LI CHOI PING AND ANOTHER v. XIE YANXIAN (as administrator of the estate of Li Hon Yuen)

HCMP 1000/2021

[2022] HKCFI 3042

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1000 OF 2021

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J U D G M E N T

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INTRODUCTION

1.  This is the substantive hearing of the Originating Summons dated 19 July 2021 issued by the 1^st and 2^nd plaintiffs against the defendant (“OS”) for an order that the defendant be removed as the administratrix of the estate of Li Hon Yuen (the “Estate”) and that the 1^st and 2^nd plaintiffs be appointed as joint administratrices in place of the defendant, or alternatively, for an independent professional administrator to be appointed in place of the defendant, pursuant to section 33(3) of the Probate and Administration Ordinance, Cap 10 (the “Ordinance”).

BACKGROUND

2.  The background leading up to these proceedings has been set out in the plaintiffs’ Skeleton Submissions as follows:

(1)  The Deceased is the biological father of the 1^st and 2^nd plaintiffs.

(2)  After the Deceased and the biological mother of the 1^st and 2^nd plaintiffs divorced, the Deceased and the defendant got married in 1996 and gave birth to a son, Li Tsz Hing (“Tsz Hing”).

(3)  On 5 June 2019, the Deceased passed away in Hong Kong intestate leaving his surviving spouse (ie the defendant) and surviving issues (ie the 1^st plaintiff, the 2^nd plaintiff and Tsz Hing) who are the only persons entitled to share in the Estate.

(4)  On 25 November 2019, the defendant obtained grant of the letters of administration of the Estate (“LA”).

(5)  Since about 26 November 2019, solicitors for the plaintiffs have repeatedly pressed for updates from solicitors for the defendant in respect of the application for the LA. However, it was only on 4 February 2020 (about two and a half months later) that the solicitors for the defendant informed solicitors for the plaintiffs that the defendant had obtained the LA.

(6)  On 22 January 2020, the 2^nd plaintiff received 34 text messages from Chiyu Banking Corporation stating that the shares held in the Deceased’s investment account had been sold. Being kept in the dark by the defendant, the plaintiffs thought the said account was hacked and reported the case to the police (“Mistaken Police Report”). It was subsequently discovered by the plaintiffs that it was the defendant, allegedly as administratrix who executed the sale.

(7)  Upon learning that the defendant had obtained the LA, solicitors for the plaintiffs repeatedly asked the solicitors for the defendant for clarifications as to what dealings in relation to the Estate had taken place with no constructive reply. It was under such circumstances that on 6 May 2020, the 1^st and 2^nd plaintiffs took out an application for an order for verified accounts of the Estate from the defendant by way of originating summons (“Application for Account”). The defendant contested the Application for Account and filed in opposition inter alia the Affirmation of Xie YanXian dated 8 June 2020 with no documentary evidence, in which she alleged that the Deceased (hence the Estate) owed her the sum of HK$1,000,000 (the “Alleged Loan”) for the first time.

(8)  On 9 November 2020, Master Dick Ho upon hearing counsel from both sides, made an order that the defendant shall give a full and proper account of inter alia her dealings with the Estate within 42 days of the said order (the “Order to give Account”).

(9)  On 17 December 2020, pursuant to the Order to give Account, the defendant filed the 3^rd Affirmation Xie YanXian (“D’s Aff to give Account”) in which the Alleged Loan was included as a liability of the Estate (at §4(a)).

(10)  Since 7 January 2021 and throughout the first half of 2021, solicitors for the plaintiffs had repeatedly challenged the existence and/or validity of the Alleged Loan and pointed out that the defendant is clearly in a position of conflict of interest given the Alleged Loan. In particular, by a letter dated 28 April 2021, solicitors for the plaintiffs invited the defendant to resign as administrator and suggested that a neutral third party be appointed in place. Such proposal had been rejected by the defendant. It was under these circumstances that the plaintiffs had no choice but to take out the present application.

3.  In essence, the application issued by the 1^st and 2^nd plaintiffs, daughters of the Deceased, is based on, inter alia, the following grounds:

(1)  First, there is a serious conflict of interest - the defendant being an alleged creditor of the Estate herself.

(2)  Further, the overall problematic administration and distrust have rendered the continuance of the administration by the defendant untenable.

RELEVANT LEGAL PRINCIPLES

4.  Section 33(3) of the Ordinance provides that:

“The court may, if satisfied that the due and proper administration of the estate and the interests of the persons beneficially entitled to so require, suspend or remove an executor or administrator (other than the Official Administrator) and provide for the succession of another person in place of such executor or administrator and for the vesting in that other person of any property belonging to the estate.”

