Kong Cloin Chung Ping and Another v. Li Ka Sing, The Executor of the Estate of Kong Wing Hong, Deceased and Others

HCMP 2431/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2431 OF 2016

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D E C I S I O N

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The Application

1.By these proceedings, Mr Colin Kong and Ms Joanie Kong (“Colin” and “Joanie” respectively and “applicants” collectively), the residuary legatees of the Hong Kong estate (“Estate”) of the late Mr Kong Wing Hong (“Deceased”), seek a wide range of relief regarding the Estate and its administration including:

(1) the revocation of the trusts constituted by the Deceased’s will and codicil;

(2) pending that, the removal and replacement of Mr Li Ka Sing (the 1^st respondent) as the executor and trustee of the Estate;

(3) an order disallowing the 1^st respondent’s fees or requiring him to account for the same;

(4) assessment by the court of the fees charged to the Estate by Nixon Peabody CWL (formerly known as CWL Partners) (“CWL”), solicitors engaged by the 1^st respondent; and

(5) the reversal of the 1^st respondent’s decision to sell, and an injunction to restrain him from selling, the Basement and Ground Floor Shop and First Floor of Hong Kiu Mansion, 313 Nathan Road, Kowloon (“Jordan Premises”), in which the Estate has a half interest.

2.Before the court is an application by the applicants for an interlocutory injunction to restrain the 1^st respondent from selling or otherwise disposing of or taking any step in connection with the sale or disposal of the Jordan Premises until the determination of these proceedings (“Application”).

Relevant background facts

3.The Deceased passed away on 9 June 2003, leaving:

(1) a will dated 11 March 1996 (“Will”), bequeathing his interests in 2 companies and a partnership business to Mr Kong Wing On (“KWO”), the Deceased’s younger brother and the 2^ndrespondent herein;[1]

(2) a codicil dated 24 June 1997 (“Codicil”), disposing of his other assets in Hong Kong; and

(3) a Chinese “遺囑” also dated 24 June 1997, dealing with his real property in Toi Shan, Guangdong Province, People’s Republic of China.

4.We are only concerned with the Codicil by which the Deceased, inter alia:

(1) appointed KWO to be the sole executor and trustee of the Estate (Clause 1);

(2) bequeathed House No.8, Windsor Park, 2/88 Ma Ling Path, Kau To, Shatin, New Territories (“Windsor Park House”) to his trustee upon trust as to 20% for Madam Tam Wai Fong (“Madam Tam”), the Deceased’s long-term companion and the 3^rd respondent herein, 55% for Colin (the Deceased’s grandson) and 25% for Joanie (the Deceased’s granddaughter) with restrictions against alienation without KWO’s consent during KWO’s lifetime and as to the application of the proceeds in the event of a sale (Clause 3);

(3) bequeathed his residuary estate to his trustee upon trust for sale and conversion with absolute discretion to postpone such sale and conversion without being liable for loss (Clause 4);

(4) directed his trustee to hold his residuary estate upon trust

(a) to distribute the rental income derived from the real properties within the residuary estate as follows:

(i) a monthly sum of not less than HK$40,000 to Madam Tam during her lifetime (Clause 5(a));

(ii) a yearly sum of HK$100,000 (adjustable for inflation) to KWO (Clause 5(b));

(iii) (subject to certain conditions with which we are not concerned) two-thirds and one-third of the remaining rental income to Colin and Joanie respectively (Clause 5(c)); and

(b) after the death of Madam Tam and KWO, to distribute the residuary estate as to two-thirds to Colin and one-third to Joanie (Clause 5(d)).

5.Probate of the Will and the Codicil was granted to KWO on 6 March 2006.  However, by orders made by Deputy High Court Judge Le Pichon in HCMP 2045/2012 on 13 November 2013 and 24 February 2015, KWO was first removed and replaced by the 1^st respondent (a professional accountant) as executor and trustee of the Estate and further ordered to account for, and pay to the Estate with interests, 50% of the market rental of the premises in which the Estate is interested but which had been occupied by the 2^nd respondent’s business paying only nominal rather than market rent from the date of the Deceased’s death (“Account Order”).  Those premises are the Basement, Ground Floor, 1^st, 2^nd and 14^th Floors and Roof of Prince Edward Building, 792 Nathan Road and the Jordan Premises.  Both the Prince Edward Building (which comprises 16 floors in total) and the Jordan Premises were and still are co-owned by the Estate and KWO as tenants-in-common in equal shares.  The taking of accounts before the Master (both evidence and submissions) has now been completed with judgment reserved.

