Poon Lo Wah Laura and Another v. Poon Yuet Wah, Both in Her Personal Capacity and in the Capacity As an Administratrix of the Estate of Poon Wong Sui Sum (潘黃瑞心) and Another

HCA 702/2017

[2024] HKCFI 1541

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 702 OF 2017

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J U D G M E N T

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Background

1.This is a dispute amongst 3 sisters, relating to the property of their late mother which by will was bequeathed to her 9 children. 2 of the brothers have already passed away (one of whom actually predeceased the mother).  The question in dispute in these proceedings is whether the 7^th sister as sole administratrix (and sued as 1^st Defendant in these proceedings) had acted in breach of her fiduciary duties owed to the beneficiaries in selling the property below market price to her own daughter (the 2^nd Defendant herein). The 1^st Defendant claims that she had obtained the consent of the Plaintiffs (the 3^rd and 6^th sisters respectively) and of the other siblings to the sale, and the 2^nd Defendant claims that she was a bona fide purchaser of the property for value. The Plaintiffs claim that the sale should be set aside, that the 1^st Defendant should give an account of and deliver up the assets and monies of the estate, the Defendants should deliver up vacant possession of the property and the 1^st Defendant should be removed as administratrix of the estate by reason of her breach and failure to discharge her duties to account to the beneficiaries.

2.Flat G, 4^th floor, Tai Kut House, 7 Greig Road, Hong Kong (“Property”) was vested in the name of Madam Poon Wong Sui Sum (“Mother”) since 1999. Mother died on 24 October 2002, and Letters of Administration of her estate (“Estate”) were granted to the 1^st Defendant on 17 September 2010.  Mother had 9 children, 5 sons and 4 daughters, but the 2^nd son predeceased her. Her husband died on 12 January 2009. Mother had made a will some time in 2001, the original of which could not be located, and there is no dispute that the siblings agreed that Mother’s Estate should be distributed as if she had died intestate (as evidenced by a letter dated 2 November 2010 signed by the 8 siblings and addressed to the Estate Duty Office). As pleaded at paragraph 6 (a) of the Statement of Claim filed in these proceedings, the Property was part of the Estate.

3.These proceedings were instituted by the 3^rd and 6^th sisters as 1^st and 2^nd Plaintiffs respectively against the 7^th sister and her daughter as Defendants. According to the Plaintiffs, the 1^st Defendant had acted in breach of her duty as administratrix and trustee of the Estate, to act in the best interests of the beneficiaries of the Estate, by transferring the Property to the 2^nd Defendant, by an assignment dated 29 July 2015, for the price of $3,300,000 which was at an undervalue, since the market value of the Property at the time of the sale was $3,916,000 (“Agreed Market Value”, which is not disputed, being the midpoint of the Plaintiffs’ valuation of $4,220,000 and the Defendants’ valuation of $3,700,000). The Plaintiffs further claim that the 1^st Defendant had failed, despite their repeated requests and in breach of her duties, to give a full account of the Estate, the assets and monies it comprises and the expenses incurred.

The alleged consent

4.In gist and as pleaded, the 1^st Defendant claims by way of defence that the 1^st Plaintiff had agreed that $3.3 million was the market price of the Property, that the 1^st Plaintiff had knowledge that the Property would be sold by the 1^st Defendant at $3.3 million, and that the 1^st Plaintiff had not objected to the sale (paragraph 7 of her Defence). The 1^st Defendant further claims (at paragraph 9 of her Defence) that the total expenses of the Estate and of the Letters of Administration, and other expenses for managing and maintaining the Property from 1998 to 2015, in the sum of $1,408,040, should be deducted from the proceeds of sale of the Property, and distributed amongst the 8 siblings at $236,495 per share. She claims that $236,495 is the 1^st Plaintiff’s share of the Estate, whilst the 2^nd Plaintiff’s share should be $136,495, after deducting from her share a sum of $100,000 which was owing from the 2^nd Plaintiff to the 1^st Defendant.

5.It was the 2^nd Defendant who pleads in her Defence that the Plaintiffs had agreed in writing that the 1^st Defendant should be the administratrix of the Estate, and further, that they (the Plaintiffs) had made a declaration that they would “withdraw their interest in the Estate” (paragraph 7 of her Defence).