5.  In Tsang Wing Kwai v Tsang Wing Fai (No 2) [2019] 1 HKLRD 1300, Lam VP (as he then was) at §26 said:

“26. In our judgment, the criteria for removal of executor is set out in s 33(3) of the Probate and Administration Ordinance (Cap 10). The Judge alluded to the same at [27] of the judgment:

[27] Turning to the basis for the removal of a personal representative, it is well established that the Court’s discretion under section 33(3) of the PAO is wide. The exercise of the discretion is not necessarily premised on ‍a finding of misconduct on the part of the personal representative. The statutory criteria provided for an exercise of the discretion to suspend/remove are:

… the due and proper administration of the estate and the interests of the persons beneficially entitled thereto so require [for a suspension or removal].”

6.  It is not necessary to establish specific wrongdoing, misconduct or fault on the part of a personal representative before he can be removed, although obviously wrongdoing, misconduct or fault would be relevant considerations: see Chow Chak Kiu v Chow Man Chit, HCMP 797/2016 (unrep, 17/01/2017) at §§53-55 per Chow J (as he then was).

7.  A personal representative has a duty to keep and, when called upon, to be always ready to render a true and perfect account, providing details of the whereabouts of all properties which he is bound to administer: see Re Estate of Lee Da Kor [2010] 1 HKLRD 415 at §17 per Poon J (as Poon CJHC then was); section 56 of the Ordinance. It is not an answer to say that the executor is inexperienced in keeping accounts as in such cases it would be their duty to employ a competent accountant to keep them. To discharge the duty to account properly, there must be production of the relevant supporting documents and receipts, as well as breakdown of items: see Chan Yu Hong v Chan Kam Hong, HCMP 888/2013 (unrep, 19/07/2017) at §81 per B Chu J.

8.  The duty of a personal representative to render a full and proper account when called upon to do so is a fundamental and important duty. The failure to do so may, in appropriate circumstances, be a good reason to justify removal: see Chow Chak Kiu (supra) at §56 per Chow J.

9.  Although hostility per se may be insufficient, a lack of confidence in the personal representative by the beneficiaries or a breakdown in relations may justify a removal if it leads to the administration coming to a standstill, or makes it difficult or impossible for the administration to be completed by an existing personal representative: see Re Estate of Kwan Chung [2013] 6 HKC 29 at §15 per Poon J (as he then was); Re Estate of Loo Che Chin [2013] 2 HKLRD 739 at §13 per Poon J (as he then was). Such inability to perform his duties as executor may be proved if it can be demonstrated that he would, say, by reason of the hostility, (a) administer the estate in a manner not in accordance with the law; or (b) obstruct the due administration of the estate. The court may also pass over the executor if the breakdown of relations has caused or has the potential to cause difficulty in the administration of the estate: see Re Loo Che Chin (ibid), §13.

10.  A personal representative can be removed on the ground of conflict of interest:

(1)  In Thian Sum v Yung Shui Tong [2019] HKCFI 2867, the administratrix made a claim against the estate. DHCJ William Wong SC held that solely on the ground that she has put herself in a position of conflict, she should be removed as an administratrix (§17).

(2)  In Tsao Chi Ching v Tsao Lung May, HCCA 2054/2012 (unrep, 22/05/2013), the son contested the application for appointment as personal representative of the estate by the daughter who was an alleged major creditor of the estate. The court held that was a clear case of potential conflict:

“98. …In due course, the appointed administrator will have to carefully and impartially consider and assess the viability of this alleged debt. Anything less may draw unnecessary conjecture as to the propriety of the administration of the estate.

99. In my view, May’s interest as an alleged major creditor of the Estate might be incompatible with the interests of the Estate in that this alleged debt might create inherent perceived or actual conflict of interest if May were granted administration of the Estate. This is especially so when there was already disharmony amongst the Siblings some of whom plainly did not find May trustworthy. After all, one of the tasks of the administrator of the Estate would involve scrutinising and, where appropriate, repaying the alleged debt of HK$5,000,000.00 to May. In my view, this is a consideration that militates against May’s suitability in acting as administratrix.” (Emphasis added)

The court went on to hold that the daughter is not suitable to be granted sole administration or even jointly with another sibling, an important factor being that “her financial interest may conflict with her duty as administratrix if she were appointed.” (§100)

SERIOUS CONFLICT OF INTEREST

11.  In respect of the Alleged Loan, the defendant as the alleged creditor is essentially claiming against herself as the administratrix of the Estate.

12.  Whether the Alleged Loan exists is not an issue that can be summarily determined by this court in the present application. The question is whether the defendant is in a position where her personal interest in getting paid the $1 million before and on top of her entitlement to the residuary estate is in conflict with her duty as the administratrix to fairly and duly distribute the assets of the Estate.