6.The beneficiaries soon became concerned with the administration of the Estate by the 1^st respondent shortly after he took over from KWO on 13 November 2013.  Issues have been raised especially as to the legal and other costs of administration charged to the Estate by the 1^st respondent and his solicitors (CWL); their perceived reluctance to account, or provide supporting documents, for such costs such as copies of CWL’s bills of costs;[2] the 1^st respondent’s refusal to submit CWL’s bills to taxation; and the 1^st respondent’s refusal to work in ways that would keep down the costs of administration (such as not using CWL for matters not requiring legal assistance and liaising directly with the solicitors for the applicants[3] without going through CWL for non-legal issues of the Estate).  By letters dated 10 July 2015 from the applicants’ then solicitors, Angela Wang & Co (“AW”), and Madam Tam’s then solicitors, TC & Co (“TC”), to CWL, the applicants and Madam Tam demanded the 1^strespondent to resign as executor and trustee of the Estate and to forthwith cease retaining CWL for all works relating to the Estate.  The latter request was reiterated in a joint letter dated 27 November 2015 to CWL from AW and KWO’s solicitors, P C Woo & Co (“PCW”).

7.It is not necessary for present purpose, and I do not propose, to go into the details of these disagreements between the beneficiaries and the 1^strespondent save where they impact upon the 1^st respondent’s proposed and attempted sale of the Jordan Premises.

8.Focusing on the development of the issue of sale of the Jordan Premises, the 1^st respondent encountered cash flow problems soon after he took over the administration of the Estate, which problems he flagged in his financial reports on the Estate dated 10 June 2014 (covering the period from 13 November 2013 to 31 March 2014) and 17 June 2015 (covering the period from 1 April 2014 to 30 April 2015) (“2^nd Administration Report”). 

9.The 1^st respondent first raised with the applicants the sale of the Jordan Premises by CWL’s letter dated 14 October 2014 to AW by asking whether they had any objection to the sale of the Jordan Premises and, if not, the price at which they would wish to sell.  Apparently, what prompted this letter was an approach to CWL by an estate agent claiming to have an offer to purchase the Basement and Ground Floor of the Jordan Premises.  By AW’s reply dated 20 October 2014, the applicants expressed their clear wish to have both the Jordan Premises as well as the Prince Edward Building retained for rental income; asked the 1^st respondent not to take any steps to sell either of these properties without their written consent; and reminded him that the Jordan Premises had been left vacant for some time[4] and that he should focus on procuring tenants to generate rental income.

10.Then, by CWL’s letter dated 20 January 2016 to Jun He Law Offices (“JH”), new solicitors for the applicants, TC and PCW, the 1^st respondent gave the beneficiaries notice of his intention to, inter alia, apply to the court for the partition and/or sale of the Prince Edward Building and the Jordan Premises or parts thereof unless the beneficiaries advised him of alternative financing options within 14 days.  The reasons given for this proposed course were “the Estate’s financial position as previously communicated to you and to settle the increasing liabilities of the Estate”. 

11.The applicants did not respond to this letter.  KWO on the other hand through PCW’s letter dated 3 February 2016 suggested that the Windsor Park House be mortgaged or sold as “a better option for immediate financial relief for the Estate”.  By a letter dated 12 February 2016 from CWL to JH and TC, the 1^strespondent sought the applicants and Madam Tam’s view on the proposed mortgage or sale of the Windsor Park House. By TC’s reply dated 25 February 2016, Madam Tam opposed the mortgage or sale of the Windsor Park House on the bases that such property is partly bequeathed to her and that it would be unfair to expose her (indirectly) to an obligation to repay the loan secured by the mortgage of such property.  She suggested that the 1^st respondent should look into having the Jordan Premises or the Prince Edward Building partitioned and having a small part sold thereafter.  The applicants did not respond to CWL’s letter of 12 February 2016 and further ignored CWL’s letters dated 17 and 24 February 2016 for the title deeds and documents of the Windsor Park House.

