Lau Koon Ying Matthew, As the Executor of the Estate of Lau Yiu Wing, Deceased (“The Deceased”) v. Lau Tark Wing and Another

Read the full judgment text of HCAP 23/2013 on BabelCite. This High Court CFI judgment was delivered on 21 August 2020.

1. Before the Court are appeals out of time by the defendants in three actions against a decision made by Master J Wong (“ Master ”) on the taking of accounts.  Included in the notices of appeal are applications for extension of time to appeal.

Cited by 1 case · Cites 6 cases

Case No.HCAP 23/2013[2020] HKCFI 2107
Court
High Court CFI
Date21 Aug 2020
Judge
Case Document
100%Judiciary

HCAP 23/2013
HCA 2305/2012
HCA 2306/2012

[2020] HKCFI 2107

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO 23 OF 2013

____________

 

IN THE ESTATE of LAU HIN CHI, deceased

____________

BETWEEN

LAU KOON YING MATTHEW, as the Executor of the estate of LAU YIU WING, deceased (“the Deceased”) Plaintiff
and
LAU TARK WING 1st Defendant
LAU TARK WING, the executor of the estate of TANG MEI HO, deceased 2nd Defendant

____________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2305 OF 2012

____________

BETWEEN

LAU KOON YING MATTHEW, as the executor of the estate of LAU YIU WING, deceased (“the Deceased”) Plaintiff
and
LAU TARK WING 1st Defendant
WING HING RESOURCES LIMITED 2nd Defendant

____________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2306 OF 2012

____________

BETWEEN

LAU KOON YING MATTHEW Plaintiff
and
LAU TARK WING 1st Defendant
CABA RESOURCES LIMITED 2nd Defendant
WING HING RESOURCES LIMITED 3rd Defendant

(Consolidated by Order of Master K Lo dated the 9th September 2013)

(De-consolidated by Order of Registrar K W Lung dated the 24th day of February 2016)

________________

(Heard together)

Before: Hon B Chu J in Court

Date of Hearing: 8 July 2020

Date of Judgment: 21 August 2020

_________________

J U D G M E N T

_________________

Introduction

1.Before the Court are appeals out of time by the defendants in three actions against a decision made by Master J Wong (“Master”) on the taking of accounts.  Included in the notices of appeal are applications for extension of time to appeal.

2.The three actions (respectively “Probate Action”, “2305 Action” and “2306 Action”) concern the estate of Mr Lau Hin Chi, deceased (“Grandfather”), and the estate of Mr Lau Yiu Wing, deceased (“Father”).  The  three actions (collectively “3 Actions”) were tried together in June 2017 before Chow J who handed down a judgment on 25 September 2017 (“Chow Judgment”)[1].  In the present judgment, this Court will adopt those abbreviations in the Chow Judgment, unless otherwise indicated herein.

3.As seen in the Chow Judgment, the main protagonists in the 3 Actions are Matthew and his uncle Tark Wing. Matthew sues in his capacity as executor of Father’s estate in the Probate Action and the 2305 Action and he sues in his personal capacity in the 2306 Action.  For easy reference, he will be referred to as “P” in this judgment.  Tark Wing is sued in both his personal capacity and as executor of Grandmother’s estate in the Probate Action, and he is also a defendant in his personal capacity in both the 2305 Action and the 2306 Action.  Wing Hing and Caba are two companies controlled by Tark Wing (collectively “Companies”).  Wing Hing is a defendant in the 2305 Action, and both the Companies are defendants in the 2306 Action.  For easy reference, Tark Wing and/or the Companies will be collectively referred to as “Ds” in this judgment.

4.In relation to the Probate Action, Chow J gave judgment for P’s claim in respect of Father’s share of the proceeds of sale of Lot 2785 and Lot 3825 but rejected the rest of P’s claims.  In relation to the 2305 Action and the 2306 Action, Chow J accepted P’s claim in respect of the rental proceeds generated from Lot 3763C, Lot 3763D and ½ share of Lot 3763 (RP).  Chow J ordered, amongst other things, that :

(1) An account be taken of the Father’s share of the proceeds of sale of Lot 2785 and Lot 3825 received by Ds (“Sale Proceeds”);

(2) An account be taken of the rental proceeds received by Ds in respect of Lot 3763C, Lot 3763D and ½ share of Lot 2763 (RP) (“Rental Proceeds”);

(3) The questions of (i) the appropriate period and rate of interest and (ii) what (if any) credit should be given for the construction costs of 4 houses (“Construction Costs”), which were built respectively on Lot 3763C (“House C”), Lot 3763D (“House D”), Lot 3763 RP (“House RP”) and Lot 884 (“House 884”) be dealt with in the taking of the accounts.

5.The summonses in the 3 Actions for the taking of the accounts were issued by P on 20 December 2017 before the Master.

6.There was a hearing for directions on 16 January 2018 before the Master.  According to the Master’s notes/record, the Master had asked the parties to consider how the taking of account was to be pursued, whether by way of affidavit evidence, examination of witnesses (deponents of affidavits) and/or submissions, and whether expert evidence was needed. The Master ultimately directed, amongst other things, that:

(1) Ds were to file within 42 days an account of the Sale Proceeds, namely HKD 1,084,617 received on or about 21 September 1992, with all vouchers receipts documents and statements (“Supporting Documents”), verified by affidavit identifying its whereabouts in whole or in part at all material times since receipt, the income and profits made therefrom, the properties or assets acquired therefrom and such interests accumulated and received;

(2) Ds were to file within 42 days lodge file and serve an account of the Rental Proceeds received by them on behalf of P and Father, with such account made with reference to the Schedule in the 1st affirmation filed by P’s solicitor, with all the Supporting Documents and identifying the  whereabouts in whole or in part of the Rental Proceeds at all material times since receipt, the income and profits made therefrom, the properties or assets acquired therefrom and such interests accumulated and received;

(3) D were to file an affirmation within 42 days in response to P’s solicitor’s 1st affirmation setting out in particular their position in relation to the questions of interests and what (if any) credit should be given for the Construction Costs;

(4) Within 42 days, P was to (a) upon receipt of the accounts, set out his list of objections if any or notices of surcharge and falsification if any, and (b) upon receipt of Ds’ affirmation in response under (3) above, to file and serve an affirmation in reply.

(5) For the purposes of the taking of accounts, the evidence having filed and was to be filed by the parties in the 3 Actions be used interchangeably.

7.As seen from the above directions, Ds’ accounts should identify (i) the whereabouts of the Sale Proceeds, and the Rental Proceeds, in whole or in part, at all material times since receipt; (ii) the income and profits made therefrom; (iii) the properties or assets acquired therefrom; and (iv) such interests accumulated and received.

8.On 22 March 2018, Tark Wing filed an affirmation on behalf of Ds.  He had exhibited, amongst other things,  (1) a schedule showing the total net Rental Proceeds in respect of  House C, House D, ½ of House RP   from 1 January 1997 until 30 September 2018 of HKD 2,318,060, with HKD 2,918,493 being the gross rental income  from Houses C and D and HKD 1,215,450 being the gross rental income from House RP (“LTW-1”)[2]; (2) a schedule showing an amount of HKD 369,018 to the credit of Tark Wing after setting out the Constructions Costs of HKD 3,851,893 and deducting therefrom (i) net Rental Proceeds of HKD 2,318,050; (ii) the Sale Proceeds of HKD 1,084,617; and (iii) interests of HKD 80,198 for the Construction Costs (“LTW-5”)[3]; and (3) a schedule showing the calculations for the  Construction Costs of HKD 3,851,893, which included (i) “actual costs” of HKD 3,291,894 (for Father’s share of the costs using the figures from P’s expert[4]); (ii) landfill costs of HKD 200,000; (iii) land premium of Lot 884 of HKD 300,000; and (iv) fung shui fees of HKD 60,000 for 3 houses attributable to P (Father and P) (“LTW-6”)[5].

