Mai Cuiting v. Mak Chui Fong and Another

HCMP 2619/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2619 OF 2016

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BETWEEN

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D E C I S I O N
(On Costs)

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Introduction

1.In this action, one of the beneficiaries seeks an inventory and a full and proper account of the estate of her deceased father from the administrators.

2.The account was duly ordered by this Court and the matter of costs was reserved, to be dealt with on paper.  Leave was given to the administrators to file an affirmation to explain why they should not be personally liable for costs on an indemnity basis.

Background

3.The beneficiary is a minor born in 1999 (“P”), and the originating summons herein was taken out by her next friend and mother on her behalf.  By now she is 18 years of age.  She is the natural daughter of Mr Mak Peng Hoon who died intestate at the age of 69 in Hong Kong in November 2007 (“Deceased”).  The Deceased had 6 other older children out of his marriage with Madam Lee Yuen Han, and Ds are two of them.  P was born out of the cohabitation of the Deceased and Madam Zhou Ling Fang.  The 7 children are the only beneficiaries of the Deceased’s estate (“Estate”).

4.Ds are the oldest of the children by Madam Lee. Mak Chee Wah is a son and now aged about 51, and Mak Chui Fong (“MCF”), a daughter, now aged about 46.  Throughout these proceedings, MCF had filed affirmations on behalf of both Ds. 

5.The Deceased had left various assets including cash at bank, shares, items in a safe deposit box held at the Hang Seng Bank and two landed properties in Hong Kong, namely a shop on the ground floor and the basement of a building called Kam Men Mansion in Tuen Mun.  An inspection of the safe deposit box was arranged in August 2008 which took place in the presence of representatives of the Home Affairs Department, MCF, and a clerk of a solicitors’ firm representing MCF.  A list of articles and documents inside the safe deposit box were drawn up (“Inspection List”).

6.P and Madam Zhou reside and resided at all material times in an apartment in Foshan City in Guangdong Province in Mainland China (“PRC Property”), held in the Deceased’s sole name.

7.In 2011, P and Madam Zhou made an application in the Family Court against the Estate (FCMP 184/2011) for financial provision under the Inheritance (Provision for Family and Dependants) Ordinance, Cap 481 (“FCMP Action”).  This had resulted in 4 orders made by Judge Bruno Chan, among which, the 3^rd order made on 31 July 2013 provided among other things that the Estate was to pay interim maintenance for P at HK$2,500 per month until P’s receipt of 1/7 of the Deceased’s cash at bank, or “Cash of the Estate” as defined in that order (“31.07.13 Order”).  It was also under the 31.07.13 Order that Ds had undertaken to apply for letters of administration of the Estate as soon as practicable.

8.Ds eventually obtained letters of administration of the Estate on 15 May 2014 (“Letters of Administration”), about 7 years after the Deceased’s death, which had a schedule of assets and liabilities dated 22 June 2012 attached (“2012 Schedule”).

9.On 2 July 2014, D’s then solicitors had sent to P’s then solicitors a copy of the Inspection List.  On 4 July 2014, P’s solicitors replied (“04.07.14 Letter”), enquiring about the progress of the administration, and pointing out there were discrepancies on the Inspection List and in the 2012 Schedule in relation to 8 items therein (“Discrepanies”).

10.The 8 items included an assignment in relation to a unit in Kwai Chung held in the Deceased’s name and the other 7 items were various shares, coins, some cash and foreign banknotes, which were not disclosed in the 2012 Schedule.

11.There was no reply by Ds’ solicitors in response to the 04.07.14 Letter.  There was no further correspondences in relation to the administration of the Estate thereafter.

12.In the meantime, the FCMP Action was settled by a further order made by Judge Bruno Chan on 2 December 2014 (“02.12.14 Order”) under which there were various undertakings.  In gist, Ds had undertaken to:

(i) Pay to P from the cash at bank of the Estate a lump sum of HK$800,000;

(ii) To annually administer and distribute equally all cash proceeds of the Estate, if any, to each beneficiary;

(iii) To continue to allow P and Madam Zhou to reside in the PRC Property until 1 February 2015.

13.In so far as the administration of the Estate was concerned, nearly a year went by after the 04.07.14 Letter before P’s present solicitors wrote again on 30 May 2016 (“30.05.16 Letter”) to pursue the matter.

14.They then received a reply in June 2016 marked “without prejudice” from Ds’ solicitors that Ds were preparing the estate account and collecting information to clarify the Discrepancies.  P was not satisfied with this holding reply and wrote again and imposed a deadline for a substantive reply from Ds by end of June 2016.  Ds’ solicitors sought time until end of July 2016 indicating that Ds would file a corrective affirmation in relation to the Discrepancies.