12.KWO soon changed his mind.  By PCW’s letters dated 12 and 27 May 2016 to CWL and JH, KWO proposed that the Basement and Ground Floor of the Jordan Premises be sold to a third party to provide the Estate with funds to settle its liabilities as well as to provide KWO with the means to discharge the payment to be ordered against him under the Account Order.  Alternatively, KWO asked if the Estate would be interested in acquiring his half share of such property at a reasonable price.

13.The 1^st respondent responded by CWL’s letter dated 1 June 2016 to the effect that he had no objection in principle to the sale of the Basement and Ground Floor of the Jordan Premises subject to terms but that he was not interested in acquiring KWO’s share.

14.Then, in August 2016, the applicants received information that the Jordan Premises was being advertised for sale at HK$250 million and that tenders were being invited through the agency of Savills (Hong Kong) Limited (“Savills”).  By letters sent by JH to CWL and PCW on 9 August 2016, the applicants demanded the 1^st respondent and KWO to immediately cease all steps for the sale of the Jordan Premises.  These letters were followed up by further letters dated 15 and 16 August 2016 from JH to CWL whereby the applicants asked the 1^st respondent for, inter alia, an explanation of his decision to sell the Jordan Premises and provided the 1^st respondent with their views as to why the Jordan Premises need not and, therefore, should not be sold.

15.By another letter dated 22 August 2016 from JH to CWL, the applicants advised the 1^st respondent:

(1) that they had obtained preliminary approval of a one-year term loan of HK$10 million with interest at 10% per annum to be secured by the Estate’s half interest in the Jordan Premises;

(2) alternatively, that they would agree to the use of the Windsor Park House as security for loans in appropriate sums,

and demanded the 1^st respondent to withdraw the Jordan Premises from tender and to resort to these alternative means of financing the temporary needs of the Estate, failing which they would apply to the court to protect their interests in the Estate.  By this letter, the applicants also provided the 1^st respondent with information of transactions of various retail premises near the Jordan Premises with a view to demonstrating the higher capital growth of the Jordan Premises since the death of the Deceased (as compared to the returns that could have been expected from any other investments of the proceeds of sale of the property), in addition to the high rental income that such premises was generating.

16.In reply, by CWL’s letter dated 2 September 2016, the 1^st respondent made, inter alia, the following points:

(1) Having failed to respond to CWL’s letter dated 20 January 2016, the applicants were estopped from raising any objection to, and stopping, the sale of the Jordan Premises.

(2) The 1^st respondent had power to sell the Jordan Premises under Clause 4 of the Codicil, s 54(4) of the Probate and Administration Ordinance (Cap 10) and s 13 of the Trustees Ordinance (Cap 29).

(3) The net proceeds of sale from the Jordan Premises (after deducting all the liabilities of the Estate) could be used to purchase another similar property or invest in other assets that the applicants “perceived to have a strong capital growth and a constant income stream”.

(4) The Estate did not have the luxury of time to wait for payment by KWO under the Account Order.

(5) The 1^st respondent had explored other financing options to no avail (as loan interest was high).

(6) The loan suggested by the applicants would not be in the interest of the Estate – the term of 1 year was too short and interest at 10% per annum too high.

(7) Inquiries that have been made by the 1^st respondent revealed that it was unlikely that the Windsor Park House could secure a loan on terms acceptable to the 1^st respondent.

(8) After considering the applicants’ objections, the 1^st respondent remained of the view that it was in the best interest of the Estate for the Jordan Premises to be sold.

(9) Should the applicants take legal action to stop the sale of the Jordan Premises, the 1^st respondent would claim against the applicants costs and damages for loss resulting from such action.

17.Against this background, on 14 September 2016, the applicants issued and served the originating summons in these proceedings praying to, inter alia, set aside the 1^st respondent’s decision to sell, and restrain him from selling, the Jordan Premises.  A sealed copy of the originating summons was registered as a lis pendens against the Jordan Premises at the Land Registry (“Registration”) on the same day.

