Lam Mo Chu Susie v. Lam Sik Ying Victor, Administrator of the Estate of Lam Tim Alias Stan Lam Tim, Deceased and Others

HCA 1974/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1974 OF 2015

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D E C I S I O N

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APPLICATIONS

1.By a summons issued under Order 14 of the Rules of the High Court (Cap 4A) and Section 40 of the Probate and Administration Ordinance (Cap 10) dated 26 January 2017 (“the Judgment Summons”), the plaintiff seeks:-

(1) summary judgment against the 1^st defendant for, inter alia, the following relief:-

(a) the termination of the 1^st defendant’s appointment as administrator of the estate (“the Estate”) of Lam Tim (林添) alias Stan Lam Tim (“the Deceased”) pursuant to the Letters of Administration, Grant No HCAG000498/1999, dated 24 March 1999;

(b) the appointment of Mr Herbert Tsoi of Herbert Tsoi & Partners as new administrator of the Estate; and

(c) the 1^st defendant do render an account to the new administrator in respect of his dealings with the Estate and any assets therein;

(2) alternatively, Mr Herbert Tsoi be appointed to act as administrator pendete lite of the Estate pursuant to section 40 of the Probate and Administration Ordinance, Cap 10, until the determination of this action.

2.The Judgment Summons first came before this court on 31 March 2017 for a 30-minute hearing.  In view of the fact that the court was in the middle of hearing another trial on that date, the plaintiff’s former counsel (Mr Nelson Miu) was given the option of proceeding with the application limited to his submissions only or having the plaintiff’s summons adjourned to another date to be fixed for full arguments.  Mr Miu chose the former course.  Mr Miu further informed the court that the plaintiff would abandon her alternative application for the appointment of an administrator pendete lite.  Accordingly, the court heard Mr Miu’s submissions only on 31 March 2017.  The plaintiff’s part-heard summons came before the court again on 24 August 2017.

3.Prior to the resumed hearing, the plaintiff issued a summons on 8 August 2017 (“the Amendment Summons”) seeking to amend the Judgment Summons to apply for the following relief (instead of the relief mentioned in paragraph 1(1)(b) and (2) above):-

(1) the plaintiff be appointed to act as administrator of the Estate;

(2) alternatively, the plaintiff and Mr Ng Kin Yuen of Messrs Liu, Chan and Lam be appointed to act jointly as administrators pendete lite of the Estate until the determination of this action.

4.For reasons which I shall briefly explained below, Mr Richard Yip (for the plaintiff) informed the court at the hearing on 24 August 2017 that the plaintiff would not pursue the Amendment Summons, but would seek the appointment of Mr Ng King Yuen, instead of Mr Herbert Tsoi, as the new administrator.

5.On 21 August 2017, the 1^st defendant issued a summons seeking leave to file and serve his 2^nd affirmation dated 18 August 2017.

BACKGROUND FACTS

6.The parties to this action have been litigating against each other for a long time.  The background facts were set out in a judgment given by this court after trial on 3 October 2016 (“the Judgment”) in HCA 1605/2004 and HCA 894/2011 (“the Actions”), and will not be repeated here.  A brief outline of the parties’ disputes arising from the 1^st defendant’s sale of No 6 Sharp Street East, Hong Kong (“the Property”), an asset belonging to the Estate, to Advance Property Holding Limited (“APHL”), a company apparently owned or controlled by the 2^nd defendant, was given in an earlier decision of this court dated 18 July 2016 dismissing a previous application by the plaintiff for the appointment of an administrator pendete lite.

7.In her statement of claim filed herein on 28 August 2015, the plaintiff raised the following complaints against the 1^st defendant in support of her claim for the removal of the 1^st defendant as administrator of the Estate, namely:-

(1) his sale of the Property at an undervalue;

(2) his failure to render accounts;

(3) his claim of unjustified expenses against the Estate;

(4) his conflict of interest; and

(5) his residence outside the jurisdiction.

8.At the hearing on 31 March 2017, Mr Miu informed the court that, for the purpose of the Order 14 application, the primary ground of the plaintiff’s application was the 1^st defendant’s breach of fiduciary duties in relation to the sale of the Property.  Mr Miu submitted that ground alone was sufficient to justify the court removing the 1^st defendant as administrator of the Estate, and that the plaintiff would not rely on the allegations in respect of (i) his failure to render accounts, or (ii) his residence outside the jurisdiction in support of her application.  Mr Richard Yip, who appeared for the plaintiff at the hearing on 24 August 2017, confirmed that the plaintiff would abide by the above concessions made by Mr Miu, and also that the plaintiff would not proceed with the alternative application for the appointment of an administrator pendete lite.