9.The taking of accounts was heard before the Master on 23 November 2018 and the Master handed down a decision on 29 April 2019 (“Decision”)[6].  The order made by the Master was essentially:

(1) In the Probate Action, Ds to pay P a sum of HKD 7,252,785.41, being the amount of the Sale Proceeds together with interests, calculated at the prime rate published by the Hong Kong Monetary Authority plus 1% compounded on yearly rests at the end of each calendar year (“Compound Interests”) for the period from 21 September 1992 to 29 April 2019 (per schedule attached to the order), together with interests  from 30 April 2019 until payment at judgment rate[7];

(2) In the 2305 Action, Ds to pay P a sum of HKD 6,956,135.86 being the net amount of the  Rental Proceeds in respect of Lot 3763C and ½ share of Lot 3763 (RP) together with  the Compound Interests  for the period from 1 January 1997  to 29 April 2019 (per schedule attached to the order), together with interests from 30 April 2019 until payment at judgment rate[8];

(3) In the 2306 Action, Ds to pay P a sum of HKD 3,893,950.20 being the net amount of the Rental Proceeds received from Lot 3763D together with the Compound Interests for the period from 1 January 1997 to 30 April 2019 (per schedule attached to the order), together with interests from 30 April 2019 until payment at judgment rate.

(4) No credit was to be given to the Construction Costs.

(collectively “Master’s Orders”)

10.As seen above, the calculation of the Compound Interests commenced from 21 September 1992 in the Probate Action, and 1 January 1997 respectively in the 2305 Action and 2306 Action (respectively referred to hereinafter as “Commencement Date”).

11.On 27 May 2019, Ds lodged notices of appeal in the 3 Actions to the Court of Appeal against the Master’s Orders.  Further supplementary notices of appeal were filed in the Court of Appeal on 12 September 2019. By a judgment of the Court of Appeal dated 11 December 2019 (“CA Judgment”), the Court of Appeal struck out Ds’ notices of appeal on a procedural error with costs in favour of P.  The Court of Appeal held that the appeals should not have been brought before the Court of Appeal but should have been brought before a single judge of the Court of First Instance.  Thereafter, on 20 December 2019, Ds filed the present notices of appeal respectively in the 3 Actions (“Notices”).

12.At the hearing before this Court, Counsel Mr Paul Lam SC and Ms Astina Au appeared for Ds (appellants) and Mr Eugene Fung SC and Mr Robin D’Souza appeared for P (respondent).

Procedural matters

Whether the appeal should be held in open court

13.As submitted by Mr Lam SC, the present appeal is different from a usual appeal against a master’s decision in interlocutory matters. The Master’s Orders are in the nature of final orders.  As confirmed by the Court of Appeal in the CA Judgment[9], the Master’s Orders were made pursuant to Order 44 rule 11 of the Rules of High Court (RHC), and hence  Order 44 rule 12 governs any  appeal, and Order 58 rule 1 shall apply, with, amongst other things, the following modifications[10]:

(1) the hearing shall be in open court unless the Court directs otherwise (Order 44 rule 12(1));

(2) the notice of appeal shall state the grounds of the appeal (Order 44 rule 12 (1A) (a); and

(3) no fresh evidence (other than evidence as to matters which have occurred after the date of the master’s order) shall be admitted except on special grounds (Order 44 rule 12 (1A) (b))

14.Further, it is set out in paragraph 44/12/2 of Hong Kong Civil Procedure, 2020 Ed Vol 1 (HKCP), where an inquiry involves an assessment of damages, an appeal from the master’s decision shall lie directly to the Court of Appeal under Order 58 rule 2 of RHC; otherwise,   an appeal from a master’s decision on an account or inquiry is to a single judge in chambers under Order 58 rule 1, save that for an order made by the master under Order 44 rule 11, the hearing is in open court, unless otherwise directed.

15.This Court directed that the appeal be heard in open court.   Further, it is stated in paragraph 43/3/1 of HKCP, an inquiry under Order 43 rule 3 of RHC is technically in open court, referring to Order 38 rule 1 of RHC.  Thus, it would appear that the hearing on 29 April 2019 before the Master for the taking of accounts should also have been held in open court, instead of in chambers open to public.

The evidence on taking of accounts

16.As seen in paragraph 43/3/1 of HKCP, on an enquiry under Order 43, the evidence is generally given on affidavit, with cross-examination if necessary, though pleadings are sometimes directed in complicated cases.

17.The Court may, pursuant to Order 38 rule 2(3) of RHC, on the application of any party, order the attendance for cross-examination of the person make any such affidavit.

18.In the present case, P’s evidence was provided by 3 affirmations on his behalf from his solicitor Chao Kwok Hsien Wellington (“Mr Chao”) of Messrs Wellington Legal notwithstanding that the practice of solicitors making affirmations on behalf of clients has been said to be inappropriate and should only be done in exceptional circumstances[11].  Ds’ evidence was provided by an affirmation from Tark Wing of 21 March 2018.  As seen in the Decision, his  application to file a 2nd affirmation was later dismissed for reasons set out therein[12].

19.Even though the Master had raised the issue of examination of witnesses at the direction hearing on 16 January 2016, neither side had made any application for cross examination of witnesses, and the taking of accounts took place before the Master based only on affirmation evidence filed in connection with the summonses for taking account, and evidence filed in the 3 Actions. 

The Grounds of Appeal

20.Ds’ grounds of appeal set out in the Notices were essentially the same, and they were[13]:

(1) The Master erred in ordering the Compound Interests (as opposed to simple interest) on the principal sum of HKD 1,084,617 (Sale Proceeds)[14], HKD 2,646,751.50[15] and HKD 1,309,210[16] respectively in the Probate Action, the 2305 Action and the 2306 Action (“Ground 1”);

(2) In light of P’s serious and unreasonable delay in commencing the actions, the Master erred in ordering interest to accrue from the respective Commencement Dates in the 3 Actions (“Ground 2”);

(3) The Master erred in holding that no Construction Costs were to be deducted (“Ground 3”).

Extension of time

21.Ds sought extensions of time for filing the respective Notices pursuant to Order 58 rule 1(3) and Order 3 rule 5 of the RHC.  In considering whether to extend time to appeal, the court has to consider all the relevant factors, particularly: (1) the length of the delay; (2) the reasons for delay; (3) the merits of the proposed appeal; (4) the degree of prejudice to the other party[17].

22.The Notices were filed more than 7 months after the deadline of 13 May 2019 (ie 14 days after the Decision). 

23.As mentioned earlier, Ds first lodged notices of appeal against the Master’s Orders to the Court of Appeal on 27 May 2019.  According to Ds, this was on advice of Counsel, under the belief that at the time that the Decision was akin to a judgment from the Court of First Instance, and hence not governed by Order 58 rule 1 of RHC. 

24.Essentially, the delay was due to Ds’ erroneous belief that (i) the time of appealing was 28 days from the Master’s Orders; and (ii) the appeal was direct to the Court of Appeal.  This eventually led to the CA Judgment. 

25.Ds lodged the Notices 9 days after the CA Judgment.  Having considered the evidence, I am satisfied that the delay was caused by a genuine but unfortunately mistaken belief on the part of Ds’ legal representatives as to the proper procedure and avenue of the appeal and it was not a case of wilful or intention delay on the part of Ds.

26.Although mistake or oversight made by legal representatives is not generally a good excuse for delay, I accept that the mistake was in relation to a procedural issue in respect of which there was no direct authority at the time.  As seen in the Chow Fu Hsien v K Vision International Investment (HK) Limited, HCA 2884/2004, unrep, 20.07.10 in which Recorder Yu had initially raised the issue whether the Court of First Instance had the jurisdiction to hear the appeal against the orders before Master Lung in relation to the taking of account and interest, although he later accepted jurisdiction.  The route or procedure for an appeal did not appear to be that clear and there did not appear to be any authorities directly on the point.  P did not object to the steps taken by Ds initially.  Having considered all this, I am of the view that the present case is one where the delay caused by a mistake of Ds’ Legal representative should be regarded as excusable.