18.14 September 2016 coincidentally turned out to be the last date for the submission of tenders for the sale and purchase of the Jordan Premises and the date on which the 1^st respondent and KWO accepted an offer to buy and sell the Jordan Premises at a price of HK$170 million (“Sale”).

19.Despite the commencement of these proceedings, the beneficiaries were however not informed of the Sale.  It was not until 2 December 2016 that the applicants were first informed that the Jordan Premises had already been sold by a letter from Gallant, solicitors retained by the 1^st respondent and KWO for the sale of the Jordan Premises, to JH.  It is worthy of note that by then the contractual date for the completion of the Sale (i.e. 20 October 2016)[5] had already lapsed.  This letter also demanded the applicants to vacate the Registration as it was obstructing completion, failing an application would be made to the court. 

20.As JH was unable to identify any sale of the Jordan Premises from a search at the Land Registry,[6] by JH’s letter dated 15 December 2016 to Gallant, the applicants asked for a copy of the agreement for sale and purchase.  This was provided on 19 December 2016, on which date the 1^st respondent and KWO also made good their threat to apply to the court to vacate the Registration by issuing an originating summons against the applicants in HCMP 3514/2016 (“Lis Pendens Proceedings”).

21.On 3 January 2017, the applicants took out the summons for the Application.

22.By her solicitors’ letter dated 5 January 2017 to the court, Madam Tam indicated her neutrality toward the Application.

23.As for KWO:

(1) He initially opposed the Application on, inter alia, the basis that the injunction sought, though restraining just the 1^st respondent in terms, would have the practical and unfair effect of also preventing KWO from disposing of his half interest in the Jordan Premises.

(2) However, by PCW’s letter dated 25 April 2017, KWO advised the court that he does not intend to take any stance in respect of the Application and will abide by the court’s decision thereon.  The reason for this U-turn is that the fact that the 1^st respondent and KWO have on 16 March 2017 exercised their rights under Clause 24 of the relevant Conditions of Sale[7] to annul the Sale (“Annulment”).

24.This brings us to the Annulment.  The 1^st respondent did not see fit to inform the applicants and Madam Tam of the same until he issued a summon herein on 21 April 2017 for leave to file (and rely on) his 2^nd affirmation dated 20 April 2017 (“Leave Application”) which disclosed the Annulment and produced the related correspondence, from which it can also be seen that the purchaser did not accept the Annulment and returned Gallant’s cheque for the refund of the deposits (HK$17 million) right away on 16 March 2017.  The 1^st respondent and KWO did not respond until Gallant’s letter dated 13 April 2017, by which they stood by the Annulment and again tendered a refund of the deposits.

Leave Application

25.The applicants oppose the Leave Application.

(1) First, the 1^st respondent’s 2^ndaffirmation raises more questions than it answers, mostly notably with regard to the different reasons given by the 1^st respondent and KWO for the decision to annul the Sale.  It is submitted that the applicants wish, and should be given the opportunity, to get to the bottom of the matter if the 1^st respondent be allowed to rely on the Annulment.

(2) Second, the Annulment occurred on 16 March 2017.  The Leave Application was not made until 21 April 2017, less than a week before the hearing of the Application, which gave the applicants very little time to process and look into the matter.  It is unsupported by any affirmation explaining the time that the 1^st respondent took in disclosing the Annulment.

26.I can see and understand the applicants’ perspective.  Mr Ken To, counsel for the 1^st respondent, submits that his client had wanted to see how the matter played out before telling the court and the applicants about the Annulment.  I am not satisfied with such explanation.  The 1^st respondent and KWO appear to have made a firm decision to annul the Sale.  That the purchaser does not accept the Annulment seems to be neither here nor there as far as they are concerned.  Given the contention to which the 1^st respondent’s decision to sell the Jordan Premises and implementation of such decision has generated, one would have expected the 1^st respondent to keep the applicants informed of something as important as the Annulment right away without any delay.  Anyway, the only significant development after 16 March 2017 is the 1^st respondent and KWO’s affirmation of the Annulment on 13 April 2017. The considerable lapse of time was caused entirely by the 1^st respondent and KWO taking time to react to the purchaser’s response to the Annulment.

