determination of the issues

9. As to (i) above the judge concluded, in effect, that the respondent had not properly discharged his administration: In the course of his judgment Woo J made numerous and substantial adjustments to the accounts produced by the respondent: In particular, regarding the proper attribution of rental income for two of the three properties: Flat E Aldrich House and 371 Ground Floor. The judge performed an accounting exercise and annexed adjusted accounts as part of his judgment. These accounts cover the period 1 March 1987 to the end of December 1996.

10. As to (ii) above, namely, wilful default, this turned upon the judge's conclusion regarding the respondent's state of mind: As the judge rightly remarked, wilful default consists of a deliberate failure by the trustee to do that which he legally ought to have done.

Wilful default

11. A number of matters were relied upon by the appellant as constituting wilful default. For example, she referred to the brother's occupation of Flat E rent-free - with, obviously, the leave of the respondent - as "embezzlement". The judge concluded that this was wrong - but, in a family context, and done out of ignorance, it was not so wrong as to amount to wilful default. Flat E was, after all, the family home and the respondent's evidence, accepted by the judge, was to the effect that the appellant could have lived there too if she had wished to do so.

12. Some of the other allegations were rejected by the judge as "grotesque nonsense". We do not need to refer to those.

13. One complaint which cannot be brushed aside as nonsense is this. The rental income from the properties was paid into the respondent's account with the Hang Seng Bank. Prima facie this represented assets of the estate, not to be used by the respondent as if they were his own property. And if he were to use the money to invest in valuable assets, then, prima facie, he held those assets in trust for the estate. What in fact happened was this. Sums representing the rental income were transferred to a current account operated by the respondent and then used to purchase shares. An example is a withdrawal of $172,854.25 on 7 October 1992 from the respondent's Hang Seng Bank account for the purpose of paying a firm of brokers called Gransing Security and Investment Co. Prima facie, shares bought by the brokers represented assets of the estate and any capital gains on those shares accrued to the estate. The respondent has never accounted for any such gains. The judge absolved the respondent of wrong-doing by the following findings:

(i) The respondent was entitled beneficially to 1/2 the income of the residuary estate.

(ii) From 16 August 1989 onwards, when the respondent paid the appellant $150,000 out of the income of the estate, and thereafter advanced substantial sums to her by telegraphic transfer - she was attending University in England from September 1989 until her return to Hong Kong in December 1994 - the appellant had always been paid more than her 1/6 share.

(iii) Use of rental income from the properties for share purchases never exceeded the respondent's entitlement to half-share in the income.

14. The judge said:

" Whenever the plaintiff asked to borrow money and when she planned to go to England to study, he made advancements from the estate to her and promised that he would send her money if and when she required. He was prepared to satisfy her requests even though she might receive more than her share in the estate, because there were properties in the estate and any overpayment to her would be recouped when there was a final settlement of accounts on distribution."

15. What the judge found, in effect, was that although no accounts were prepared by the respondent, there were interim distributions to her. The "advancements" to the appellant amounted to such distributions: This then justified the respondent in treating the 1/2 share of the income due to him as his own money: using his own money to buy shares, he was under no duty to account.

16. This view of the judge's reasoning is reinforced by the following passage in the judgment:

" The plaintiff's two brothers, Mui Kwan Shing and Mui Kwan Wai also gave evidence. They were agreeable to the defendant's advancements to the plaintiff, although such advancements exceeded the plaintiff's entitlement to the income and receipts of the estate and they themselves only received $300,000 each from the estate. They trusted the defendant in handling the estate."

17. When the judge used the expression "in handling the estate", he must have meant, in that context, "in making interim distribution of the income of the estate". This view is also consistent with the way the judge framed the second of the two issues, namely "What is and at various times was the amount due to the plaintiff as her entitlement in the estate and did the defendant fail to pay her the amount due, and if so, how much? Or alternatively, was the plaintiff overpaid by the defendant, and if so, how much?"

18. In my judgment, having regard to the evidence and the judge's findings as summarised earlier, Woo J was justified in accepting the respondent's claim that, in making the share purchases, he was using his own money.

19. This is, in my judgment, the only proper foundation for relieving the respondent of liability to account for his share-dealings. I say so for this reason. At p21 of his judgment Woo J said:

"In the circumstances of all the evidence in this case, especially, bearing in mind the plaintiff's unreasonable attitude and behaviour throughout the interlocutory proceedings before me and at the trial, I am of the view that it would not be proper or equitable to allow the plaintiff's claim for sharing in any profit that the defendant might have made from his dealings in shares."