13.  As submitted by the plaintiffs, this is a classic case of serious conflict of interest, akin to Thian Sum (supra) and Tsao Chi Ching (supra), and on this ground alone, the defendant ought to be removed as administrator.

14.  The heart of the problem lies in the fact that the defendant is wearing two hats and has to date been maintaining an assertive attitude in respect of the Alleged Loan.

15.  As submitted by the plaintiffs, there are good reasons to closely scrutinise the Alleged Loan in the due and proper administration of the Estate and in the interest of the beneficiaries of the Estate given the following matters:

(1)  The Alleged Loan is about one-third of the value of the Estate (which is approximately HK$3,600,000 according to paragraph 16 of the defendant’s Affirmation dated 27 August 2021).

(2)  The existence of Alleged Loan is highly fact-sensitive and cannot and should not be summarily determined at the present application.

(3)  In any event, the defendant had never mentioned the Alleged Loan in any of the schedule of assets and liabilities and amended schedules filed as the administratrix of the Estate.

(4)  The Alleged Loan was only raised for the first time ever in the defendant’s Affirmation dated 8 June 2020 (which was filed in opposition to the Application for Account).

16.  To summarise, the defendant has so far put forward at least 3 inconsistent cases in respect of the Alleged Loan:

(1)  No such loan was included in the first Schedule of Assets and Liabilities affirmed on oath.

(2)  The Alleged Loan was mentioned for the first time ever in the defendant’s Affirmation dated 8 June 2020 (which was filed in opposition to the Application for Account).

(3)  In the letter from the defendant’s solicitors to the plaintiffs’ solicitors dated 9 February 2021, it was alleged that there was a specifically enforceable agreement between her and the Deceased that the Alleged Loan would be waived upon the Deceased adding her name to the household particulars of the Property and transferring the ownership of the Property to Tsz Hing.

17.  In my view, on the ground of conflict of interest alone, the defendant should step down as the administratrix of the Estate of the Deceased.

OVERALL PROBLEMATIC ADMINISTRATION AND DISTRUST

18.  The defendant has since the very beginning maintained a difficult and secretive attitude in respect of the administration of the Estate as evident from her refusal and/or failure to inform and communicate with the plaintiffs, which eventually led to time and money being wasted on avoidable events like the Application for Account.

19.  It is trite that an administrator has the duty to render a full and proper account when called upon to do so, with or without the Application for Account. The Application for Account was solely caused by the defendant’s refusal and/or failure to give account despite the plaintiffs’ repeated requests. The defendant even unreasonably contested the Application for Account, further delaying the administration and causing loss to the Estate.

20.  Coupled with the serious conflict of interest, it is clear that the defendant would not observe her duties as administratrix unless and until ordered by the court to do so, and the plaintiffs have justifiably lost confidence in the defendant’s ability to duly administer the Estate.

21.  Although hostility in itself is insufficient to justify removal of an administrator, this is a case in which the overall problematic administration by the defendant and the deep-rooted distrust between her and the plaintiffs are sufficiently serious to render the continuance of the administration by the defendant untenable as evident from the fact that the administration is now at a standstill.

22.  The ultimate question before this court is whether the due and proper administration of the Estate and the interest of the persons beneficially entitled thereto require the replacement of the defendant as administratrix - the answer is clearly “yes”.

CHOICE OF REPLACEMENT ADMINISTRATOR

23.  Due to the degree of hostility between the defendant and the plaintiffs, I think it is wise that an independent professional administrator should be appointed in place of the defendant.

24.  Mr Tam Wing Chung Gary of Messrs GT Lawyers has in his Affirmation dated 26 July 2022 set out his qualifications and experience; and clarified that he would abide by the statutory cap on his remuneration as administrator pursuant to section 60(1)(2)(b) of the Ordinance (which means that his charge will be capped at around HK$35,150 on the basis that the Estate is now valued at HK$3,5000,000).

25.  On the above basis, I would approve the appointment of Mr Tam as the new administrator in place of the defendant.

DISPOSITION

26.  I make an order in terms of paragraph (1) of the OS, save that it should be specified that Mr Tam Wing Chung Gary of Messrs GT Lawyers should be appointed as the new administrator of the Estate of the Deceased in place of the defendant.

27.  The parties should attempt to agree on consequential directions. In case of disagreement, I give the parties liberty to apply for such further or other directions as may be necessary to give effect to this decision.

28.  I see no reason why costs should not follow the event. Accordingly, I order that the costs of and occasioned by the OS (including all costs reserved, if any) be paid by the defendant to the plaintiffs, such costs are to be taxed if not agreed.

29.  The above order as to costs is nisi and shall become absolute in the absence of any application within 14 days to vary the same.

30.  Lastly, I express my gratitude to counsel on both sides for their helpful assistance in this matter.