27.There was no sufficient evidence that P would suffer any material or irreparable prejudice if an extension of time were to be granted.  The main issue in the appeal is the merits of the proposed appeal since if the proposed appeal is devoid of merits, then it would not be appropriate for the Court to extend time. 

28.Hence, quite appropriately, both Senior Counsel concentrated their submissions at the hearing on the merits of Ds’ proposed appeal, which I will consider hereinafter. 

Ground 1

Master’s reasons for ordering the Compound Interests

29.The   Master gave 4 reasons for awarding the Compound Interests (“4 Reasons”), and they were[18]:

(a) Tark Wing from time to time still maintained defences having been rejected by the trial judge Chow J (“Reason (a)”);

(b) Tark Wing had not provided truthful/accurate accounts (“Reason (b)”);

(c) There was no reason why P should not be granted the Compound Interests because it was a right of the beneficiary in case where the accounting party was unable/unwilling to account (“Reason (c)”);

(d) The case of Ting Yuk & Ors v Ting Yee & Ors did not assist Ds because that case dealt with an assessment of damages and not taking of an account and the learned master refused to do so because she did not see fit to so order in the particular circumstances of the case (“Reason (d)”).

30.Mr Lam submitted that none of the 4 Reasons (whether individually or collectively) constituted good and sufficient reasons to order the Compound Interests, and that in relying on the 4 Reasons, the Master failed to have any or any proper regard for the correct legal principles governing the grant of compound interest.

The relevant legal principles on compound interest 

31.That the court may award compound interest in its equitable jurisdiction can be seen in China Everbright-IHD Pacific Ltd v Ch’ng Poh (2002) 5 HKCFAR 630[19].  In his judgment, Lord Millet, NPJ had referred to the principle as explained by Lord Hatherley in Burdick v Garrick (1870) 5 LR CH App 233 in paragraph 108 as follows:

“The principle on which the English Court of Chancery awarded compound interest was explained by Lord Hatherley in Burdick v Garrick (1870) 5 LR Ch App 233 at p 241:

‘the Court does not proceed against an accounting party by way of punishing him for making use of the Plaintiff’s money by directing rests, or payment of compound interest, but proceeds upon this principle, either that he has made, or has put himself into such a position as that he is to be presumed to have made, 5 per cent., or compound interest, as the case may be. If the Court finds ... that the money received has been invested in an ordinary trade, the whole course of decision has tended to this, that the Court presumes that the party against whom relief is sought has made that amount of profit which persons ordinarily do make in trade, and in those cases the Court directs rests to be made.’…” (emphasis added)

32.Part of the above passage was also cited by Lord Browne-Wilkinson in Westdeutsche Bank v Islington LBC [1996] 1 AC 669.  In the Westdeutsche Bank case, Lord Browne-Wilkinson held that:

“The award of compound interest was restricted to cases where the award was in lieu of an account of profits improperly made by the trustee. We were not referred to any case where compound interest had been awarded in the absence of fiduciary accountability for a profit.” (emphasis added)

33.Lord Browne-Wilkinson further cited at pp 701F-702A the following judgment of Buckley LJ in Wallersteiner v Moir (No 2) [1975] QB 373, at 397:

“It is well established in equity that a trustee who in breach of trust misapplies trust funds will be liable not only to replace the misapplied principal fund but to do so with interest from the date of misapplication. This is on the notional ground that the money so applied was in fact the trustee’s own money and that he has retained the misapplied trust money in his own hands and used it for his own purposes. Where a trustee has retained trust money in his own hands, he will be accountable for the profit which he has made or which is assumed to have made from the use of the money. In Attorney-General v Alford, 4 De GM & G. 843, 851 Lord Cranworth LC said: ‘What the court ought to do, I think, is to charge him only with the interest which he has received, or which it is justly entitled to say he ought to have received, or which it is so fairly to be presumed that he did receive that he is estopped from saying that he did not receive it.’ This is an application of the doctrine that the court will not allow a trustee to make any profit from his trust. The defaulting trustee is normally charged with simple interest only, but if it is established that he has used the money in trade he may be charged compound interest … The justification for charging compound interest normally lies in the fact that profits earned in trade would be likely to be used as working capital for earning further profits. Precisely similar equitable principles apply to an agent who has retained moneys of his principal in his hands and used them for his own purposes: Burdick v Garrick.” (emphasis added)

34.Lord Browne-Wilkinson then concluded by saying that:

“These authorities establish that in the absence of fraud equity only awards compound (as opposed to simple) interest against a defendant who is a trustee or otherwise in a fiduciary position by way of recouping from such a defendant an improper profit made by him[20] …”

35.Lord Hatherley’s passage in Burdick v Garrick, supra, was also cited by Ribeiro PJ in the Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681, and after citing the passage, Ribeiro PJ had gone on to explain that:

“142. Thus, compound interest may be appropriate where the trustee or fiduciary has misappropriated funds which the Court assumes would have been used by him to earn profits and, instead of ordering an account of those profits, orders him to pay compound interest on the sum extracted. Where the fiduciary is ordered to pay equitable compensation on the basis of gains which the Court finds would have accrued to the trust estate if he had duly performed his fiduciary duty, it would be double-counting and punitive to order the amount of equitable compensation to carry compound interest.”

36.With the above principles in mind, I turn to the present case.

The nature of the Master’s Orders

37.Mr Lam submitted that no compound interest should be awarded because the award was “compensatory in nature” and not in lieu of, or in substitution for an account of profits[21].

38.On the other hand, it was Mr Fung’s submissions that the Master’s Orders were not “equitable compensation” or  “compensatory in nature[22].

39.In the Libertarian case, Lord Millett NPJ had explained the taking of an account in the equitable context as follows (with emphasis added):

“167. It is often said that the primary remedy for breach of trust or fiduciary duty is an order for an account, but this is an abbreviated and potentially misleading statement of the true position.  In the first place an account is not a remedy for wrong.  Trustees and most fiduciaries are accounting parties, and their beneficiaries or principals do not have to prove that there has been a breach of trust or fiduciary duty in order to obtain an order for account.  Once the trust or fiduciary relationship is established or conceded the beneficiary or principal is entitled to an account as of right.  Although like all equitable remedies an order for an account is discretionary, in making the order the court is not granting a remedy for wrong but enforcing performance of an obligation.

168. In the second place an order for an account does not in itself provide the plaintiff with a remedy; it is merely the first step in a process which enables him to identify and quantify any deficit in the trust fund and seek the appropriate means by which it may be made good.  Once the plaintiff has been provided with an account he can falsify and surcharge it. If the account discloses an unauthorised disbursement the plaintiff may falsify it, that is to say ask for the disbursement to be disallowed. This will produce a deficit which the defendant must make good, either in specie or in money. Where the defendant is ordered to make good the deficit by the payment of money, the award is sometimes described as the payment of equitable compensation; but it is not compensation for loss but restitutionary or restorative. The amount of the award is measured by the objective value of the property lost determined at the date when the account is taken and with the full benefit of hindsight.

169. But the plaintiff is not bound to ask for the disbursement to be disallowed.  He is entitled to ask for an inquiry to discover what the defendant did with the trust money which he misappropriated and whether he dissipated it or invested it, and if he invested it whether he did so at a profit or a loss.  If he dissipated it or invested it at a loss, the plaintiff will naturally have the disbursement disallowed and disclaim any interest in the property in which it was invested by treating it as bought with the defendant’s own money. If, however, the defendant invested the money at a profit, the plaintiff is not bound to ask for the disbursement to be disallowed.  He can treat it as an authorised disbursement, treat the property in which it has been invested as acquired with trust money, and follow or trace the property and demand that it or its traceable proceeds be restored to the trust in specie.

170. If on the other hand the account is shown to be defective because it does not include property which the defendant in breach of his duty failed to obtain for the benefit of the trust, the plaintiff can surcharge the account by asking for it to be taken on the basis of “wilful default”, that is to say on the basis that the property should be treated as if the defendant had performed his duty and obtained it for the benefit of the trust.  Since ex hypothesis the property has not been acquired, the defendant will be ordered to make good the deficiency by the payment of money, and in this case the payment of “equitable compensation” is akin to the payment of damages as compensation for loss.