27.That said, the fact of the Annulment and the reason given therefor by the 1^st respondent are material to the discretion that I am exercising.

28.On balance, I give the 1^st respondent leave to use his 2^nd affirmation.  In so directing, I am consoled by the fact that the applicants are unlikely to be prejudiced by, for instance, not having answers to the gaps in the evidence that they have identified.

Application not rendered academic by Annulment

29.A core argument that Mr To seeks to advance with reference to the Annulment is that it has rendered the Application academic.

30.With respect, I disagree.

31.Although the Application was made after the applicants learnt of the Sale, it does not confine the challenge to the Sale but seeks to put the 1^st respondent’s decision to sell the Jordan Premises generally under scrutiny.

32.In this regard, according to the 1^st respondent, the primary reason for the Annulment was KWO’s refusal to complete the Sale “given the general well-being of the property market and the increase in property price in general” and expectation that a higher price could be fetched by re-tendering the Jordan Premises.[8]  The 1^st respondent has made it clear through counsel that he has every intention to put the Jordan Premises back on the market after the disposal of the Application.  For that purpose, he would continue to prosecute the Lis Pendens Proceedings.  For this reason, I also disagree with Mr To’s submission that the applicants are adequately protected by the Registration.

33.That being the case, the Application has plainly not become academic.

34.On this note, I turn to the 1^st respondent’s decision to sell and the Sale and the applicants’ grounds for opposing the same.

Reasons given for decision to sell Jordan Premises

35.In short, the 1^st respondent justifies the decision to sell the Jordan Premises with reference to the balance sheet of the Estate which, he says, shows little or no cash but the following debts and liabilities as at 28 February 2017:

Debts and Liabilities	Amount (HK$)
Monthly payments to Madam Tam under Clause 5(a) of the Codicil suspended since 3.2014	$1,280,000
Annual payments to KWO under Clause 5(b) of the Codicil suspended since 3.2014	$313,151
Amount due to Citiland Surveyor Limited	$18,000
Windsor Park House repairs	$451,600
Tax payable upon payment of mesne profits by KWO estimated to be HK$50 million at 16.5%	$8,500,000
1st respondent’s fees as executor	$1,760,050
1st respondent’s solicitors and counsel’s fees	$2,280,760

36.According to the 1^st respondent, he has considered all financing options but, in his own words and in the contexts of the payments to Madam Tam and KWO, he is inclined to “prefer financial arrangement that can secure the long-term and stable payment of these life interests to short-term (usually more costly) financing, which may cause potential interruption to the future payments based on their life interest”.[9]

Applicants’ grounds of challenge

37.The existence of a power of sale and a discretion to sell under the Codicil and the general law is not disputed.

38.The applicants are critical of the 1^st respondent’s exercise of such undisputed power and discretion because of the manner in which he came to the decision to sell, and the manner in which he went about selling, the Jordan Premises.

39.In support, the applicants point out that, in exercising such undisputed power and discretion as executor and trustee, the 1^st respondent is duty bound to, inter alia, act responsibly and in good faith; take relevant matters into account and ignore irrelevant matters; and exercise due care.  See Lewin on Trusts, 9^th edn, §§29-149; 29-150; 29-158; 29-180 and 37-034.

40.In the applicants’ opinion, the 1^st respondent’s decision to sell the Jordan Premises was flawed primarily because he has failed to take into account relevant considerations or exercise due care:

(1) He has exaggerated the magnitude and imminence of the debts and liabilities of the Estate.

(2) He has failed to collect and get in the assets and income of the Estate.

(3) He has failed to explore or give due consideration to other more appropriate alternative financing options.

(4) He has failed to appreciate that it is not necessary or reasonable to sell the Jordan Premises.

41.The applicants further take the view that the Sale (at HK$170 million) is substantially undervalued.  In support, they have commissioned an independent valuation report to the effect that as at 14 September 2016 and 18 April 2017, the Jordan Premises was worth HK$200,900,000 and HK$219,400,000 respectively.