6.The 1^st and 2^nd Defendants both claim that the sale of the Property to the 2^nd Defendant was a genuine transaction at market price.

7.The evidence produced at trial include declarations which had been signed by the 1^st brother and the 9^th brother on 9 December 2014, and by the 8^th sister on 9 August 2015 (“Declarations”), whereby these siblings stated that they unconditionally gave to the 1^st Defendant their respective interests in the estate of their parents. However, there is no plea made in the Defence of these Declarations, and no plea as to the effect of these Declarations on the claims made by the Plaintiffs in these proceedings, or how the siblings’ interests in the Property or the proceeds of sale of the Property are affected. Although the 2^nd Defendant referred in her Defence to similar declarations of the Plaintiffs, she did not adduce in evidence any written declaration signed by the 1^st and 2^nd Plaintiffs.

8.As Counsel for the Plaintiffs highlighted, the Defendants never pleaded in their Defence the assertion, made by the 1^st Defendant in the course of her cross-examination, that the siblings had all consented to the sale of the Property.

9.Mr Kee pointed out that the Defendants only pleaded that the 1^st Plaintiff had agreed (paragraph 7 of the Defence of the 1^st Defendant) to the 1^st Defendant’s sale of the Property to the 2^nd Defendant at $3.3 million, and in their witness statements, the Defendants had only asserted that: (1) the 1^st Plaintiff’s agreement was contained in or evidenced by the Whatsapp messages exchanged between the 1^st Plaintiff and the 2^nd Defendant (on 14 March 2015) (“Whatsapp Messages”); and that (2) the 1^st Plaintiff was acting on behalf of the 2^nd Plaintiff as well.  In the course of their Opening, the Defendants also purported to rely on the fact that the 1^st Plaintiff’s consent to the sale of the Property was obtained during the Defendants’ visit to the 1^st Plaintiff’s home in March 2015. Such a visit, and the further assertion that the 4^th brother had also verbally agreed to the sale of the Property to the 2^nd Defendant, had never been mentioned in either of the Defendants’ witness statements.

10.It is important to refer to the reminder given by the Court of Appeal in Chan Kong v Chan Li Chai Medical Factory (HK) Ltd & ors CACV 161 of 2006, 11 September 2008, where Yuen JA reiterated the importance of pleadings, and highlighted the fact that an unrepresented party is not exempted from the need or duty to comply with the rules for pleadings.  At paragraph 15 to 17 of her judgment, Her Ladyship explained:

“15. Before we deal with the draft Re-Re-Amended statement of claim, we should say a word about the importance of pleadings. It is well-established that pleadings need to be clear - because pleadings are the foundations on which the rest of the action stand. The reason why parties to litigation must ensure that the real issues in dispute are defined in advance in the pleadings is so that there is an unambiguous framework for the many interlocutory steps that follow in an action, such as discovery of documents, interrogatories and witness statements, as well as for the conduct of the trial itself. A statement of claim should make it clear to the reader what the plaintiff’s cause of action is, and it should set out the material facts which provide the basis for him to pursue that cause of action. It is not adequate for a plaintiff just to set out his story extensively and then to allege a number of breaches of rights for which he claims relief. Put another way, it should not be left to the reader to guess how the dots should be connected.

16. The more complex the facts and the more complicated the claim, the more important it is for the pleader to get it right. That is because the more obtuse the pleading, the more capacity there is for genuine misunderstanding or specious opportunism. And the more blind alleys are left in a pleading, the more expensive and time-consuming the litigation will be.

17. Although an unrepresented litigant may not be expected to use legal terminology, that does not relieve him of the need to comply with the rule that pleadings have to be clear.  A litigant in person cannot simply pour out his story and ask the court to sort out his legal rights because he himself is ignorant what rights may have been breached or how.  A pleading cannot be like a set of instructions to the judge as if he were the unrepresented litigant’s counsel. That is not the function of the court in an adversarial system.  Having said that, a court is entitled in the exercise of its discretion to be a little more lenient to an unrepresented litigant in giving him an opportunity to get things right.”