15.There was however no indication as to the contents of the corrective affirmation or when Ds would send to P the estate account.

16.There was no further progress and the present proceedings were then issued on 30 September 2016 under Order 85 of the Rules of the High Court and Section 56 of the Probate and Administration Ordinance, Cap 10 (“Ordinance”).

17.The First Appointment was fixed on 21 December 2016 (“Hearing”).  Counsel Ms Alison Kao appeared for P, and MCF appeared in person on behalf of Ds at the Hearing.  P sought a summary judgement for the relief sought in respect of the estate account.

18.After MCF was explained Ms Kao’s submissions, MCF responded by saying she could produce an account immediately on paper. It was quite clear to this court that MCF did not appear to understand what the estate account should consist of.  The court then explained to MCF that the account should be drawn up properly with supporting documents and further suggested to MCF that she should seek independent legal advice and accountant’s advice on the preparation of the account.   

19.The proposed terms of the draft order sought by P were explained to MCF, and there being no opposition by MCF to preparing and submitting the estate account, an order was made, among other things, allowing her 3 months to submit proper estate account.

20.In Ms Kao’s skeleton submissions lodged for the Hearing, she had sought costs on behalf of P to be paid by Ds personally on indemnity basis.  This court reserved the matter, and gave directions on the filing of further affirmations on costs.

21.Thereafter, Ds instructed her present solicitors to represent them, and pursuant to this court’s directions made at the Hearing, on 21 March 2017, MCF filed an affirmation to explain her position, in which she appeared to have included an account of the Estate.  P filed a reply affirmation thereafter.  P has reserved her position on the account disclosed by Ds.

22.Counsel Mr Edward MH Chan lodged submissions on costs on Ds’ behalf on 30 June 2017, some 6 months after the Hearing, but the same were not served on P’s solicitors/Counsel.  Eventually, Ms Kao’s reply submissions were lodged on 21 July 2017.

The parties’ respective positions on costs

23.As mentioned earlier, Ms Kao had sought on behalf of P that costs of this hearing should be paid by Ds personally on a full indemnity basis.  She had referred this court to the case of Re Estate of Lee Da Kor [2010] 1 HKLRD 415, where the executors, who had defaulted in discharging their duties as executors, were ordered to bear the costs of the proceedings personally. 

24.P’s grounds were:

(i) Ds had failed to render any account of the Estate despite P’s repeated requests ;

(ii) Ds had failed to clarify and explain the Discrepancies ;

(iii) Ds had been dilatory in distributing the Estate to P since the 31.07.13 Order.

25.Ms Kao submitted that Ds’ defaults in the present proceedings were more serious than that of the defendants in Lee Da Kor, in particular, since the death of the Deceased 9 years ago and since the obtaining of the Letters of Administration 2.5 years ago, apart from supplying P with the 2012 Schedule which was inaccurate and the Inspection List, Ds had done nothing in discharging their duties as administrators.  Ds further ignored P’s request for the account since July 2014, and there was serious and intended delay of Ds which led to the present proceedings.

26.On the other hand, it was submitted on behalf of Ds that the proper costs order should be both parties’ costs be borne by the Estate.  Ds’ reasons are:

(i) P had received a sum of HK$800,000 from the Estate, pending distribution of the Estate, pursuant to the 02.12.14 Order, and thus including the interim maintenance and other payments, P had received about HK$2m since the death of the Deceased;

(ii) The Discrepancies only came to light after Ds’ former solicitors sent to P’s then solicitors the Inspection List on 2 July 2014.  The mistake was obvious and that MCF’s explanation in her affirmation was that Ds had entrusted the preparation of the probate documents to her lawyers and that MCF was not aware of the mistake;

(iii) There was a gap of some two years after the 4 July 2014 Letter, and the parties had both changed their respective solicitors and P was more to blame than Ds for the inaction when it was up to P to pursue the matter, and yet P did not send a reminder.  Further, when the 30.05.16 Letter was sent by P’s present solicitors, Ds’ then solicitors had replied to seek a further extension to file a corrective affirmation;

(iv) MCF had explained that there was a common understanding that P had to move out of the PRC Property before the Estate can be finalized, as seen in the 02.12.14 Order, and P had not complied with the 02.12.14 Order;

(v) There was no delay, as it was only in July 2013 that the application for probate was proceeded with.  The FCMP 184/2011 action and other duties of Ds had taken up considerable time and resources, as could be seen, under the 02.12.14 Order, HK$1.3m was set aside to reimburse Ds of expenses incurred by the Deceased and/or by the Estate.

Discussion

27.In MCF’s affirmation she had set out the payments she made to P and Madam Zhou pursuant to the 4 orders in the FCMP Action, amounting to some HK$2m.