9.In the Judgment, the court found that the 1^st defendant clearly acted in breach of fiduciary duties owed to the Estate in relation to the sale of the Property to APHL in the following aspects:-

(1) he failed to properly advertise the Property for sale;

(2) he failed to obtain any updated valuation of the Property from a professional valuer prior to entering into agreements for the sale of the Property to the 2^nd defendant or APHL;

(3) he insisted on including a 7-year non alienation condition in the sale of the Property, which would likely depress the value that he could obtain from selling the Property, whether to an outsider or to a beneficiary of the Estate;

(4) he sold the Property to the 2^nd defendant/APHL on terms which were unduly favourable to the purchaser;

(5) he sold the Property on advantageous terms to APHL because he was motivated by (i) a desire to favour Madam Wong’s branch of the Lam family (of which he is also a member), and (ii) his wish to recover the outstanding indebtedness which he considered the Estate to be owing to him;

(6) he sold the Property to APH at an undervalue; and

(7) other instances of breach of fiduciary duties in relation to the sale of the Property.

See paragraphs 133 to 140 of the Judgment.

10.At paragraph 152 of the Judgment, the court stated the following conclusion:-

“In all, I find that Victor acted in breach of the fiduciary duties that he owed to the Estate in relation to the sale of the Property to APH. In view of the consent judgments against APH, it is not necessary for me to find whether APH knowingly assisted Victor in his breach of fiduciary duties. Had it been necessary to do so, I would have no difficulty in finding ‘knowledge’ and ‘assistance’ on the part of APH.”

11.I have been given to understand that there is no appeal against the Judgment.

DISCUSSION

12.The principles for summary judgment are well established, and I do not propose to set them out here.

13.Section 33(3) of the Probate and Administration Ordinance (Cap 10), which empowers the court to remove an administrator, states as follows:-

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

14.In Chow Chak Kiu v Chow Man Chi and Others, HCMP 797/2016 (17 January 2017), at paragraphs 52 to 56, I set out the applicable principles for removal of an administrator under that section.  In particular:-

(1) When deciding whether to remove an administrator, the proper question to ask is whether the removal is necessary for the due and proper administration of the estate and whether it is in the interests of the beneficiaries for the administrator to be removed.

(2) It is not necessary to establish specific wrongdoing, misconduct or fault on the part of an administrator before he can be removed, although obviously wrongdoing, misconduct or fault would be relevant considerations (see Re Estate of Kwan Chung [2013] 6 HKC 29, at paragraph 15 per Poon J (as he then was); Cheng Tang Kam Yung v Tang Kam Cheung, HCMP 147/2008 (26 August 2013), at paragraph 62 per DHCJ Leung; Leung Wing Hong v Leung Yiu Cho, HCMP 1473/2014 (11 August 2016), at paragraph 64 per B Chu J).

(3) When deciding whether to exercise its power under Section 33(3) to remove an administrator, the court should also have regard to the size of the estate, the nature of the assets to be administered, and the background, education, training and experience of the remaining personal representatives (if any) (see Cheng Tang Kam Yung, at paragraph 22; Leung Wing Hong, at paragraph 134).

15.In the present case, in view of the court’s aforesaid findings in the Judgment, in particular those referred to in paragraph 9(4), (5) and (6) above, and bearing in mind that the Property represented the single most important asset of the Estate, the 1^st defendant’s breach of fiduciary duties is, in my view, very serious.

16.Currently, the Property is still held by the Estate.  It is a very valuable asset. According to the 1^st defendant, he received a written offer, accompanied by a valuation report prepared by S H Ng & Co valuing the Property at HK$200 million, dated 20 February 2017 for the purchase of the Property at the price of HK$250 million.  The 1^st defendant has pointed to various matters to cast doubt on this offer.  However, irrespective of the offer, having regard to the current rental payable by the tenant of the Property (at HK$215,000 per month), it cannot seriously be doubted that the open market value of the Property would be very substantial.  It is also clear that the Property ought to be sold, and the proceeds of sale thereof distributed to the beneficiaries, as soon as practicable bearing in mind that the Deceased passed away more than 34 years ago, and administration was first granted to the 1^st defendant (and his mother) more than 18 years ago.  It is, however, apparent from recent correspondence amongst the beneficiaries that they are still at loggerheads with each other, and have not been able to agree on matters such as renewal of tenancy or sale of the Property.  If the 1^st defendant should remain as administrator of the Estate, the likelihood is that the disputes amongst the beneficiaries will simply continue with no end in sight.