11.It is not the function of the Court to speculate on the nature of a party’s case or defence in the light of the evidence put forward at trial.  Nor is it the function of the Court to advise a party on how its case should be pleaded.  The Defendants are bound by their own pleadings, bearing in mind, in particular, that at the time when her Defence was filed, the 2^nd Defendant was legally represented. Their pleadings dictate the trial and the relevance and admissibility of the evidence, because the pleaded case is the one which the Plaintiffs have come to meet at trial. The Court therefore cannot decide the case on the basis of matters which are not pleaded and particularized in the Defence.

12.As correctly summarized by Counsel for the Plaintiffs, the claims which are sought to be made by the Defendants at trial are that, firstly, the 1^st Defendant as the sole executrix of the estate of the 5^th brother (who died on 28 November 2014) is able to make decisions for his estate. The 1^st brother, the 8^th sister and the 9^th brother have by their Declarations vested their shares in the Estate in the 1^st Defendant. The 4^th brother had verbally agreed to the sale of the Property to the 2^nd Defendant. The 2^nd Plaintiff’s consent to the sale of the Property to the 2^nd Defendant at the price of $3.3 million was given by the 1^st Plaintiff, for herself and on behalf of the 2^nd Defendant, in the Whatsapp Messages. Further, the 4^th brother had also given his verbal consent, as well as the 2^nd Plaintiff’s consent, to the sale of the Property during his visit to the 2^nd Plaintiff’s office.

13.These assertions were made by the Defendants in their Opening and in the course of their cross-examination, but apart from the claim of the 1^st Plaintiff’s consent having been given (for herself and for the 2^nd Plaintiff) in the Whatsapp Messages, the assertions did not appear in the Defence, and (as submitted by Counsel) in fact contradict the claims which were made in the pleadings and in the Defendants’ witness statements.

14.The Defendants allege (in their Opening) that because the 1^st brother, the 5^th brother, the 8^th sister and the 9^th brother were all heavily indebted to the 1^st Defendant over the years and were unable to repay their debts to the 1^st Defendant, they had made Declarations to forgo their share in the Estate and had vested their shares in the 1^st Defendant by way of repayment. This of course is not pleaded, nor is such a claim made in the Defendants’ witness statements, but their  belated and unparticularized assertion is in stark contrast to the contents of the witness statements made by the 2 Plaintiffs, the 8^th sister and the 1^st brother, who all stated that it was the 1^st Defendant who was heavily in debt and had constantly borrowed from the 8^th sister, and other friends and relatives. It would not be necessary to address the unsavory details of all these assertions, since it is not even part of the 1^st Defendant’s pleaded defence that her siblings had given up their share in the Property as repayment of any debt allegedly due to her.

15.The 1^st brother claims in his witness statement that the Declaration sought to be relied upon by the Defendants was signed by him under misrepresentations made by the 4^th brother, that the Declaration (which was in English when presented to him for signature in December 2014) only stated that the 1^st Defendant would hold the Estate in custody for him, and the 1^st brother never knew, nor intended, that he was to give up his share in the estate of either Father or Mother, or to vest same in the 1^st Defendant by way of gift. According to the 1^st brother, the Chinese contents of the Declaration were not contained in the document which he signed upon the 4^th brother’s misrepresentation, and he had not understood the contents.

16.According to the 8^th sister, the Declaration which she signed at the 1^st Defendant’s request was executed under pressure from the 1^st Defendant, at a time when her own attention and concentration was impaired after a surgery in August 2014 (as certified by her doctor). The 8^th sister also claimed that the 1^st Defendant told her that the document was a mere formality or customary requirement, and that she was not giving up her rightful share in the Estate but was only effecting a temporary transfer, for the 1^st Defendant to hold the Estate in custody for the 8^th sister. The 8^th sister claimed in her witness statement that she did not have any knowledge that the 1^st Defendant would sell the Property to the 2^nd Defendant, and that she had never been asked to consent, nor had she given any consent, to the sale.  She claimed that she had been deceived by the 1^st Defendant, who had been indebted to her, and that the 1^st Defendant had made substantial borrowings from her and her friend (as evidenced by the legal proceedings instituted against the 1^st Defendant).

