Liang Pui Saw Kian Alias Susan Liang and Another v. Leung Yuk Chun and Others

HCMP 130/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 130 of 2016

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D E C I S I O N

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Background

1.On 15 June 2016, I handed down a judgment in which I made certain declarations in respect of the administration of the estate of the late Mr Tsui Man Hing (“Mr Tsui”).  Although I had been given a draft order by counsel for the estate, that draft was not discussed at the hearing on 1 June 2016, and I invited the parties to agree upon the terms of orders which would be submitted to me for approval.

2.Unfortunately no agreement has been reached, and the matter has come before me again to resolve matters of difference.

3.Again a draft order has sensibly been prepared by those advising the estate.  That has been circulated amongst all the parties.  There has been extensive comment in writing on that draft by some parties and silence from others.  I have now heard from the parties and make the following rulings.

Clause 1:    Leave to distribute

4.There is no dispute between the parties that the Co‑administratrices should have leave to distribute the assets now forming the residue of the estate, notwithstanding the fact that the 1^st defendant, Madam Leung Yuk Chun, a life tenant, still survives.

5.There will be a declaration that any entitlement Madam Leung Yuk Chun may have had in respect of the estate pursuant to the will of Mr Tsui terminated upon the decision of the 6^th defendant, Mr Albert Tsui, pursuant to Clause 4(b) of the will, that no provision should be made for her.

Clause 2:    Leave to sell the properties

6.There is no dispute between the parties that the Co‑administratrices should have leave to sell the three properties remaining in the residue of the estate, with the sale price to be fixed by the Co‑administratrices, having due regard to valuations provided by BMI Appraisals for the purpose of setting a reserve price.

7.At the hearing, I raised the issue as to whether or not the valuations should be updated, having been made as long ago as September 2015.  It was agreed amongst all parties that there was no need to update the valuations.  The terms of the draft order are accordingly approved.

Clause 3:    Terms of sale

8.There is no dispute on the terms of this clause.  The terms of the draft order are approved.

Clause 4:    A decision to accept an offer for sale

9.Clause 3 provides that if an offer is made in respect of one or any of the properties that exceeds the valuation, the Co‑administratrices may accept that offer without further consultation with the beneficiaries.

10.Clause 4 of the draft order provides that the Co‑administratrices are entitled to accept the majority of the votes of the beneficiaries to decide whether to accept an offer in the event that the only offers that are received for any of the properties, after placing them on the open market for a reasonable period of time, fails to reach the reserve price.

11.Mr Bernard Tsui, apparently out of an abundance of caution, contemplates the situation that when invited to vote, some of the beneficiaries may stay silent, and not vote.  He says that in those circumstances those beneficiaries who do not vote should be considered to be neutral on the matter.  I agree that the matter is one which requires to be clarified.

12.The appropriate way to clarify the matter is to provide that in the event that a beneficiary does not vote, his silence shall be taken as assent to acceptance of the offer.  Accordingly clause 4 of the order is approved in the following terms:

“The Plaintiffs shall adopt the majority of the votes of the 2^nd to 6^th Defendants/beneficiaries to decide whether to accept an offer in the event that the offer received for any of the Properties after placing the same on the open market for a reasonable period of time fails to reach the reserve price based on the valuation provided by BMI Appraisals. In the event that any Defendant/beneficiary shall not vote, his silence shall be taken as assent to acceptance of the offer”

Clause 5:    Appointment of estate agents

13.There is no dispute as to the terms of this clause.  The estate agents are to be appointed in consultation with the beneficiaries and the rate of commission to be charged shall not be more than 1% of the sale price on successful closing of the sale transaction.  This clause of the draft order is approved.

Clause 6:    Appointment of solicitors

14.There is now no dispute between the parties that Messrs Lo & Lo should be appointed as solicitors to act for the estate on the conveyancing arising from the sale of the three properties.  The terms of the draft order are approved.