171. In an appropriate case the defendant will be charged, not merely with the value of the property at the date when it ought to have been acquired or at the date when the account is taken, but at its highest intermediate value. This is on the footing either that the defendant was a trustee with power to sell the property or that he was a fiduciary who ought to have kept his principal informed and sought his instructions.

172. At every stage the plaintiff can elect whether or not to seek a further account or inquiry.  The amount of any unauthorised disbursement is often established by evidence at the trial, so that the plaintiff does not need an account but can ask for an award of the appropriate amount of compensation. Or he may be content with a monetary award rather than attempt to follow or trace the money, in which case he will not ask for an inquiry as to what has become of the trust property. In short, he may elect not to call for an account or further inquiry if it is unnecessary or unlikely to be fruitful, though the court will always have the last word.”

40.As seen in paragraph 168 quoted above, once the plaintiff has been provided with an account which discloses an unauthorised disbursement, the plaintiff may falsify it, that is to say ask for the disbursement to be disallowed, and this will produce a deficit, and where the defendant is ordered to make good the deficit by the payment of money, although the award is sometimes described as the payment of equitable compensation, but it is not in fact compensation for loss but restitutionary or restorative.

41.As stated in paragraph 20-017 in Snell’s Equity 24th Edition[23]:

“(3) Taking the account. What information and documents an accounting party must provide depends on the circumstances and should be considered at the hearing. The essential requirement is that the beneficiaries receive sufficient material to enable them to under the movements on the account, the nature of the investments, the monies expended and recovered, the income earned, the expenses paid, and how, and when and on what basis investment decisions were made. In some cases, this may require formal trust accounts but in other cases less formal documents may suffice or a narrative explanation may be required.

The accounting party first submits their verified accounts and explanation and supporting documents as appropriate, and the beneficiary may then raise any specific objections they may have. Objections to an account presented to the court as complete are either by way of surcharge or falsification. The beneficiary surcharges the account when they contend that the accounting party should have charged themselves on the incoming side of the account with more than had admitted. The beneficiary falsifies the account when they challenge an item of discharge entered into the outgoings side of the account.

(4) Burden of proof.  The beneficiary carries the burden of proving surcharges and the accounting party carries the burden of proving their discharge …”

42.In the present case, Mr Chao filed 3 affirmations filed on behalf of P, which I will refer to respectively as his 1st, 2nd and 3rd affirmation.

43.In his 1st affirmation, Mr Chao had deposed to the following, amongst other things:

(1) Regarding the Sale Proceeds, as there were no documents to determine the whereabouts of the Father’s share of the Sale Proceeds, the accounts of Tark Wing and Grandmother were defective and P was entitled to surcharge the account on the basis of wilful default (para 12); as for the Interest, where the Father’s share of the Sale Proceeds were not identified and misappropriated, the Court would require the accounting party to pay compound interest at the rate of prime plus 1% (para 13); additionally P sought interest on yearly rests (para 14); (emphasis added)

(2) Regarding the Rental Proceeds, if in the event that  Tark Wing, Caba, Wing Hing were unable to provide proper accounts on the income and profits derived from the Rental Properties, the accounts of Tark Wing and the Companies would be defective and P was entitled to surcharge the account on the basis of wilful default (para 25); as for Interest, the courts would require the accounting parties to pay compound interest at the rate of prime plus 1%  and additionally P sought such compound interests on yearly rests (para 26). (emphasis added)

44.It was seen from the above that in Mr Chao’s 1st affirmation P’s case was that if the accounts were defective, P sought to surcharge the account on the basis of wilful default.

45.Then in Mr Chao’s 2nd affirmation, P’s case was  Ds’  accounts were severely deficient and that P was entitled to treat the accounts as wilful default on the part of Tark Wing or alternatively P and/or Father sought to trace their interest into the misappropriated funds including the income and/or profits generated therefrom into properties subsequently constructed, owned or purchased by Tark Wing including the  house at Lot 3763E[24].

46.Mr Chao had stated that as Ds had wilfully failed to render a proper account of the Sale Proceeds and Rental Proceeds, the consequence of which was that the Court would presume that such funds were used by Ds to earn profits, and if such profits were not identifiable, the court would order the fiduciaries to pay compound interest on the sums taken and therefore P was entitled to seek compound interest[25].

47.As seen in paragraph 5 of  the Decision[26], the Master had summarised P’s case in Mr Chao’s his 1st affirmation  and in paragraph 5 (3) the Master stated :

“Regarding the Interest, compound interest should be calculated at the rate of prime plus one because of wilful default.” (emphasis added)

48.After setting out Tark Wing’s case, the Master also set out again P’s case  as seen in Mr Chao’s  2nd affirmation, namely amongst other things, Tark Wing’s purported accounts were severely deficient and there were new allegations and claims and all these were wilful default to render proper accounts and as such, compound interest could be ordered against the accounting parties[27].

49.Thus, P’s case would appear to be that compound interest should be awarded because of Tark Wing’s wilful default in rendering proper accounts, and this appeared to be also the Master’s understanding of P’s case.

50.However, the “surcharge of the account … on the basis of wilful default” referred to by Lord Millet in paragraph 170 in the Libertarian case was when the account was defective because it did not include property which the defendant in breach of his duty failed to obtain for the benefit of the trust.  The property in that case was the shares which the defendant failed to acquire on the plaintiff’s behalf, and the Court then assessed as to how much the plaintiff would have gained had the shares been purchased.

51.Mr Fung submitted that the accounts in relation to the Sale Proceeds and Rental Proceeds contained unauthorised disbursements.  In relation to the Sale Proceeds were concerned, it was asserted by Tark Wing that they had been paid to the Grandmother and the entire amount used by the Grandmother for the construction of houses[28].  As for the Rental Proceeds, Ds asserted that various disbursements had been made, including 10% general wear and tear, 16.5% tax payment by the Companies,  HKD 300,000 as land premium paid to the Government, HKD  300,000 landfill works and HKD 20,000 per house for Fung Shui practices[29]. The Construction Costs were HKD 3,851,893, after applying the entirety of the Sale Proceeds of HKD 1,084,617 and Rental Proceeds from 01.01.1997 to 30.09.2018 of HKD 2,318,060, and interests of HKD 80,198 towards the total Construction Costs, there was a shortfall of HKD 369,018 to the credit of Tark Wing.  

52.Mr Fung informed the Court that before the Master, P objected to the unauthorised disbursements and elected to falsify the accounts submitted by Ds by asking the Master to disallow all the disbursements, and if such were disallowed, a deficit would be produced and Ds would need to make good the deficit by payment of money, and that although the award was sometimes described as a payment of equitable compensation, as had been explained by Lord Millet NPJ, it was restitutionary or restorative in nature, and not compensatory in nature.

53.As seen in the Decision, the Master held that Tark Wing was fully liable to repay to P (as executor for Father’s estate) the Sale Proceeds of HKD 1,084,617 in full and disallowed any of the disbursements (including the Construction Costs).  As for the Rental Proceeds, the Master accepted P’s calculations of rental income and expenses in the schedule “CKHW-8”[30] and ruled that Tark Wing’s proposed deduction of expenses were vague and unreliable and not supported by documents.

54.There was no evidence that P had asked for any further account or inquiry to discover what Ds did with the trust money.  Thus, although P’s case in Mr Chao’s affirmations appeared to be different in that he was seeking a surcharge, there was nothing to contradict what Mr Fung had said, that at the taking of account hearing, P had elected to falsify the accounts only and asked for disbursements to be disallowed, ie instead of seeking a surcharge or any further inquiry as to profits.

55.As seen in the Decision, what the Master in effect did was not allowing any deductions/disbursements/expenses claimed by Ds from the accounts.  Further, as pointed out in the CA Judgment, the present case does not come within the situation in which P can surcharge the account by asking for it to be taken on the basis of “wilful default” as explained by Lord Millet[31].