17.The 2^nd Plaintiff denies that she had consented to the sale of the Property.  According to the 2^nd Plaintiff, the 4^th brother had visited her office in February 2015, and asked her to make a gift of her share in the Estate (comprising the Property) to him. The 2^nd Plaintiff had immediately turned down such request. According to the 2^nd Plaintiff, the 4^th brother informed her that the 1^st Defendant was in financial difficulties, and wanted to sell the Property to raise some cash. The 2^nd Plaintiff objected to such an idea.  She explained that the Property was not solely owned by the 1^st Defendant, but was part of the Estate, and it had been Mother’s wish to retain the Property and not to sell it. According to the 2^nd Plaintiff, it was only in August 2015 that she was informed by the 1^st Plaintiff that the 1^st Defendant had become the administratrix of the Estate, and had sold the Property to the 2^nd Defendant. She pointed out that although the Defendants tried to explain that the sale to the 2^nd Defendant was in order to retain the Property (and not to sell to a third party), this was in fact contradicted by the 2^nd Defendant’s statement in the documents filed for the Case Management Conference that the Plaintiffs had tried to stop her from “reselling” the Property and that this had caused damage to her “plan to move to a bigger flat”.

18.The 1^st Plaintiff’s evidence is referred to in more detail below.

19.Ultimately, the pleaded defence turns on whether the Plaintiffs in this case had consented to the 1^st Defendant’s sale of the Property to the 2^nd Defendant at $3.3 million, and whether there is any breach by the 1^st Defendant of her undeniable duties in law as an administratrix, to act in the best interests of the beneficiaries, and not to put herself in a position where her interests would conflict with those of the beneficiaries.

Market value

20.I accept the submissions made for the Plaintiffs, that the Defendants have confirmed to the Plaintiffs’ solicitors in writing in August 2021 that the market value of the Property should be treated at trial as $3,960,000. This is the mid-range of the Plaintiffs’ valuation of $4,220,000 and the Defendants’ valuation of $3,700,000. There is no question that the letter dated 13 August 2021 from the Plaintiffs’ solicitors is clear as to what was proposed, and the Defendants’ written reply clearly state their unequivocal agreement.

21.The Defendants’ explanation, and the distinction made in their Opening and Closing, that it was their hope to settle the Plaintiff’s claims in these proceedings using the figure of $3,960,000, cannot detract from the clear statement in their letters to the Plaintiffs’ solicitors, that $3,960,000 is accepted as the market value of the Property. It follows that the sale of the Property to the 2^nd Defendant at $3.3 million is below the agreed market value.

Consent to 1^st Defendant acting as adminstratrix?

22.Although the Plaintiffs dispute the 1^st Defendant’s claim, that all the siblings had consented and agreed to the 1^st Defendant acting as the administratrix of Mother’s Estate, this is not an issue which affects the Plaintiffs’ claim in these proceedings.

23.Even if the Plaintiffs had agreed in 2010 that the 1^st Defendant should act as the administratrix, and even if it is true that all the siblings had at the relevant time consented to the 1^st Defendant’s appointment, it does not mean that the 1^st Defendant cannot be removed as administratrix if she is found to have acted in breach of her fiduciary duties owed in law to the beneficiaries of the Estate, or had failed to carry out her duties as administratrix.

24.Nor does the fact that the 1^st Defendant is the administratrix of the Estate, with the consent of all the siblings, mean that she could decide to sell the Property to the 2^nd Defendant at undervalue.

Consent to the sale of the Property to the 2^nd Defendant?

25.The Defendants rely on the Whatsapp Messages as evidence of the Plaintiffs’ consent to the 1^st Defendant’s sale of the Property to the 2^nd Defendant at $3.3 million. The Whatsapp Messages were exchanged between the 2^nd Defendant and the 1^st Plaintiff only.

26.The relevant excerpt of the Whatsapp Messages is set out below:

“1^st Plaintiff: 可然妳亞媽是否答應四舅父要將太吉樓轉名給妳到銀行做按揭呀?