Principles governing grant of interlocutory injunctions

42.The test for the grant of an interlocutory junction is well settled.  In deciding whether it is just or convenient to grant an interlocutory injunction, the court asks the following questions:

(1) whether there is a serious question to be tried;

(2) if so, whether, if the plaintiff were to succeed in obtaining a permanent injunction at trial, it could adequately be compensated by an award of damages in respect of any loss which it might suffer by reason of the defendant continuing to act unrestrained pending the trial;

(3) if not, whether the defendant would be adequately protected by the plaintiff’s cross-undertaking in damages should it be later found that the plaintiff should not have been granted an interlocutory injunction; and

(4) if there is doubt as to the adequacy of the respective remedies of damages, where the balance of convenience lies.

See American Cyanamid Co v Eithicon Ltd [1975] AC 396, per Lord Diplock at 407F-409D as explained by the Hong Kong Court of Appeal in Wah Nam Holdings Co Ltd v Excel Noble Development Ltd [2000] 3 HKC 118, per Ribeiro JA (as he then was) at [28]-[32].

Serious question to be tried

43.The requirement of “serious question to be tried” means that the claim must not be frivolous or vexatious: American Cyanamid Co v Eithicon Ltd at 407G-H.

44.The applicants have, in my assessment, plainly passed this threshold.

45.First, in light of the independent valuation evidence adduced by the applicants, I have no hesitation in holding that there is a serious question as to whether the Sale was at an undervalue.  In this regard, the tenor of the affirmation evidence filed by the 1^st respondent in opposition to the Application gives the impression that he has not obtained a valuation of the Jordan Premises before putting it on the market.  Mr To’s submissions in court suggest that the 1^st respondent has done so, though he did not think it was necessary to produce the same.  In any event, I have not seen any valuation of the Jordan Premises before the Sale (if any).

46.The fact that HK$170 million was the highest offer received in the tendering process administered by a firm of professional estate agents, without more, does not exonerate the 1^st respondent without trial.  Otherwise, every personal representative / trust exercising a power of sale would just have to retain professional estate agents to market an estate / trust asset and then see how the market reacts.

47.Second, I am of the view that the applicants have raised serious questions to be tried regarding the 1^st respondent’s decision to sell the Jordan Premises, especially his:

(1) view as to the magnitude and/or imminence of the Estate’s debts and liabilities (see paragraphs 48 to 52 below);

(2) passive approach towards the Estate’s resources and their collection (see paragraphs 53 to 59 below);

(3) assessment of what the Estate really needs (see paragraphs 60  and 61 below).

Estate’s debts and liabilities

48.I refer to the summary of the Estate’s debts and liabilities in paragraph 35 above, on which the following observations can be made.[10]

49.First, the sum of HK$313,151 that is said to have accrued in KWO’s favour under Clause 5(b) of the Codicil must be viewed against KWO’s considerable liabilities to the Estate, in particular, that under the Account Order.

50.Second, there is no evidence as to what items of repairs the sum of HK$451,600 relates to or that supports the urgency of such repairs.

51.Third, the tax provision of HK$8,500,000 for the mesne profits expected to be paid by KWO under the Account Order would obviously materialise only when the Estate actually receives such payment.  Indeed, Mr To confirms that there is presently an agreement/understanding to such effect between the 1^st respondent and the Inland Revenue Department.

52.Fourth, I have already mentioned the existence of issues concerning the costs of administration incurred by the 1^st respondent, including CWL’s fees and disbursements.  While it must be accepted that the 1^st respondent is entitled to engage solicitors given the multiple legal proceedings with which the Estate is involved, the applicants and Madam Tam’s objections to the 1^st respondent’s indiscriminate use of CWL’s services are not groundless.  The 1^st respondent is a professional accountant having experience in the administration of estates.  He was nominated by the applicants to be executor and trustee in place of KWO because of his professional qualifications and experience.  Yet, all correspondence produced in the course of the Application was conducted on his behalf by CWL.

Estate’s resources: passive approach to KWO’s debts and liabilities

53.Turning then to the resources that should have been available to the Estate, first, on any view, a substantial sum is payable by KWO to the Estate under the Account Order. According to the 2 joint expert reports dated 20 October 2016 commissioned by the Estate and KWO on the market rental of each of the Prince Edward Building and the Jordan Premises since 9 June 2003, even adopting the lowest assessed figures (thereby assuming that KWO would win every argument that he has raised in account taking exercise), the Estate would have been entitled to be paid HK$37,934,400 by KWO pursuant to the Account Order.  Indeed, as noted in paragraph 35 above, the 1^st respondent himself has estimated KWO’s liabilities under the Account Order to be in the region of HK$50,000,000.