17.Further, there are on-going matters to be handled by the administrator on behalf of the Estate in relating to the Property, including (i) enforcement of the account against APHL for recovery of the rents and other income (if any) received by APHL from the Property as from 8 February 2007, less certain deductions, pursuant to the consent judgment dated 15 May 2015 made in the Actions, and (ii) the 1^st defendant’s claim for reimbursement of expenses allegedly incurred by him on behalf of the Estate which are disputed by the plaintiff.

(1) In relation to the account, I am given to understand that there are currently disputes with APHL as regards the scope or extent of the permissible deductions.  The parties are, however, unable to agree on who should take action to enforce the account against APHL.  The plaintiff considers that the 1^st defendant, being the administrator of the Estate, ought to take action, whereas the 1^st defendant considers that the plaintiff, being the successful claimant in HCA 894/2011, has the carriage of the proceedings and ought to apply to the court for directions in that action to enforce the account against APHL.

(2) In relation to the 1^st defendant’s claim for reimbursement of expenses, it seems to me to be clear that the alleged expenses have to be properly vetted, and the vetting ought to be carried out by an independent administrator.  Any unresolved disputes will eventually have to be determined by the court.

18.In all circumstances, I consider it to be clear that the removal of the 1^st defendant as administrator of the Estate is necessary for the due and proper administration of the Estate, and in the interests of the beneficiaries of the Estate, and that an independent administrator ought to be appointed to wind up the affairs of the Estate as soon as practicable.

19.On behalf of the 1^st defendant, Ms Alice Mok SC has raised a number of points to resist the plaintiff’s application for removal of her client as administrator of the Estate.

20.First, Ms Mok argues that there is no risk of dissipation of assets belonging to the Estate, and no risk of loss or damage to the Estate should the 1^st defendant be permitted to continue to act as administrator of the Estate.  I accept that there does not appear to be any immediate risk of (i) dissipation of assets, or (ii) loss or damage to the Estate, should the 1^st defendant’s appointment as administrator of the Estate be permitted to continue.  However, although the existence of a risk of dissipation, or loss or damage, would be a good reason to remove an administrator, the absence of such risk does not mean that the administrator would necessarily be permitted to continue to act as such.  In other words, the existence of a risk of dissipation, or loss or damage, is not a condition precedent for the removal of an administrator.

21.Second, Ms Mok submits, by reference to paragraphs 9 to 15 of the plaintiff’s 2^nd affirmation, that “it would appear that she is relying solely on the ground of D1’s failure to take immediate action against APHL to give proper account in respect of the undervalue sale to support her Order 14 Summons”.  However, my reading of paragraph 15 of the plaintiff’s 2^nd affirmation is that she also relies on the 1^st defendant’s breach of fiduciary duties in relation to the sale of the Property to APHL, referred to in paragraph 8 thereof, as one of the matters in support of her Order 14 application.  Further, as earlier mentioned, Mr Miu made it clear at the hearing on 31 March 2017 that was the primary ground of the application. 

22.Third, Ms Mok argues that the plaintiff has not, in her affirmation filed in support of the Order 14 application, verified the facts and basis for the various breaches as pleaded in paragraphs 8 to 47 of the Statement of Claim, nor has she affirmed to the fact that it is her belief that there is no defence to the said breaches, as required by Order 14 rule 2(1) of the Rules of the High Court.

23.In her affirmation filed on 26 January 2017 in support of the Order 14 application, the plaintiff referred to the Judgment which established the 1^st defendant’s breach of fiduciary duties in relation to the sale of the Property to APHL (paragraph 8), and stated that she believed that the 1^st defendant had no defence to the action (paragraph 15).  It seems to me that there has been sufficient compliance with the formal requirements for a summary judgment application under Order 14 rule 2(1) of the Rules of the High Court.  In any event, if the plaintiff has failed to comply with the formal requirements under the rule, such failure would be an irregularity only.  Since I do not consider the 1^st defendant to have suffered any prejudice of substance as a result of such failure, I would have no hesitation in waiving the non-compliance under Order 2 rule 1 the Rules of the High Court and/or granting the plaintiff leave to file a further affirmation to address the formal deficiency.