Clause 7:    Vacation of registered orders

15.This is a machinery provision in relation to orders of the Court registered in the Land Registry.  There is no dispute.  The terms of the draft order are approved.

Clause 8:    Sale expenses

16.This provision relates to the sale expenses, to be paid by the estate.  There is no dispute.  The terms of the draft order are approved.

Clause 9:    Appropriation date

17.Through their counsel, the Co‑administratrices suggested that the appropriate date upon which there should be deemed to have been an appropriation should be 19 July 2007, on which date A Cheung J (as he then was), gave leave to the Co‑administratrices to sell all the HSBC shares belonging to the estate and to appropriate 30% of the net proceeds of sale.

18.The five beneficiaries considered that 2 November 2006, the expiry of the 10 year period, was the appropriate date, as accounts had been prepared using that date.  The Co‑administratrices had no objection to that date.

19.Clause 9 of the draft is approved with insertion of the date 2 November 2006, as the date of appropriation.

Clause 10:  The distribution of proceeds of sale

20.It is acknowledged by all that both Mr Michael Tsui and Mr Albert Tsui were ordered to pay costs by Poon J in relation to an order dated 8 May 2013, in proceedings relating to the estate known as HCMP 1583/2010.  The order did not specifically say that the costs order was a joint and several order, but where an order is made that two persons must pay a sum of costs, unless otherwise stated, the order will always be a joint and several order.

21.The sum has been fixed at $225,641.  There is no dispute as to the amount.  There will be a declaration that the Co‑administratrices are entitled to deduct a sum of $112,820.50, being a half share each, from the entitlement of Mr Michael Tsui and Mr Albert Tsui, from their respective shares of the proceeds of sale of the various properties.

22.Mr Albert Tsui had previously given the estate an undertaking to reimburse the estate in respect of any overpayment of maintenance to Madam Yuen Yim Ngan, one of the life tenants.  That sum has been calculated by the Co‑administratrices at $2,413,174.20.

23.It is here that the substantial dispute between the parties arises.  In §2 of my judgment of 15 June 2016, I set out the operative clauses establishing the trust under the will.  To understand the dispute, it is necessary to set out the preliminary paragraphs to those clauses.  They are:

“2. I devise and bequeath all my estate real and personal whatsoever and wheresoever situate to my trustees UPON TRUST to sell call in and convert the same into money with power to postpone the sale calling in and conversion thereof so long as they shall in their absolute discretion think fit without being liable for loss Provided that my Trustees shall not sell or otherwise dispose of my leasehold properties for 10 years from the date of my death.

3. My Trustees shall hold and stand possessed of the net proceeds of the sale and conversion and my ready money upon the following trusts: namely:–

[there thereafter follows subparagraphs (a) – (vi) of clause 3, and clauses 4 and 5, as set out in §2 of my judgment of 15 June 2016]”

24.The requirement not to dispose of the leasehold properties for 10 years, together with an obligation to pay income to the life tenants, and from that income also to make provision for family reunions, meant that there would be a significant demand on income during the 10‑year period.

25.The position of the Co‑administratrices is that the income should also be applied to the costs of the administration of the estate.  It is for that reason that Mr Albert Tsui was required to give an undertaking in respect of the payments of maintenance to his mother, Madam Yuen, should those payments exceed her entitlement to income.  With the requirement to deduct the cost of administration from the income, the extent of the payments that could be made to madam Yuen, as a life tenant was necessarily limited by the available income.

26.Mr Albert Tsui now says that, pursuant to the trusts that thereafter followed, he is entitled to a total of 30% of the income during the 10‑year period, as are the life tenants.  The remaining four brothers are entitled to an unequal share of the income during the 10‑year period, namely 10% each.  There is no dispute as to that.