54.In view of such evidence, there is force in the applicants’ submission that 1^st respondent could have invited KWO to make partial payment on a voluntary basis, failing which he could have applied for interim payment under Order 29 rule 12(a) either before, in the course or at the end of the taking of accounts hearing.

55.Further, according to the 2^nd Administration Report, following the making of the Account Order and pending the actual taking of accounts thereunder, KWO agreed to pay to the Estate provisional mesne profits at certain agreed rates from 10 March 2014.  However, KWO paid the agreed provisional mesne profits only up to 31 July 2014.  After 31 July 2014, KWO’s business has continued to occupy the Lower Ground Floor, Ground Floor, 1^st Floor, 2^nd Floor, 14^th Floor and Roof of the Prince Edward Building, for which the agreed provisional mesne profits is HK$94,287.50 per month.  By the end of July 2014, KWO’s business moved out of the Basement and Ground Floor of the Jordan Premises and, beginning from 1 August 2014, operated from the First Floor of the Jordan Premises, for which the agreed provisional mesne profits is HK$14,131 per month.  Despite the said agreement for the payment of provisional mesne profits, KWO has ceased making any such payment (HK$94,287.50 + HK$14,131 per month) since 1 August 2014.  The amount that was accrued up to 30 April 2015 add up to HK$2,603,254 as per the 2^nd Administration Report.

56.Further still, the Basement and Ground Floor of the Jordan Premises have since been let to a luxury watch retailer for a term of 3 years from 22 June 2015 to 21 June 2018 (with some rent-free period) at HK$500,000 per month exclusive of government rent and rates, management fee and other utilities charges and outgoings.  The Estate’s share is HK$250,000 per month, which should add up to HK$4,250,000 from December 2015 to April 2017.  Also, according to the 2^nd Administration Report, many of the floors in Prince Edward Building not occupied by KWO’s business are let out for rental income to which the Estate is, likewise, entitled to 50%. 

57.However, KWO collects all the rent under the said tenancies and has been withholding from the 1^st respondent the Estate’s shares, ostensibly to reimburse KWO for the Estate’s share of the costs of repairing and maintaining the Prince Edward Building and the Jordan Premises that KWO claims to have borne on behalf of the Estate and to make provision for the Estate’s share of such costs in the future.  In this regard, it appears from a jointly signed letter dated 29 September 2015 that the 1^st respondent has agreed with KWO to equally share certain costs of inspection and repairs of the Prince Edward Building in compliance with 2 statutory notices (agreed at HK$7,281,000); that the Estate should pay for its 50% share of the 30% deposit (HK$2,165,400, 50% of which is HK$1,082,700) by, inter alia, allowing a set-off against the Estate’s 50% share in the rent of the Basement and Ground floor of the Jordan Premises for December 2015 and January 2016 (totalling HK$500,000).

58.KWO has even gone to the length of issuing an originating summons on 8 March 2017 in HCMP 527/2017 against the 1^st respondent as executor of the Estate for accounts of 50% of all past and future expenses and outgoings of the Prince Edward Building and Jordan Premises.  It is worthy of note that KWO then asks for payment of all sums found to be due on the taking of such accounts which, on the present formulation of prayer paragraph 3, includes “utility charges, taxes & rates and building management expenses” that have not yet accrued.[11]

59.I have to say I am puzzled by the concessions extended, and the tolerance shown, by the 1^st respondent towards KWO. On any view, KWO’s potential liabilities under the Account Order (in tens of millions of dollars) would most probably far exceed whatever property expenses and outgoings that KWO has shouldered for the Estate.