56.Having considered the above, I am of the view that the Master’s Orders were restitutionary or restorative in nature, and not compensatory in nature.  

The 4 Reasons

57.Out of the 4 Reasons, so far as Reason (a) was concerned, the Master had mentioned that Tark Wing had raised a number of defences at the trial regarding P’s claim that Father never received the Sale Proceeds, and all were rejected by Chow J, and the Arrangement (as defined in the Chow Judgment) alleged by Tark Wing failed.  The Master then went on to say that:

(1) The suggestion that the Father agreed that [the Sale Proceeds] could be applied to the Construction Costs was rejected, and the payment of [the Sale Proceeds] to the Grandmother also constituted a breach [of his fiduciary duty owed to the Father], the defence of limitation did not succeed and hence Tark Wing should account[32];

(2) By his affirmation filed for the purpose of the taking of account, Tark Wing repeated that the Sale Proceeds were passed to the Grandmother.  He had no record except that he knew it was used by her for construction of houses[33]. With respect, such argument was no longer available to Tark Wing [34]. (emphasis added)

58.For (1) above, the Master’s finding appeared to be based on Mr Chao’s allegation in paragraph 8 (ii) of his 2nd affirmation that Tark Wing’s defence in the Probate Action, namely that Father had indicated to Tark Wing he did not want any of the Sale Proceeds to be remitted to him in London and the same could be contributed and/or applied towards the Construction Costs, had been specifically rejected by Chow J, referring to paragraph 43 in the Chow Judgment. It was thus that the Master said that Tark Wing was repeating the bare allegation in his affirmation filed on 22 March 2018[35].

59.However,  what Chow J did not accept or what he had rejected in paragraph 43 of the Chow Judgment was the existence of the alleged agreement by Father and Chow J had said the alleged agreement was based on Tark Wing’s bare assertion and not supported by any contemporaneous documents[36].  Thus, Chow J did not find that Father had agreed.  In so far as I can see, Chow J did not make any specific finding as to whether as a fact the Sale Proceeds were contributed and/or applied towards the Construction Costs, and this was a matter he ordered to be dealt in the taking of the accounts. Further, in so far as I can see, in paragraph 44 of the Chow Judgment, Chow J did not reject Tark Wing’s case that he had paid the Sale Proceeds to Grandmother, and his finding was only that Tark Wing’s payment of the same to Grandmother in the absence of proof of consent or approval by Father constituted a breach of Tark Wing’s fiduciary duty, and he thus held that P was entitled to an account of Father’s share of the Sale Proceeds received by Tark Wing and Grandmother[37], subject to the defence of limitation which he later also rejected[38].  

60.As seen in the Chow Judgment, a major plank of the then defences of Ds in the 3 Actions was there was the alleged “Arrangement” amongst the 4 family members, namely Grandfather, Grandmother, Father (for himself and P) and Tark Wing.  Under the alleged Arrangement, amongst other things, a village house was to be built on each of Lot 3763C, Lot 3763D, Lot 3763E and Lot 884 and the Construction Costs would come from the Grandfather and/or Grandmother as well as from the compensation monies received in Father’s name from the resumption of Lot 3757 and the Lau House and that Father and Tark Wing would also make some contributions.  In essence, the 4 family members (ie Grandfather, Grandmother, Father and Tark Wing) would pool together their resources to fund the construction of the houses and related expenses[39]. Further as a result of the alleged Arrangement, it was Ds’ case at the trial that  the Rental Proceeds generated from Lot 3763C ( House C), Lot 3763D (House D) were given to Grandmother while the Rental Proceeds generated from Lot 884 (House 884) were given to Father[40].

61.Chow J did not accept Tark Wing’s evidence regarding the alleged Arrangement for reasons set out in the Chow Judgment[41].  Again, what was rejected by Chow J was, in so far as I can see, the existence of the alleged Arrangement.  There had been no specific rejection of Tark Wing’s evidence that the Sale Proceeds were passed to Grandmother or that she had used the proceeds for construction of houses.  In fact Chow J  had stated that on the whole, he had believed that there was probably some general discussion amongst the Grandfather, the Grandmother, the Father and Tark Wing on how the construction of the new houses on Lot 3763 and Lot 884 was to be funded[42].

62.In light of the above, it did not appear that Tark Wing was maintaining defences which were rejected by Chow J.  

63.Having said this, it would  appear the Tark Wing did seem to have put forward different calculations or as found by the Master, running a different case for the taking of accounts to that for the trial[43]

64.The Master’s above finding was based on P’s complaint of Tark Wing’s “New Claim” in relation to Tark Wing’s “New Calculations” in LTW-5. In LTW-5, according to Tark Wing’s calculations, the total Construction Costs were a total of HKD 4,564,256 and  P’s share came to HKD 3,851,893, and after applying P’s share of the Sale Proceeds of HKD1,084,617 towards his share of Construction Costs, there was a shortfall, which should then be met or deducted from P’s share of  the net Rental Proceeds[44].  This was different from Tark Wing’s case during the trial as his then case was that under the alleged Arrangement,  contributions towards the Construction Costs were to come from 4 family members (ie Grandfather, Grandmother, Father and Tark Wing) and which  were to be paid from not only the Sale Proceeds but also the proceeds from the resumption of Lot 1219A and Lot 3757 and the Lau House  (collectively “Resumption Proceeds”), and the sum total would should have been  sufficient to cover all the Construction Costs of the houses[45].

65.In any event, as pointed out by Mr Lam, Reason (a) was not a valid reason for the Master to award compound interest.  I agree.  In fact, during the appeal, Mr Fung indicated that he would not seek to rely on Reason (a) to argue for upholding the Master’s Orders.

66.As for Reason (b), the Master found that Tark Wing had not provided truthful/accurate accounts.  It was clear the accounts from Tark Wing did lack the Supporting Documents.  The sale of Lot 2785 and Lot 3825 took place in September 1992, and the 4 houses were constructed/completed in about 1997, and these were events spanning some 20-25 years ago.   P did not commence the 3 Actions until 2012/2013, which was some 5 or 6 years after Father’s death in 2007.  That there was a lack of the Supporting Documents was unsurprising.

67.As to the allegation of the accounts being not truthful, in so far as I can see, this referred to the P’s allegation of Tark Wing trying to deceive the Court over the deductions of rates in LTW-1.  This allegation of P’s stemmed from enquiries made by Mr Chao and his office to the Rating and Valuation Department and found out that the rates for the years 1997/1998 to 2011/2012 turned out to be much less than the amount of 5% estimated by Tark Wing[46]. However, in the end, there was no actual finding by the Master that there had been any deception or attempted deception on the part of Tark Wing, and all the Master pointed out was how unreliable the 5% estimate of Tark Wing for rates could be[47].

68.As pointed out by Mr Lam, which I agree, providing inaccurate accounts or Reason (b) was not a valid reason for ordering the Compound Interests.

69.Reason (d) was not really a reason.  Mr Fung did not seek to rely on Reason (d) to uphold Master’s Orders.

70.That left only Reason (c).  

71.Mr Fung submitted that the intended appeal was only against the conclusion by the Master and not his reasons.  He further submitted that that Reason (c) was important referring to paragraph 26 of the Decision.  In that paragraph, Master had referred to the authorities of Westdeutsche Bank v Islington LBC [1996] AC 669 and Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681.  Mr Fung submitted that Master was considering when the court could grant compound interest in lieu of a proper account, and that Reason (c) was consistent with the approach in the authorities as Tark Wing did not provide proper accounts and that Master could order compound interest in lieu of an account of profit.

