Li Lim Chi Dorothy, The Sole Administratix of the Estate of Li Wan Lung, Deceased v. Lin Fung Industrial Company and Another
Read the full judgment text of HCMP 1695/2015 on BabelCite. This High Court CFI judgment was delivered on 12 October 2016.
1. This was an application by the sole administratrix (“the applicant”) of the estate of Li Wan Lung (“the deceased”) by originating summons (amended on 3 October 2016) for an order pursuant to Order 85, rule 2(2)(a) of the Rules of the High Court (“RHC”) that Li Kin Yan (the former administrator of the estate) (“the 2 nd respondent”) takes all necessary steps to procure that the applicant be registered as sole proprietor of Lin Fung Industrial Company (“New Lin Fung”) with business registration
Cited by 1 case · Cites 1 case
|
HCMP 1695/2015 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 1695 OF 2015 ____________________
____________________
____________________
__________________________________________ REASONS FOR JUDGMENT __________________________________________ 1.This was an application by the sole administratrix (“the applicant”) of the estate of Li Wan Lung (“the deceased”) by originating summons (amended on 3 October 2016) for an order pursuant to Order 85, rule 2(2)(a) of the Rules of the High Court (“RHC”) that Li Kin Yan (the former administrator of the estate) (“the 2nd respondent”) takes all necessary steps to procure that the applicant be registered as sole proprietor of Lin Fung Industrial Company (“New Lin Fung”) with business registration number 50434564‒000‒01 (“the new BR”) and all documents relating to New Lin Fung. At the conclusion of the hearing, the court granted the relief sought and made an order in terms of §§2 and 3 of the amended originating summons. The reasons appear below. Background facts 2.The applicant and the 2nd respondent are siblings and two of three children of the deceased who died intestate on 27 January 2009. 3.During his lifetime the deceased was mainly engaged in manufacturing plastic hardware with Lai Fung Plastic Factory Company Ltd (“Lai Fung”), a company incorporated in Hong Kong as the retail arm of the business and a sole proprietorship business he established on 4 September 1987, carried on under the name of Lin Fung Industrial Co (“Old Lin Fung”) with business registration number 11268978 (“the old BR”) as the manufacturing arm. The products were manufactured in a factory in the PRC. 4.The three siblings agreed that the 2nd respondent as the eldest son should be appointed administrator of the estate. Letters of administration were granted to the 2nd respondent on 3 July 2009. 5.Differences arose and on 19 May 2014, the applicant obtained a court order for the removal of the 2nd respondent as administrator and her appointment as administratrix in his place. 6.The following facts are not disputed and supported by relevant documentation:
7.In relation to §6(g) above, the 2nd respondent’s PRC lawyers have opined that the 2nd respondent may have made abnormal representations to the relevant government departments in the PRC and that he faces a risk of being held legally accountable. 8.The ‘representations’ relate to the concealment of the fact of the deceased’s death. Under PRC law, the foreign investor of the PRC factory was Old Lin Fung and not the deceased personally such that Old Lin Fung was a ‘civil subject’ with civil rights and obligations but its legal status/personality came to an end upon the deceased’s death. The PRC law firm opined that acts undertaken to continue or extend the operation ofthe PRC factory and changing the contract signatory of the foreign investor could have legal repercussions. 9.In any event, the PRC law firms instructed by the applicant and the 2nd respondent respectively are agreed that a third party such as the applicant cannot collect or assert any rights over assets registered in the name of Old Lin Fung or New Lin Fung by registering a new sole proprietorship in Hong Kong. That is the case even if the name of the new sole proprietorship were to be identical. The issues arising 10.Mr Smith submitted that the applicant’s entitlement to the order she seeks depends on whether it can be shown that:
11.In so far as assets of the estate in the PRC are concerned, Mr Smith confined them to machinery purchased and transported into the PRC factory by Old Lin Fung when the PRC factory was established. It would appear from renewal agreements made in 1997, 2002 and 2007 that additional machinery was subsequently supplied. 12.In the submissions and evidence filed in support, the applicant also asserted that Old Lin Fung owned two plots of land in the PRC where the PRC factory is situated as well as the factory building itself. That is controversial as appears from the evidence filed by the 2nd respondent in that regard. However, for present purposes, the court need not be concerned with those other assets and their ownership, the issue being confined to machinery only. 13.The 2nd respondent contended that:
14.The issues that emerge are considered under the headings below. (A) Whether, on death of a sole proprietor, the business he carried on is an asset of his estate 15.Mr Remedios, counsel for the 2nd respondent, advanced the following propositions:
16.The statements of principle in (i) and (ii) above are unexceptionable. But underlying and implicit in (iii) is the notion that upon death of the sole proprietor, the business he had carried on during his lifetime ceases to exist and is not and cannot be an asset that could pass to his estate. As formulated, (iii) sidesteps the relevant question, namely, whether the business carried on by the deceased during his lifetime forms part of his estate. 17.It is to be noted that the Schedule of Assets attached to the Letters of Administration filed by the 2nd respondent lists Old Lin Fung as an item under the group of assets headed “BUSINESS”. As such, it is recognition of Old Lin Fung as an asset of the estate. 18.In any event, the short answer to the question is to be found in §57‒85 of Williams, Mortimer & Sunnucks on Executors, Administrators and Probate(2013 Edition):
19.Accordingly, in so far as it is suggested that the business of the deceased in Old Lin Fung is not or cannot be an asset of the estate, it is plainly wrong. (B) Whether prima facie case shown that the estate (through Old Lin Fung) owns assets in the PRC 20.As regards the existence of machinery in the PRC to which the estate is entitled, the applicant relied on the following:
21.While the 2nd respondent did not challenge the evidence the applicant relied on, the court was referred to another document relating to ownership of the machinery, being an Agreement registered on 3 November 1987 made between Dongguan External Processing and Assembling Services Company–cum–Qingxi Lin Fung Products Factory (“the Dongguan Company”) as Party A and Old Lin Fung as Party B. That agreement was renewed on three occasions and the renewal agreements were registered on 4 September 1992, 3 September 1997, and 18 June 2007 respectively (collectively “the Processing Agreements”). The last renewal provided for 29 October 2007 to be the expiration date of the term under the Processing Agreements. 22.In summary the Processing Agreements provided that Old Lin Fung was to be responsible for providing equipment of an unknown value (the amount stated being illegible) for processing production to the PRC factory to be repaid by the PRC factory through processing fees of an unknown (illegible) amount and further provided that “the equipment shall be owned by Party A’s [the Dongguan Company’s] factory” but “title of [sic] the equipment borrowed shall belong to Party B [Old Lin Fung]”. 23.The renewal registered on 4 September 1992 provided for the addition of equipment and expansion of production. Repayment for the equipment was to be by an unspecified percentage of the processing fees and upon completion of the repayment, the equipment “shall be owned by [the Dongguan Company]”. 24.All that can be said about the Processing Agreements is that, at best, upon full repayment of the cost of the equipment, the Dongguan Company rather than Old Lin Fung would own the equipment. However,there is not a shred of evidence concerning the amount to be repaid and the amount actually repaid to Old Lin Fung. The key figures were illegible and there is nothing to substantiate repayment, much less full repayment. Nor do I not accept that the onus is on the applicant to show non‑payment. 25.It is important to note that while the Processing Agreements came to an end on 29 October 2007, the term of the Factory Contract was for 50 years expiring 30 December 2045. If that 50‑year term came to an end on the deceased’s death, it would not have occurred until 29 January 2009. 26.When the 2nd respondent made his first affirmation in September 2015, he clearly believed that the machinery was left in the PRC factory and that the estate would be entitled to the same, having imported them into the PRC in the first place. 27.Whether Old Lin Fung will ultimately succeed in establishing its right to the machinery in the PRC is not the relevant question. 28.I am satisfied from the evidence adduced that there is reason to believe that Old Lin Fung had assets in the PRC that are now registered in the name of New Lin Fung. It is also clear from the 2nd respondent’s own evidence that New Lin Fung was established to complete existing orders and to continue Lai Fung’s business and so its assets would form part of the deceased’s estate. (C)Whether the relief sought in §(2) of the amended originating summons is appropriate 29.On 30 October 2015, the applicant as administratrix brought proceedings (HCA 2531/2015) against the 2nd respondent (as the 1st defendant) and Li Kin Wing her younger brother (as the 2nd defendant)for, inter alia, breaches of fiduciary duty in relation to Old Lin Fung, diversion of the business of Old Lin Fung into New Lin Fung and the Dongguan Company and sought an account of profits. Pleadings have now closed. 30.The 2nd respondent submitted that since there is already an action on foot, the proper course is for the applicant to add a claim to the existing action against the 2nd respondent for the machinery and delivery up of the same to the estate. 31.However, what the applicant is seeking here is an order that would allow her as administratrix to collect in assets of the estate which should be done as soon as possible. That is wholly different in nature from bringing an action against the 2nd respondent for wrongdoing (the intent of HCA 2531/2015) and, on any view, that action is not likely to be heard or determined for some time. For those reasons, I do not consider that to be an appropriate route. 32.I accept the applicant’s submission that it is clear from the PRC legal opinions obtained that it is not possible for the applicant in her capacity as administratrix per se to deal with the deceased’s assets in the PRC. While concerns have been expressed over the propriety of certain acts or steps taken by the 2nd respondent to continue the business of Lai Fung and the PRC factory, it is a fact that New Lin Fung has been operating for over 7 years under the new BR albeit using the stamp of Old Lin Fung. 33.I am satisfied that unless the applicant is registered as sole proprietor of New Lin Fung, she will not be able to collect or assert the estates rights to any assets of the deceased in the PRC acquired or held in the name of New Lin Fung. 34.It should be mentioned that there is correspondence with the Inland Revenue Department regarding the procedure for the applicant to be registered as sole proprietor of New Lin Fung. 35.The 2nd respondent has stated on affirmation that he has wanted to close down New Lin Fung for some time since he does not consider that it serves any practical purpose. The applicant takes issue with the 2nd respondent’s view on that subject. But the relevant point here is that if that be the 2nd respondent’s stance, he can have no objection to adopting the procedure outlined in the correspondence with the Inland Revenue Department to enable the applicant when registered as the sole proprietor of New Lin Fung to retain the same business registration number. 36.Accordingly, an order was made in terms of §§2 and 3 of the amended originating summons with an order of costs in favour of the applicant subject nevertheless to the costs provision contained in §6 of the order dated 20 January 2016, with certificate for two counsel.
Mr Clifford Smith SC, leading Mr Edward H M Tang, instructed by Waller Ma Huang & Yeung, for the applicant Mr Leo Remedios and Mr Robert Chan, instructed by Ho & Partners, for the 1st and 2nd respondents |
Cases cited in this judgment
Other judgments that cite this case
Further hearings and rulings under HCMP 1695/2015