Estate’s real need: a bridging loan

60.In any event, given the size of the Estate’s genuinely imminent debts and liabilities and the substantial mesne profits that the Estate could expect to receive from KWO in the near future, it is seriously arguable that what the Estate really needs is a relatively modest and short-term bridging loan, and not a sum of close to HK$100 million to be raised from the sale of the Jordan Premises.  On the evidence, the 1^st respondent dismissed various short-term financing options on account of costs without explaining how he weighed such costs (say $1 million on a loan of HK$10 million over a year as suggested by the applicants) against the loss of an asset generating income at a rate that appears to exceed the potential interest payments and having capital appreciation prospect.  On this, the 1^st respondent’s assertion of a vague general plan to re-invest the net proceeds of sale, without actually identifying any potential suitable investment(s) that he has considered, does not really advance his case.

61.For the sake of completeness, I have not lost sight of KWO’s bare assertion that he would be unable to satisfy the judgment under the Account Order though I am surprised by the 1^st respondent’s readiness to accept such claim, despite evidence to the contrary.  KWO is prima facie the owner of properties and businesses, against which a judgment of this court can be enforced.

1^st respondent’s reliance on the rule in Pitt v Holt

62.In defence of the Application, Mr To places reliance on the rule in Pitt v Holt [2013] AC 108 which absolves a trustee who acted on apparently competent professional advice on relevant matters even if the advice should turn out to be wrong.

63.This can be dealt with shortly.  The 1^st respondent has not disclosed any of the legal or other advice that he claims to have obtained in coming to the decision to sell the Jordan Premises or in effect the Sale.  I simply have no basis for gauging whether this rule could apply to render the applicants’ complaints about the 1^st respondent’s decision to sell the Jordan Premises not seriously triable.

Inadequacy of damages to the applicants

64.The sale of the Jordan Premises, once completed, cannot be reversed.

65.Apart from the potential undervalue, the Estate and, hence, the applicants as the only beneficiaries interested in the residuary estate including a half share in the Jordan Premises, may be exposed to loss and damage if the proceeds of sale in the hands of the 1^st respondent is applied in an equally profitable manner in terms of income production and capital growth.

66.Such damages may firstly be difficult and costly to assess.

67.Secondly, damages may be an illusory remedy if there is any doubt about the defendant’s ability to pay damages (Union (V-Tex) Shirt Factory Ltd (in liquidation) v Union V-Tex Realty Ltd [1985] 2 HKC 617 and Yeko Trading Ltd v Chow Sai Cheong Tony [2000] 2 HKC 612).  The 1^strespondent has not adduced any evidence as to his financial capability to pay substantial damages.

Adequate protection of Estate and 1^st respondent by applicants’ undertaking in damages

68.In the event of a decline in the property market, the Estate may perceivably sustain a loss by retaining the Jordan Premises.

69.In support of their undertaking as to damages, the applicants refer to their legacies under the Codicil and consider themselves well able to make good any loss to the Estate.

70.In answer, Mr To refers to and relies on the general principle that a residuary legatee has no right to any particular assets in the residuary gift.

71.With respect, the potential loss to the Estate in the event of the non-sale, or a delayed sale, of the Jordan Premises and its compensation must be analysed in a realistic manner.  One must not lose sight of the fact that subject to the relatively modest monthly / yearly payments to Madam Tam and KWO during their lifetime under Clauses 5(a) and (b) of the Codicil to be paid out of the Estate’s rental income and Madam Tam’s entitlement to 20% of the Windsor Park House, the applicants are entitled to all the remaining income and capital of the residuary Estate.

72.Taking a practical view, as pointed out by Mr Andrew Lynn for the applicants, the Estate’s loss of an opportunity to realise the Jordan Premises at a higher value would ultimately fall on the applicants themselves, and no one else.

73.I am simply unable to contemplate the 1^st respondent taking any legal action against the applicants to recover damages for the Estate for a loss to the Estate that is ultimately the applicants’ to bear.

Orders

74.For these reasons, I will grant an interlocutory injunction in terms of paragraph 1 of the draft order attached to the summons.

75.I also make an order nisi that the costs of the Application be the applicants’ costs in the cause with certificate for counsel.

Mr Andrew Lynn, instructed by Jun He Law Offices, for the 1^st & 2^nd applicants

Mr Ken To, instructed by Nixon Peabody CWL, for the 1^st respondent

Attendance of P.C. Woo & Co., for the 2^nd respondent, was excused

Attendance of Fan Wong & Tso, for the 3^rd respondent, was excused