27.The argument by Mr Albert Tsui is that by clause 3 of the will, the expenses of the estate administration, in particular, the 10 year trusts, must come from the net proceeds of the sale and conversion of the estate, rather than the income of the estate.  Consequently, Mr Albert Tsui says that the income received by the estate is such that there has been no overpayment to Madam Yuen, triggering any deduction to be made from his share pursuant to his undertaking.

28.If the argument for the Co‑administratrices, that the income was also liable to be charged with the costs of the administration of the estate, which argument is supported by Mr Bernard Tsui, is correct then Mr Albert Tsui is obliged to accept that there has been an overpayment.  In that circumstance, Mr Albert Tsui disputes the calculations.

29.Mr Albert Tsui seeks to support his argument by referring to two paragraphs from the ruling of A Cheung J, made on 16 November 2007, and set out in §§47 – 49 of my judgment of 15 June 2016.  For convenience I now repeat those paragraphs:

“As regards the underlying premise of Ms Liang’s argument, having given the matter due consideration, I find that argument has indeed got support from the wording of clause 5(a), which refers back to clause 3(b)(i), and clause 3(b)(i) brings into action clause 4. As I have previously explained in relation to clause 3, clause 3(a) specifically provides that the testamentary expenses should come out from the net proceeds first before we come to distribution of income.

...

The trust is something required to be set up as part of the administration work.  The cost of setting up and maintaining the trust therefore form part of the administration expenses, and I do not see how those expenses should not come out from the estate as part of the testamentary expenses.  In other words, I am afraid the testator has made a less than perfect will in this regard, but then nobody is perfect.”

30.Those paragraphs were subsequently incorporated into the sealed order dated 16 November 2007 in the following terms:

“The cost of maintaining the trusts created under clause 3(b) and clause 5(a) of the Will are deductible as testamentary expenses under clause 3(a) of the Will.”

31.Mr Lo for the estate, supported by Mr Bernard Tsui, says that the funds from which the costs and expenses of the administration of the estate, and in particular the 10 year trusts, is not confined to the proceeds of sale and conversion, but may also come from “my ready money”, (see clause 3 of the will, §23 above), that is, the income during the 10 year period.

32.I accept that argument and reject Mr Albert Tsui’s argument.  It is not without significance that whenever Mr Albert Tsui referred to clause 3 of the will as justifying his argument he referred only to the “net proceeds of the said sale and conversion”, and did not go on to include the reference to “my ready money”.

33.I am satisfied that on a true interpretation of the statements of A Cheung J as set out above, the judge intended to say that whole of the assets of the estate which were liable to be charged with the cost of the administration of the estate.  Those assets include the proceeds of sale and conversion and any available ready money.

34.To hold otherwise would require that the whole of the income of the estate be distributed, leaving nothing at all, during a period of 10 years, from which those administering the estate could be paid for their efforts.  I have no doubt at all that that was not what Mr Tsui intended.

35.The expression “ready money” has been the subject of judicial interpretation, but only in the context of whether or not a particular item should form part of a bequest.  There appears to be no judicial interpretation of the expression in relation to income falling to the estate following death.  A bequest of “ready money” includes cash at a bank, whether the balance is in a current account, or on a deposit, or withdrawable after notice: see Parker v Marchant (1843) 12 LJ Ch 385, [1843–60] All ER Rep 1061.  Income flowing into an estate, in this case from rents which would be banked to a current account, is, in my view, equally “ready money”.

36.The trustees have been given a clear power to postpone the sale and calling in of properties in their absolute discretion. In the event that they should exercise that discretion, as they were entitled to, the only available funds to meet administration expenses would be income from rents flowing to the estate.  I am satisfied that Mr Tsui would not have required the Trustees to wait until the expiry of the 10 year period before they are paid in respect of their duties in the administration of the estate.