28.However, it appeared that P and Madam Zhou had to commence the FCMP Action in order to obtain payments.  The 31.07.13 Order was reached by consent and there was an undertaking by Ds to distribute 1/7 of the cash at the bank to P within 30 days after the grant of the Letters of Administration.  However, notwithstanding Ds obtained the Letters of Administration in May 2014, the matter was not settled until Madam Zhou applied for a garnishee order nisi which later resulted in the 02.12.14 Order.

29.There had been no further distribution of the Estate, other than in accordance with the 02.12.14 Order.

30.Mr Chan submitted on behalf of Ds that it was only in July 2013 that the application for letters for administration was proceeded with, and that before that each of the children had the right to apply.  Although this is legally correct, however P was a minor at that time, and there was no evidence that Madam Lee’s 6 children would have agreed to P applying. 

31.In any event, the evidence indicated in fact much earlier Ds had already taken it upon themselves to take step to apply. MCF had instructed solicitors and arranged for the opening of the Deceased’s safe deposit box as early as August 2008 and to have the Inspection List drawn up at that time.  Ds had defended the FCMP Action as personal representatives of the Estate.  They had entered into a tenancy agreement with Watson’s on 18 July 2012 and on 22 October 2015, each for a period of 3 years, in respect of the shop space and in fact it appeared that they had been receiving rent from Watson’s since January 2012.  Further, the 2012 Schedule was signed in June 2012 by Ds and their affirmation for application for letters of administration and the 2012 Schedule were also signed in June 2012, although for some reason there was a delay and that their application was only filed with the Probate Registry on about 23 July 2013.

32.The above evidence indicated that Ds were planning to apply for letters of administration not long after the Deceased’s death and for some reasons, it took them over 5 years to formally lodge their application.  In fact, as mentioned earlier, Ds had to give an undertaking to apply for letters of administration of the Estate as soon as practicable under the 31.07.13 Order in the FCMP Action.

33.There was no reasonable explanation as to the Ds’ delay in applying.  Even assuming they were busy dealing with the FCMP Action between 2011 and 2014, after being granted the Letters of Administration in May 2014, it was not clear what they had done, apart from settling the FCMP Action in December 2014 and making payments to P and Madam Zhou, and one distribution of HK$800,000 to the other 6 beneficiaries.

34.Mr Chan submitted that the FCMP Action and “other duties” of Ds had taken up considerable time and resources.  There was no evidence as to what “other duties” Ds were involved in.  There had been no affirmation evidence from the other administrator at all.  As for the FCMP Action, it was Ds’ case that they had been co-operative, and the orders were made by consent.  However, if indeed they were co-operative from the beginning then the FCMP Action would not have taken up too much of their time, nor would it take over 3 years to conclude.

35.MCF had tried to explain that Ds were not aware of the 04.07.14 Letter sent by P’s previous solicitors.  They seemed to blame their own former solicitors.  There was no reason why Ds’ former solicitors would not have sought instructions from them or advised them upon receipt of the 04.07.14 Letter from P’s then solicitors.  In fact, there was further no evidence that after learning about the 04.07.14 Letter, Ds had written to their former solicitors to complain or to request for an explanation why the 04.07.14 Letter was not sent to them or otherwise brought to their attention at the time in July 2014, or why they were not advised to prepare the estate account or to deal with the Discrepancies.

36.Ds also blamed P.  Mr Chan submitted on their behalf that “the Plaintiff was more to blame than the Defendants for the inaction when it was up to the Plaintiff to pursue the matter.”[1].  Such submission was in my view totally misconceived.

37.It is not P’s duty to pursue Ds.  On the contrary, Ds being administrators are under a duty under section 62 of the Ordinance to administer the Estate, and further under section 56, when lawfully required to do so, exhibit by affidavit filed in the court a true and perfect inventory and account of the movable and immovable property of the Deceased, and the court shall have power as heretofore to require personal representatives to bring in inventories.  It is trite that the duty on the administrators is an onerous one.

38.In fact, even after P sent the 30.05.16 Letter, Ds continued to ignore her request for rendering of estate account.  In my view, simply instructing their solicitors to reply that Ds were collecting information to render the estate account and “clarifying” the Discrepancies was again further delaying or stalling the matter.  It was not quite clear what clarification Ds or MCF needed, as MCF was the one who had attended the inspection in 2008 and was present when the Inspection List was drawn up.   

39.As pointed out by Ms Kao, under section 24A (8) of the Ordinance, the duty was on Ds to file a corrective affirmation and a duplicate of the additional schedule.  Further, in Lee Da Kor, Poon J, as he then was, had held that an executor had “a duty to keep clear and accurate accounts, and to be always ready to render such accounts when called upon to do so”[2].