72.In relation to the Sale Proceeds, as seen earlier, the Master held that Tark Wing was repeating the same defences which had been rejected by Chow J and did not allow the deductions.  In relation to Rental Proceeds, the Master  held that the proposed deduction of expenses from the accounts of the Rental Proceeds were vague and unreliable and stated that the obligation laid squarely on the accounting party to provide the accounts and if he failed to do so, the beneficiary could of course either falsify or surcharge[48]. This then led to the Master’s Reason (c), namely that it was “a right of the beneficiary in case where the accounting party was unable/unwilling to account”.

Whether the Master had erred in ordering the Compound Interests

73.As Buckley LJ had said in the Wallersteiner case, the defaulting trustee is normally charged with simple interest only, but if it is established that he has used the money in trade he may be charged compound interest, and the justification normally lies in the fact that profits earned in trade would be likely to be used as working capital for earning further profits.

74.Buckley LJ had explained why he agreed that the case was one in which it was proper to charge compound interest with yearly rests[49] :

“There has been no investigation of what profit, whether in the form of dividends or otherwise. Dr Wallersteiner had secured by the acquisition the Harley Baird shares. The transaction was, however clearly one of a commercial character, and in the absence of evidence to the contrary, the court should assume that it had been profitable to him. Accordingly, it is in my opinion, equitable that the judgment awarded against him should include interest as a conventional measure of the profit he is to be taken to have made. Considering the nature of Dr Wallersteiner’s operations as a financier and as a dealer in and manipulator of large shareholdings in commercial companies, it is in my opinion right to treat the investment in shares of Hartley Baird as made by him in the course of that business and as calculated to be commercially valuable to him in the prosecution of that business. I accordingly agree that this is a case in which it is proper to charge compound interest with yearly rests.”

75.Further, as said by Ribeiro PJ in the earlier quoted paragraph 142 of his judgment in the Libertarian case, compound interest may be appropriate where the trustee or fiduciary has misappropriated funds which the Court assumes would have been used by him to earn profits and instead of ordering an account of those profits, orders him to pay compound interest on the sum extracted.

76.It is also stated under the section on “Personal Remedies against Trustees for Breach of Trust” in Lewin on Trusts, Volume II 12th Edition, paragraph 41-62[50] as follows:

“Usually, simple interest is charged, from the date of breach, but compound interest with yearly, or even half-yearly, rests may be ordered (apparently in the court’s discretion) where the trustee has used the trust funds in his own business, if capital employed in it yields income, or, we consider, in cases of fraud or misconduct, at any rate if the trustee has benefitted personally, as well as for breach of a trust to accumulate income. …”

77.Mr Fung on the other hand relied on the earlier quoted passage from Buckely LJ in the Wallersteiner case, and submitted that where a trustee or fiduciary uses the misappropriated money for his own purpose, or obtained a benefit therefrom, equity would require such a benefit be stripped in the form of compound interest on the misappropriated money to be payable by the trustee/fiduciary.

78.Mr Fung pointed out that there was ample basis to support that (1) Tark Wing had used the Sale Proceeds for his own purpose and that (2) Tark Wing and the Companies had used the Rental Proceeds for their own purposes as follows:

(1) In relation to the Sale Proceeds:

(i) Master had referred to Tark Wing’s evidence that the sum of HKD 1,084,617 was given to Grandmother who then used it for the construction of “houses”[51];

(ii) it was common ground that Tark Wing had been an owner of Lot 3763E and ½ share Lot 3763 RP since 13 September 1994, and that a 3 storey house was constructed on Lot 3763 E and a 2 storey temporary house was built on Lot 3763 RP, ie House RP since around 1997;

(iii) Thus, on Tark Wing’s evidence, the Sale Proceeds were used by him which resulted in him getting a substantial benefit, namely an interest in the houses which stood on his and/or his share of the land.

(2) In relation to the Rental Proceeds:

(i) Tark Wing’s case was that only HKD 2,318,060 was accountable and there were various expenditures[52];

(ii) In giving Reason (c), the Master obviously had in mind the principles and the passages quoted earlier, which was quoted in the Westdeutsche Bank case and also what Ribeiro PJ said in the Libertarian case, and that because of Tark Wing’s failure to provide a proper account, the Court was unable to ascertain whether he and the Companies had made any actual profit from the Sale Proceeds and the Rental Proceeds, and that the Master considered that P was entitled to ask for compound interest in lieu of an account of profit.

79.At the account taking hearing, P’s Counsel submitted that because D’s accounts contained numerous inaccuracies and generalised propositions, they were defective and the necessary inference was that they were used by Tark Wing and the Companies for their own purposes, and that the Court should adopt P’s calculations[53].

80.Although the Master had said that he agreed with the submissions of P’s Counsel[54], Mr Lam pointed out  that whether Ds had used P’s share of the Sale Proceeds and/or the Rental Proceeds for their own purposes or obtained benefit therefrom or not, this was not one of the 4 Reasons given by the Master for ordering the Compound Interests.

81.Mr Lam submitted that on a breach of trust duties, it would usually follow that the trustee failed to use the trust funds for the beneficiary, and thus must have used for the trustee’s own purposes or benefit, but it would not mean that in every case involving a breach of trust, compound interests would be payable, and that this would in fact be against the authorities.   Mr Lam referred the Court to the facts of the Burdick case.  In that case, a solicitor was sued by the widow as administratrix of the estate of a deceased client to recover moneys due to the estate.  The money were sale proceeds of the client’s property and which were paid into the solicitor’s general account of his firm.  The Vice-Chancellor had ordered compound interest at first instance.

82.On appeal, Lord Hatherley LC held that, the principle laid down in the case of Attorney General v Alfred 4 DM & G 843 was sound principle, namely that the Court does not proceed against an accounting party by way of punishing him for making use of the plaintiff’s money by directing rests, or payment of compound interests, but proceeds upon this principle, either that he has made, or has put himself into such a position as that he is to be presumed to have made, 5 percent (the ordinary rate of interest) or compound interest, as the case may be.  It was held by Lord Hatherley LC that  a solicitor’s business was not a business in which they could make compound interest on the money embarked, or in which half-yearly rests, or yearly rests, would be made in making up the account, and that a solicitor’s profit arose from the time and the labour which he bestowed upon in cases in which he was engaged and therefore no case arose in which one could say that a profit had been made, or necessarily was profit to be inferred, and that consequently that there was an error in the Vice-Chancellor in directing compound interest[55].

83.Sir GM Giffard, LJ agreed with Lord Hatherley LC that compound interest ought not to be charged and he had also held the principle was clearly laid down by Lord Cranworth in Attorney-General v Alford and that the question of interest clearly depended upon the amount which the person who had improperly applied the money could be fairly presumed to have made, and that if he had applied it to his own use, it was quite right to say that he ought never to be heard to say that he had made less than 5 percent (ordinary rate of interest) and that that was a fair presumption to make; but if one sought to go further than that, and to charge him with more than 5 percent, one must make out case for that purpose and that in the case, the money went into the common account of the solicitor’s firm and consequently, there being neither proof nor presumption that compound interest was made[56].

84.In the present case, Tark Wing’s evidence was that the Sale Proceeds were paid to Grandmother who had used the same towards the Construction Costs.  As said earlier, there was no rejection of this evidence by Chow J.  Also, as seen in the Chow Judgment, Tark Wing’s evidence during the trial was that the net rental income from House C and House D was given to Grandmother while the net rental income from the House 884 was given to Father[57]. Again, in so far as I can see, there was no rejection of Tark Wing’s such evidence. All Chow J had said was Ds’ defence in the 2305 Action and the 2306 Action was based on the Arrangement and in view of his conclusion regarding the Arrangement, the defence could not stand and that Ds had to properly account to P the Rental Proceeds[58].

85.As seen in LTW-1, the expenses deducted by Tark Wing from the Rental Proceeds were  (i) “specific expenses” of agency fees and rates; (ii) 10% general wear and tear expense including re-painting works prior to taking on new tenants, repairs to boundary wall, regular clearing of septic tanks and sewage, maintenance of external water pipes, major repair for roof of House D in 2004/2005, electricity charges for ground floor of House C, damage to metal gate of House D and emergency repairs to main power supply; in his affirmation, he had also mentioned replacement of antennae, cleaning of air-conditioning, plumbing and other overall expenses; (iii) about 16.5% tax payable by the Companies as the houses were managed by the Companies.