37.I accordingly hold that in calculating the net available income for distribution under clause 3 of the will, the Co‑administratrices are entitled to first, deduct the testamentary expenses which include the expenses of the administration of the estate, then apply 30% of the income for the life tenants (from which 30% is to be deducted for the family reunion expenses), then the remaining 70% of the income is to be distributed in unequal shares pursuant to the will, amongst the five brothers.

38.If, having made that calculation, the Co‑administratrices determine that the payments are made to Madam Yuen Yim Ngan exceed her total entitlement to income from the estate, Mr Albert Tsui must, pursuant to the undertaking given by him to the court and recorded in the order of 29 January 2008, refund to the estate the amount of such excess, limited to the sum of $5 million.

39.In the event that Mr Albert Tsui disputes any amount required to be repaid by him pursuant to the ruling contained in §37 above, and consequent upon his undertaking, leave is reserved to him to apply to the court for the determination of the amount due by him.

40.For the assistance of Mr Albert Tsui, I record that leave is confined to a dispute as to the amount due, and not a dispute as to whether or not the Co‑administratrices are entitled to deduct the cost and the administration of the estate prior to the distribution of the income during the 10‑year period.  If Mr Albert Tsui wishes to challenge my ruling in this respect, that is a matter which must go on appeal.

41.In the event that Mr Albert Tsui disputes the figure for which he is required to account (if any), and the sale of the properties has been completed, the Co‑administratrices may distribute to such of the beneficiaries, such sum as in their absolute discretion may be distributed, preserving such sum as they in their absolute discretion consider should be required to be retained, pending the resolution of the dispute with Mr Albert Tsui.

42.Clause 10 of the draft order will require appropriate amendment.

Clause 11:   Preparation of accounts

43.There was no dispute between the parties in respect of this clause.  The terms of the draft order are approved.

Clause 12:  Costs

44.The proposed draft contains a provision that the Co‑administratrices costs of the Originating Summons including this hearing, be paid by the estate on a trustee basis to be taxed if not agreed.

45.Mr To, counsel for the 2^nd defendant, Mr Lam Yuk Kwan, who is the sole trustee of the estate of James Tsui, one of the Mr Tsui’s sons, supported by Mr Ho, says that the Co‑administratrices should bear their own costs and the cost of counsel in respect of clause 6 of the Originating Summons.  That clause sought the determination of the appropriation and equalisation of the proceeds of sale of the properties.  That issue was one of the two principal issues considered in the judgment of 15 June 2016.  The second principal issue was the proper interpretation of the will, the Co‑administratrices demonstrating by argument an interpretation that would have favoured Mr Albert Tsui.  The alternative interpretation, promoted by Mr To, Mr Ho and Mr Bernard Tsui, demonstrated an interpretation that treated all five sons equally in the distribution of the residue.

46.The 4^th defendant, Mr Bernard Tsui supports this submission.

47.Both Mr Michael Tsui and Mr Albert Tsui were content to leave the court to resolve the matter.

48.The administration of this estate has been contentious, with the Co‑administratrices being challenged on a number of occasions by the beneficiaries.  I am satisfied that there was a legitimate difference in views as to the proper interpretation of the provisions of the will considered in my judgment of 15 June 2016.

49.The difficulty faced by the Co‑administratrices is particularly demonstrated in the circumstance where Mr Albert Tsui, who, on one interpretation of the will, (an interpretation which I rejected), would have benefited most, remained silent in the face of requests for his views on the interpretation of the will.  Mr Albert Tsui made no submission on the point prior to or during the hearing on 1 June 2016, and was content to leave the matter to the court [1].

50.I do not accept the submission of Mr To or Mr Ho that the Co‑administratrices took a position which favoured Mr Albert Tsui.  That was plainly not their position.  They simply recognised a potential alternative interpretation of the provision in the will dealing with the distribution of residue, and presented that interpretation, in moderation, to the court for clarification.  When pressed by me during the argument on this interpretation, Mr Lo sensibly did not strive to press the argument, but merely presented the alternative interpretation to the court for consideration.