40.The corrective affirmation was eventually only filed by Ds sometime in November 2016, some 1 ½ months after P issued the present action.  P complained that there was still an error in the corrective affirmation. Up to the Hearing, there had been no estate account rendered by Ds to P.

41.Ds seemed to further blame P for failing to vacate the PRC Property as agreed.  It was Ds’ case that there was an undertaking between the parties that any distribution of the Estate would be after P’s vacating the PRC Property.

42.However, as pointed out by P, there was no provision or undertaking or any record indicating that there was an agreement that P had to move out of the PRC Property first before there would be distribution.

43.The PRC Property was not included in the 2012 Schedule, and it was not part of the Hong Kong Estate of the Deceased.  There was no reason why the administration of the Hong Kong Estate cannot proceed.

44.In any event, Ds did not seem to have taken step in Mainland China to apply for administration of the PRC Property, which has continued to remain in the name of the Deceased.  There was no information from Ds on this.  There had been no valuation of the PRC Property produced by Ds, whether at date of Deceased’s death, or the present.

45.In fact, it appeared from MCF’s affirmation that the other of the landed properties in the 2012 Schedule, namely the basement, had been left vacant since 2008, namely for some 9 years.  There had been no explanation by Ds for this, nor had there been any valuation of its rental income.  So far, as seen in the land search provided by MCF, Ds did not seem to have registered any assent of the Letters of Administration of the shop space or of the basement.  There seems also to have been no any proper valuation of the two properties at date of Deceased’s death, or at the present.

46.It further appears from KCF’s affirmation that the shares in the Estate continued to be held in the Deceased’s name.  MCF had said that Ds had not dealt with the shares except BOCHK.  Again, there was no valuation of the shares at date of Deceased’s death, or the present.

47.It is clear that P had no alternative but to issue the present action in order to obtain the estate account/inventory. There was no indication that Ds agreed to provide estate account prior to the issue of the originating summons.   

48.In fact, even what MCF had said in her affirmation did not seem to be complete account.  An estate account should indicate at least the “opening position”, namely the capital value and income position of the Estate at the time of the Deceased’s death, and the present position, namely the capital value and income position at present.  Also, as pointed out by P, there had been no supporting documents of the amount of HK$1.3m which, as seen in the 02.12.14 Order, P had agreed to Ds deducting from the cash at bank of the Estate, which was said to be for “expenses so far incurred by the Deceased and/or by the Estate”.

49.If Ds take the view that P and Madam Zhou are not entitled to continue to reside in the PRC Property, then Ds, as administrators should take proper action to administer this property.  In any event, the fact that this property had not been administered does not mean the administration of the Hong Kong assets of the Estate has to come to a standstill.

50.So far, there appeared also to have been no steps taken by Ds to sell the two landed properties of the Estate.  Under s 62 (1) of the Ordinance, it was Ds’ duty to sell the same.  It is not clear why such sale was postponed or whether all the 7 beneficiaries had agreed to a postponement of the sale. 

51.Mr Chan had referred the court to Re Estate of Choi Kim Kwong, HCMP 1997/2014, unrep judgment 27.05.15, where a beneficiary applied under section 56 of the Ordinance for an account.  However, it was quite clear in that case L Chan J was of the view that the plaintiff who sought an enquiry was casting the net too wide in applying for discovery, and in the end made no order as to costs between the plaintiff and the defendant and that the defendant be allowed to recoup from the deceased’s estate 50% of his own costs on a trustee basis.

52.In the present case, P only sought an estate account of which Ds had a duty to provide.  As pointed out by Mr Chan, she did not seek a removal of Ds.  However, in my view, this does not mean that Ds could simply ignore preparation of the estate account.  Ds should have responded to the 30.05.16 Letter from P’s solicitors by indicating a time frame as to when Ds would provide the estate account to P.  There was no such indication.  Ds then seemed to change solicitors yet again.  Up to the Hearing, there was no evidence that Ds had taken step to prepare estate account by that time.

Conclusion

53.P succeeded with her application and she should be entitled to costs.  If her costs and Ds’ costs are ordered to be paid out of the Estate this means P would have to bear 1/7 of not only her own costs but also 1/7 of Ds’ costs.  I do not see why P should have to bear any part of her own costs or Ds’ costs. 

54.In any event, having considered all the circumstances in the present case, I have come to the view that Ds had defaulted in discharging their duties as administrators, and should be personally liable for the costs of P’s successful claim against them, on indemnity basis.  Ds should also be deprived of their own costs to be paid out of the Estate.

Ms Alison L Y Kao, instructed by K Y Woo & Co, for the plaintiff

Ms Mak Chui Fong appeared in person on 21 December 2016

Mr Mak Chee Wah was not represented and did not appear on 21 December 2016

Mr Edward MH Chan, instructed by Eric Lai Jason Cheung & Co, for the defendants