86.According to Tark Wing, after the above deductions, the total net sum of P’s share of the Rental Proceeds from House C and House D were HKD 1,865,688 and from House RP was HKD 904,745, making a total of HKD 2,318,060.

87.The Master did not accept Tark Wing’s calculations on the basis that Tark Wing’s proposed deductions were vague and unreliable and not supported by documents for essentially 3 items  (i) the 10% repairs for wear and tear; (ii) the 5% rates and/or government rent; (iii) 16.5% taxes paid by the Companies[59] .

88.Tark Wing had in his affirmation stated that neither his beloved mother nor he had done anything wilfully to hide any money and/or to create a scheme whereby they profited for themselves[60].

89.I accept Master’s decision on the Compound Interests was made as a matter of exercise of discretion.  Mr Fung had referred the Court to the judgment of Recorder Benjamin Yu, SC in the Chow Fu Hsien case, supra, which was an appeal from two orders of Master Lung including one on interest.  Recorder Yu had held that whether interest should be compounded was a matter for the Court’s decision and, referring to Hanbury & Martin, Modern Equity 18th Ed, p 690 that compound interest is charged where that fairly represents what the trustee may reasonably be treated as having received, and that Recorder Yu was of the view that that was the position of the trustee in that case[61].

90.As seen in Recorder Yu’s judgment, the taking of the account in that case was severely handicapped by the absence of primary documents and, in particular, the accounting records of the defendant.  As seen in Master Lung’s two decisions which were not referred to this Court, the taking of account was pursuant to a summary judgment obtained by plaintiff against the defendant, and the taking of account took place over 5 days with cross examination of witnesses and in the end Master Lung essentially accepted the evidence of the plaintiff’s accountant expert and ordered in favour of the plaintiff and initially made an order nisi for simple interest.  On an application for variation of the plaintiff, Master Lung varied his order nisi and ordered compound interest against the defendant.

91.Master Lung had given the following reasons for ordering the Compound Interest:

“(1) The plaintiff now claims against the defendant company, of which she is one of the shareholders, holding 35% beneficial interest of the defendant’s interest in the Celebrity Plaza;

(2) Defendant company is a corporate vehicle carrying on the development of the project of construction of Celebrity Plaza;

(3) It can be seen quite clearly that the plaintiff’s interest is in fact an investment in the development of the Celebrity Plaza project;

(4) Ultimately, the plaintiff should be placed to the same position as if the Trust Deed, under which she is entitled to the 35% of the defendant’s interest in the project;

(5) The time for the plaintiff’s interest in the project to be realized has to be the time when Celebrity Plaza has been completed, which is in 2004, about the time the plaintiff demanded the defendant to account for her interest and the defendant denied her entitlement.

(6) The defendant admits [see counsel’s reply submission para 18] that it was involved, apart from Celebrity Plaza, another project, namely Sunshine Plaza.  According to the expert’s report at [B-239] paragraph 5.5, the defendant has reallocated certain of the accounts and transferred certain amounts from various accounts payable to the capital reserve.  The expert was unable to identify those accounts.  Nor was the defendant able to give evidence to those accounts.  The presumption in Wallersteiner v Moir (No 2) [1975] 1 QB 373 shall become operative.  The defendant is unable to adduce evidence to rebut this presumption[62].”

92.In the above case, the defendant carried on a business as a property developer, and the above evidence indicated that part of the trust funds had gone into a second property project.  It was in those circumstances that that Master Lung found that the defendant was unable to rebut the “presumption” (sic) in the Wallersteiner case.  On appeal, it was in that context that Recorder Yu found that Master Lung’s exercise of discretion should not be disturbed.

93.In the present case, the parties were all family members and the fiduciary relationship arose out of a familial and not commercial context.  Tark Wing had said that the present dispute between him and P only arose after Father had passed away.  It was also Tark Wing’s evidence that all along Ds had managed and dealt with the rental properties.  There was no sufficient evidence that Tark Wing or Grandmother had received any compensation for their efforts.  There was no evidential foundation for any assumption that there was any actual gain/profits or assumed gain/profits made by Tark Wing and/or Grandmother.  Tark Wing was a professional accountant, and there was no sufficient evidence that he was involved in any commercial trade or transaction.  The evidence seemed to indicate that Grandmother was a housewife and in any event, there was no evidence to show she had been involved in any commercial trade or transaction.  There was also no evidence that Tark Wing and/or Grandmother had carried on any business as property developers, apart from building the houses on the family lots.  There was also no evidence as to the nature of the business of the Companies, whether they were involved in any commercial trade or activities or investments, apart from rendering service to Tark Wing in collecting the rental income from and managing the houses on Lot 3763 and on DD 884. 

94.Further, there was no sufficient evidence that whether Tark Wing, or Grandmother, or the Companies had put themselves in a position that would attract a presumption that compound interest had been made on the Sale Proceeds or the net of the Rental Proceeds.

95.There was no finding by the Master that Ds had utilised the Sale Proceeds or the net Rental Proceeds for a commercial advantage and/or earned any profits as a result thereof.

96.Mr Lam further pointed out that the Master had adopted the rate of prime plus 1% and had referred to Waddington Limited v Chan Chun Hoo Thomas & Ors, CACV 10/2014, unrep 20.05.16 in which this rate was generally accepted as reflecting the theoretical costs to the plaintiff of borrowing the withheld sums commercially[63].  In that case, the lower judge ordered the pre-judgment interest on the judgment sum to be 2.5% per annum and declined to award compound interest with monthly rests.  On the cross-appeal by the plaintiff/respondent, the rate was changed to prime plus 1% per annum but compound interest was refused.  It can be seen in the Court of Appeal judgment, the lower judge ordered simple interest because he did so because he felt that the case was not one in which the appellant had misappropriated company funds and used them for his own purposes but was on a less serious level[64].  The Court of Appeal agreed with the appellant’s senior counsel’s submission that the normal rule was for award of simple interest and that there must be features justifying a departure from it before an award of compound interest could properly be made, and that the situation in that case, of conflict of interest, was not as serious as a case of misappropriation[65]

97.Having considered the authorities, the evidence and all the circumstances of this case, I am of the view that Master’s Reason (c) for ordering the Compound Interests was flawed and there seemed to be a misunderstanding on the law on his part, and I have come to the conclusion that his exercise of discretion in ordering the Compound Interest was plainly wrong.  There are merits in Ground 1 and I am prepared to allow the appeal on this ground.

Ground 2 

98.The Master awarded interests from the date of 21 September 1992 in the Probate Action, and from the date of 1 January 1997 in both the 2305 Action and the 2306 Action.  The Commencement Dates were dates on which P’s causes of action were deemed to have accrued.

99.Mr Lam submitted that in using the Commencement Dates, the Master had ignored the fact that there was serious and inordinate delay on the part of P in commencing the 3 Actions, namely 4 November 2013 for the Probate Action, and 12 December 2012 for the other 2 Actions, and that the dates of the commencement of the respective 3 Actions should be used instead.

100.However, Mr Fung submitted that Ds did not advance any submissions on the interest period issue before the Master, and P did not adduce any additional evidence to specifically deal with any delay allegation, and that this was a new point raised on appeal.

101.There was no explanation from Ds as to why this issue was not specifically raised before the Master, although Mr Lam argued that the Master was aware of the issue. 

102.In my view, it is too late to raise this on appeal.  I do not find there are merits in Ground 2.

Ground 3

103.So far as the Sale Proceeds were concerned, as said earlier, there was no specific finding by Chow J that no part of the Sale Proceeds went towards the Construction Costs and in fact, this was a matter which Chow J had specifically directed the Master to consider during the taking of account. 

104.The Master had referred to Father’s share of  the Resumption Proceeds totalling about HKD 2.7m on which Tark Wing had not said anything[66].