51.Further, the trustees recognised that there had been no previous judicial declaration in relation to the position of the surviving life tenant.

52.Mr Lo referred me the following passage in Lewin on Trusts, 19^th Edn.  At §27–112:

“The right of a trustee to indemnity in respect of costs extends only to costs properly incurred in the execution of the trust. By this is meant costs which have been both honestly and reasonably incurred. A doubt is to be resolved in favour of the trustee, so the right is sometimes expressed in terms of a double negative, that is, the trustee is entitled to costs not improperly incurred.”

53.The view that trustees of settlements had a duty to defend actions challenging the validity of the settlements and whatever the outcome are entitled to their costs out of the trust fund is not correct or in accordance with modern authority: see Alsop Wilkinson (a firm) v Neary & Ors [1955] 1 All ER 431.  In that decision, Lightman J said:

“... in a case where the dispute was between rival claimants to a beneficial interest in the subject matter of the trust, the duty of the trustee was to remain neutral and offer to submit to the court’s directions, leaving it to the rival parties to fight their battles.”

54.However, I note particularly, a further passage cited by Mr Lo from Lewin on Trusts, 19^th Edn.  At §27–142:

“Being neutral should not necessarily be equated with being passive, especially in cases falling within the Buckton [2] categories (1) and (2) [3]. Since the objective in cases within these categories is to obtain the guidance of the court, the court may well be assisted by submissions from the trustees as to the principles of law or construction involved. Further, there are cases where the argument presented on behalf of the beneficiaries is one‑sided, and the court is assisted by hearing the contrary argument from counsel to the trustees.”

55.In the present case, had the Co‑administratrices not presented argument through Mr Lo, the argument would have been one‑sided, as Mr Albert Tsui, whom the alternative interpretation favoured, chose not to make any submissions on the point.

56.In the whole of the circumstances I accept the submission from Mr Lo that it was necessary, appropriate and reasonable for the Co‑administratrices to come to the court for a determination of the issues.  It would have been a real risk, in the context of this particular estate, and having regard to the disputes between the beneficiaries, should the Co‑administratrices have distributed the residue of the estate, without clarifying the matter, only to find themselves faced with proceedings from one or other of the beneficiaries challenging the form of distribution.

57.It would have been equally risky for the Co‑administratrices to have distributed the residue of the estate during the survival of a life tenant, without making any provisions of that life tenant, without a clear direction from the court authorising that position.  It was accordingly prudent for them to come to the court to settle the position.

58.It cannot in any way be said that the Co‑administratrices have unreasonably enlarged the proceedings in incurring the legal costs consequent upon the Originating Summons.

59.Accordingly, there will be an order that the Co‑administratrices costs of the Originating Summons and of this application, including the hearing on 26 July 2016, shall be paid by the Estate on a trustee basis to be taxed if not agreed.  The costs of the 2^nd – 6^th defendants inclusive on the Originating Summons and of this application, including the hearing on 26 July 2016, shall be paid by the Estate on a trustee basis, to be taxed if not agreed.  There will be a certificate for counsel.

Liberty to apply

60.Clause 13 of the draft order, perfectly sensibly in the circumstances of this estate, reserves liberty to apply.  There is no dispute that that order should be made.  The terms of the draft order are approved.

Conclusion

61.I am especially grateful to Mr Lo for his clear and careful analysis of the copious written submissions made by the unrepresented beneficiaries.  This has greatly assisted my understanding of the points of difference between the parties, and substantially eased my burden in preparing for the hearing and this decision.

Mr P Y Lo, instructed by Yip Tse & Tang, for the 1^st and 2^nd plaintiffs

The 1^st defendant was not represented and did not appear

Mr Ken To, instructed by S H Tam & Co, for the 2^nd defendant

Mr Leon Ho, instructed by Hobson & Ma, for the 3^rd defendant

The 4^th, 5^th and 6^th defendants appeared in person