24.Fourth, Ms Mok reminds the court that it must be very “cautious and sparing” in the exercise of its powers to remove an administrator, and that “not every mistake, neglect of duty or inaccuracy of conduct will cause a removal of the representative”.  I accept these to be relevant and applicable principles. However, in view of the matters mentioned in paragraph 15 to 17 above, I consider the removal of the 1^st defendant as administrator of the Estate to be clearly justified.

25.Lastly, the 1^st defendant says that he has incurred substantial expenses on behalf of the Estate in the course of his administration and he wishes to claim what is due to him by the Estate (by way of set off against rentals received by him on behalf of the Estate).  I am by no means satisfied that all the amounts claimed by the 1^st defendant can properly be justified.  I do not, however, have to determine this matter, because it can, and should, be dealt with in the course of the account which the 1^st defendant shall render in relation to his administration of the Estate.

26.In all, I am of the clear view that the 1^st defendant has no arguable defence to the plaintiff’s claim for his removal as administrator of the Estate.  Taking into account the 1^st defendant’s serious breach of fiduciary duties owed to the Estate (in respect of which there can be dispute in view of the fact that he has not appealed against the Judgment) and the circumstances referred to in paragraphs 16 and 17 above, I believe the removal of the 1^st defendant is clearly necessary for the due and proper administration of the Estate, and in the interests of the beneficiaries of the Estate.  No useful purpose would be served by granting the 1^st defendant leave to defend, which would merely delay the completion of the administration of the Estate, which I consider to be long overdue.

CHOICE OF ADMINISTRATOR

27.Originally, the plaintiff put forward Mr Herbert Tsoi as the new administrator of the Estate.  Mr Tsoi is a well-known probate practitioner who would be qualified to act as the administrator of the Estate.  By the Amendment Summons, the plaintiff put herself forward instead, apparently because she is concerned about the potential costs of Mr Tsoi’s appointment.  At the hearing on 24 August 2017, I pointed out to Mr Yip that I had certain reservations about appointing the plaintiff as the new administrator.  I do not propose to go into the details of my reservations in view of the plaintiff’s decision to withdraw the Amendment Summons.  As earlier mentioned, the plaintiff now puts forward Mr Ng Kin Yuen of Messrs Liu, Chan and Lam as the proposed new administrator.  Mr Ng has confirmed that he is prepared to act, and has agreed to cap his fees to 1% of the gross value of all the properties which form the Estate to be administered by him, exclusive of disbursements actually incurred.  Ms Mok accepts that Mr Ng is an experienced probate practitioner, and has not suggested that he is not suitable to be appointed in the present case.  Notwithstanding the potential costs of a professional administrator, I consider that the new administrator ought to be an independent third party unrelated to the Lam family.  Mr Ng seems to me to be an appropriate candidate.

DISPOSITION

28.I grant leave to the plaintiff to withdraw the Amendment Summons.  The plaintiff shall pay the 1^st defendant’s costs of and occasioned by the Amendment Summons, to be taxed if not agreed with certificate for one counsel.

29.I grant leave to the 1^st defendant to file and serve his 2^nd affirmation under his summons dated 21 August 2017.

30.I make an order in terms of paragraphs 1, 2, 3, 4, 6 and 7 of the Judgment Summons, save that (i) Mr Ng Kin Yuen instead of Mr Herbert Tsoi shall be appointed as new administrator of the Estate, and (ii) Mr Ng’s fees shall be subject to Section 60 of the Probate and Administration Ordinance. 

31.I make an order nisi that (i) the costs of the 1^st defendant’s summons dated 21 August 2017 shall be treated as forming part of the costs of the Judgment Summons, and (ii) 70% of the plaintiff’s costs of and occasioned by the Judgment Summons shall be paid by the 1^st defendant, to be taxed if not agreed with certificate for counsel.  The reduction is on account of the plaintiff’s abandonment of the application for the appointment of administrator pendent lite.  The plaintiff’s own costs during the period when she was legally aided shall be taxed in accordance with legal aid regulations.

32.Lastly, I give the parties liberty to apply for further directions, if necessary.

Mr Nelson Miu, instructed by Hobson & Ma, assigned by Director of Legal Aid (on 31 March 2017), and Mr Richard Yip, instructed by J Chan & Lai (on 24 August 2017), for the plaintiff

Mr Kenneth CL Chan and Ms Annie Lai (on 31 March 2017), and Ms Alice Mok SC and Ms Annie Lai (on 24 August 2017), instructed by Fan Wong & Tso, for the 1^st defendant

The 2^nd defendant acting in person and absent

The 3^rd defendant acting in person and present