20. This approach is, in my judgment, unacceptable and is to be deplored. The courts often have before them litigants who may be awkward, ignorant, egregious or even disrespectful. It is the duty of the court to treat them alike and the determination of their claims can in no way depend upon their attitude to litigation or their demeanour in court.

The counterclaim

21. As mentioned earlier, the judge himself performed an accounting exercise, covering the period 1 March 1987 to 31 December 1996, disregarding however the sale of shop 4 on 25 November 1996. On that basis there was an overpayment to the appellant out of the estate amounting to $537,048.48. The judge treated that as a debt owed by the appellant to the estate.

22. That, with respect to the judge, is conceptually wrong. Without a proper accounting it was impossible to say whether the appellant had been overpaid or underpaid - and the sum itself was not ascertained until the judge gave judgment. Moreover, as mentioned earlier, the judge accepted the respondent's contention that he was prepared to meet the appellant's request for money even though she might receive more than her share in the estate because any overpayment could be recouped in the final settlement, when all the properties were sold.

23. On the judge's own findings the appellant was receiving the proceeds of interim distributions from time to time: overpayment or not, she could have incurred no obligation in the nature of debt to the estate. The judgment on the counterclaim must therefore be set aside.

Overpayment extinguished

24. The position as it stands today is this. When Shop 4 was sold on 25 November 1996, shortly before the hearing, a sum of $1,548,130.70, representing 1/6 of the net proceeds of sale, were paid into court. By orders made in December 1996 Woo J permitted $950,000 to be paid out to the appellant, leaving $598,130.70 in court. Pursuant to his judgment given on 7 January he gave liberty to the respondent to satisfy the judgment on the counter-claim out of that sum of $598,130.70 and this has been done. The result therefore is that, as things stand today, there is no "overpayment" to the appellant - the previous "overpayment" having been recouped from the proceeds of sale of shop No. 4.

25. The only remaining asset of the estate now is No. 371, G/F. Obviously the sooner this is sold the better, because upon its sale the winding up of the estate - now outstanding for more than 8 years since the grant- can be completed and final accounts can be rendered.

Costs

26. As mentioned earlier, the judge ordered the appellant to bear the costs of the action and of the counter-claim. As to the costs incurred on the counter-claim, the judge had plainly erred.

27. As to the action, the judge said: "I dismiss the plaintiff's claim". This, with respect to the judge, is plainly wrong. It is not the effect of his judgment. The appellant's first claim in the originating summons was for "an account of the property of the deceased coming into the hands of the defendant and the hands of any other persons by the order or for the use of the defendant, distinguishing between capital and income, pursuant to Order 85 Rule 2(3)(a) of the Rules of the Supreme Court". The judge found after trial that the respondent had not properly rendered accounts to the appellant and, upon the evidence before him, proceeded himself to make the adjustments to the rental income properly attributable to two of the 3 properties, resulting in the income and expenditure accounts annexed to his judgment.

28. This is a case where a trustee, under a duty to keep, produce and render accounts, was found by the judge after trial to have failed in his duty. To that extent the appellant succeeded in the court below.

29. In my judgment the judge's order that the appellant must pay the costs of the action must also be discharged, leaving the respondent to pay the costs out of his own pocket.

Conclusion

30. The appeal, in my judgment, succeeds to this extent:

(i) The judgment on the counter-claim must be discharged.

(ii) Although the appellant succeeded in her main claim for an account, Woo J had in effect performed the function - normally done by a Master in chambers - of taking the accounts, pursuant to his findings of default on the part of the respondent. There was therefore no need for the judge to make any further order on the appellant's claim.

(iii) The judge's order that the appellant pays the respondent's costs of the action and of the counterclaim must be discharged: leaving, as I have said earlier, his orders concerning the interlocutory matters undisturbed.

Liu, J.A.:

31. I agree. The only point in which I may be able to make a contribution is: the appellant sought an order for sale of the properties then involved; only the Ground Floor of 371 now remains outstanding. Whilst the judge lifted the restraint or condition imposed on the respondent's right to sell as an administrator and trustee the Ground Floor of 371, he did not in fact accede to the application of the appellant in ordering a sale of that remaining property. However, in the circumstances, I am content with the order proposed to be made by the Vice-President. I also agree that the appeal be disposed of in the manner he has indicated.

Ching, J.A.:

32. I agree with the judgment pronounced by the learned Vice-President, and I have nothing to add.