105.The Resumption Proceeds from Lot 1219A were a total of HKD 1,910,000 of which Father’s half share was HKD 955,000[67].  As pointed out by Chow J, it was never Tark Wing’s defence that the Resumption Proceeds from Lot 1219A were to be used for the Construction Costs[68]. Notwithstanding the lack of pleading, it appeared to be Tark Wing’s oral evidence at the trial that the Resumption Proceeds from Lot 1219A were used for the Construction Costs.   In the end, Chow J had found that the burden was on P to prove that Tark Wing paid Father’s share of the Resumption Proceeds from Lot 1219A to Grandfather or otherwise used it without Father’s consent or approval, and that P had not discharged the burden on him, since those proceeds were first paid in a bank account held in joint names of Father and Tark Wing and there was evidence that Father had taken HKD 50,000 from the joint bank account for his own use. 

106.As for the Resumption Proceeds from Lot 3757 and the Lau House, these came to a total of HKD 1,810,094 which were paid into Father’s bank account at HSBC of which Grandmother held a power of attorney[69].  The finding of Chow J was that there was no evidence that Tark Wing took or improperly used the Resumption Proceeds from Lot 3757 and the Lau House without the consent or approval of the Father. Further, as stated in the Chow Judgment, P had accepted that the Resumption Proceeds from Lot 3757 and the Lau House contributed towards the that part of the Construction Costs of the House  884[70].

107.As Chow J had ordered the question of what credit (if any) should be given for the Constructions Costs be dealt with in the taking of the accounts, this was an indication that Chow J did not exclude the possibility that the Sale Proceeds, or a part thereof, could have gone towards the Construction Costs, together with all or part of the Resumption Proceeds from Lot 1219A and/or from Lot 3757 and the Lau House.

108.There were necessarily two issues arising out of the question of whether any credit should be given for the Construction Costs, namely:

(i) What were the Constructions Costs for the houses?

(ii) Whether any part of P’s share of the Sale Proceeds went towards the Construction Costs?

109.So far as issue (i) was concerned, it was submitted before the Master on behalf of Tark Wing that even if the Master did not accept Tark Wing’s evidence of the Construction Costs, the alternative was to use the figures produced by P’s expert Mr Terence Kwan, namely HKD 4,564,256 in the report prepared by Mr Kwan (“Kwan Report”).

110.Tark Wing himself had said that it was no longer possible for him to find all the supporting documents after all those years and he was prepared to accept the figures in the Kwan Report.  I had earlier said this was understandable as the 3 Actions were commenced some 15 years after the completion of the 4 houses.  In fact, there was no dispute that there were indeed houses constructed on Lot 3763 and Lot 884, including Father’s House C, House D and ½ of House RP for which Ds had to account for Father’s share of the Rental Proceeds therefrom.  I agree with Mr Lam’s submission that the estimates in the Kwan Report could have been adopted in the absence of the supporting documents from Ds.

111.But there was still issue (ii).  As said earlier, there were “New Calculations” in LTW-5 and a different case was put forward by Tark Wing in that the Construction Costs relating to House C, House D, House RP and House 884.  What is clear is that Tark Wing did not refer to the Resumption Proceeds in LTW-5.

112.The Master had held that Tark Wing did not adduce evidence to show or to try to show how actually the Construction Costs were paid and shared[71].

113.Even though P had accepted that the Resumption Proceeds from at least Lot 3757 and the Lau House had contributed to the Construction Costs relating to House 884, there was no evidence in Tark Wing’s affirmation as to how the Resumption Proceeds were applied towards the Construction Costs of the other 3 houses.  There was no mention by Tark Wing of the Resumption Proceeds at all.   

114.As there was no evidence put forward by Tark Wing, I do not find that Ds can now complain about the Master coming to the view that Tark Wing had failed to discharge his burden to show that any Construction Costs should be deducted.  I thus do not find there was merit in Ground 3.

Conclusion

115.Having regard to all above said, to summarise, I find there are merits in Ground 1.  I am therefore prepared to grant Ds extension of time to appeal under Ground 1 only, and I further allow Ds’ appeal on Ground 1. I order that that the Compound Interests in the Master’s Orders be replaced by simple interests only.  The rest of the Master’s Orders are not to be disturbed.

116.As for costs, as Ds had succeeded on only Ground 1 in their appeal, I order P to pay 1/3 of Ds’ costs of and incidental to the appeal, with certificate for two counsel.  This is an order nisi, which is to be made final after 21 days.

117.Lastly, I would like to thank all Counsel for their assistance to the Court.

  (Bebe Pui Ying Chu)
  Judge of the Court of First Instance
  High Court

Mr Eugene Fung SC and Mr Robin D’Souza, instructed by Wellington Legal, for the plaintiff in HCAP 23/2013, HCA 2305/2012 and HCA 2306/2012

Mr Paul Lam SC and Ms Astina Au, instructed by Hon & Co, for the defendants in HCAP 23/2013, HCA 2305/2012 and HCA 2306/2012



[1]   B:255-286

[2]   At para 20, A:88, and at D:761-781

[3]   At para 31, A:91, and at E:1056-1060

[4]   See E:1964

[5]   E:1061-1064

[6]   A:42-57

[7]   A:58-62

[8]   A:63-67

[9]   At para 9

[10]   See paras 44/11-44/12, pgs 978-979, HKCP

[11]   See paras 13-17 of UES International (HK) Limited v Maritima Maruba SA, HCA 632/2011, unrep 19.11.13, per Anthony Chan J

[12]   See para 14, A:47-48

[13]   See para 4, Ds’ Skeleton Submissions

[14]   A:60

[15]   Being the sum of all net Rental, A:65-66

[16]   Being the sum of all “rental income”, A:70, 71

[17]   See para 58/1/9, HKCP

[18]   See para 28 of Decision, A:53-54

[19]   At para 59 (Chan PJ and Nazareth NPJ) and at para 106 (Lord Millett NPJ)

[20]   At 702D-E

[21]   At para 38, Ds’ Skeleton Submissions

[22]   At para 23, P’s Skeleton Submissions

[23]   At pg 607

[24]   At para 5, A:98 and at para 10, A:100

[25]   At para 11, A:100

[26]   See para 5, A:44

[27]   Para 10, Decision, A:46

[28]   See paras 9(1) and 21 of Decision

[29]   At paras 9(2), 9(3), 25(b) and 34 of Decision

[30]   D:736-757

[31]   See para 20 A:159

[32]   Para 20, A:51

[33]   Para 21, A:51

[34]   Para 22, A:51

[35]   At A:99

[36]   See para 43, Chow Judgment B:269

[37]   See para 44, Chow Judgment, B:270

[38]   See para 83, B:285

[39]   See para 33(5), B:265

[40]   Para 34, B:267

[41]   At paras 36-39, B:267

[42]   At para 40, B:268

[43]   See para 34, A:55

[44]   See E:1057

[45]   See paras 7 and 8(i), A:98-99

[46]   Paras 5-11, A:108-110

[47]   At para 25(b)(ii), A:52

[48]   At para 25(c), A:53

[49]   At E-H, at pg 398

[50]   At pg 692

[51]   Paras 9(1), 21of the Decision, A:45

[52]   Paras 9(2) and (30) of the Decision, A:46

[53]   At para 23, A:51

[54]   At para 25, A:52

[55]   At pgs 241-242

[56]   At pgs 243-244

[57]   At para 34 and para 77, Chow Judgment, B:267

[58]   See para 77, B:283

[59]   See para 25, A:52

[60]   At para 11, A:85

[61]   Para 60, at pg 23

[62]   At para 5, Master Lung’s decision of 2 March 2010

[63]   At paras 172-186

[64]   At para 187

[65]   At paras 189-190

[66]   See para 35, A:56

[67]   See para 19, Chow Judgment, B:259

[68]   See para 49, Chow Judgment, B: 271

[69]   Para 57, Chow Judgment, B:274

[70]   See para 22, Chow Judgment, B:260

[71]   See para 34(b), Decision, A:55-56