2^nd Defendant: 姨媽, 唔係你同意左用330萬用我個名做按揭咩

1^st Plaintiff: 可以。但妳做完按揭後，銀行過咗數比妳後我同六姨都要即刻取錢。

1^st Plaintiff: 3300000 ÷9 = 每人分 $36,666.-

1^st Plaintiff: 366,660.- 每分

1^st Plaintiff: 按錯咗 amount

1^st Plaintiff:     Ok?”

27.Translated, the excerpt reads:

“1^st Plaintiff: Ho Yin did your mother agree with 4^th Uncle to transfer (the Property) to your name to obtain bank mortgage?

2^nd Defendant: Auntie, didn’t you agree to use my name to obtain mortgage for 3.3 million?

1^st Plaintiff: You can. But when you have obtained mortgage, after the bank transfers the money to you I and 6^th Aunt have to be paid immediately.

1^st Plaintiff: 3,300,000 ÷ 9 = $36,666 each.

1^st Plaintiff: 366,660 per share.

1^st Plaintiff: Pressed the wrong amount.

1^st Plaintiff:     OK?”

28.I agree with Counsel for the Plaintiffs, that the above conversation between the 1^st Plaintiff and the 2^nd Defendant does not evidence the 1^st Plaintiff’s consent or agreement to the sale of the Property at the undervalue of $3.3 million. On its face, what the 1^st Plaintiff and the 2^nd Defendant referred and agreed to in the Whatsapp Messages was the 2^nd Defendant using the Property to procure a mortgage loan of $3.3 million.  This is consistent with the Plaintiffs’ case.

29.According to the 1^st Plaintiff’s witness statement, the Defendants had visited her at her home in March 2015. They informed the 1^st Plaintiff that the Defendants were heavily in debt, and they hoped that the 1^st Plaintiff would agree to their using the Property as mortgage security to raise a loan. The 1^st Plaintiff refused, but the Defendants had continued to beseech her help, and had assured her that the Property would only be used to obtain a mortgage loan, and that they would not appropriate the Property which formed Mother’s Estate. The 1^st Plaintiff claimed that the Defendants undertook to her that the Property would not be sold, because they were well aware of the fact that it was Mother’s wish to retain the Property, and not to sell same. The Defendants also undertook to use the mortgage loan to distribute the Estate to the beneficiaries, according to their respective share.  According to the 1^st Plaintiff, she finally agreed to the Defendants’ persistent pleas for help, and gave her consent to the Property being used to raise a mortgage loan. The Defendants informed her that because the 2^nd Defendant had a stable income, she would be able to apply for a mortgage loan of $3.3 million, and that was the amount the 1^st Plaintiff had agreed as the amount of the mortgage loan to be obtained.

30.The 1^st Plaintiff maintained that she had not agreed to the sale of the Property, nor to the sale price being $3.3 million. As the 1^st Plaintiff stated in the Whatsapp Messages, she had made it clear that after the mortgage, the Defendants were to distribute the loan proceeds to the beneficiaries of the Estate according to their share. The 1^st Plaintiff confessed in the witness box that she had no idea how the mortgage would work, but she had trusted the 1^st Defendant in this. The 1^st Plaintiff made it clear in her witness statement that she was in no position to agree to the sale of the Property as she was not the sole owner, and that the consent of all the other beneficiaries should first be obtained before any sale. She maintained that she had only agreed to the Defendants using the Property to obtain a mortgage loan, in order to assist the resolution of the Defendants’ financial difficulties.

31.It cannot be seen from the Whatsapp Messages that the 1^st Plaintiff was acting on behalf of the 2^nd Plaintiff, by agreeing to what the Defendants had proposed. The 1^st Plaintiff only stated that when the mortgage loan was obtained by the 2^nd Defendant, the 1^st and 2^nd Plaintiffs must immediately be paid. She could have asked for payment to the 2^nd Plaintiff, even if she had not been authorised or required by the 2^nd Plaintiff to do so.

32.On the 2^nd Plaintiff’s part, she denies that she had ever agreed to the sale of the Property, and denies that the 1^st Plaintiff had ever, on her behalf, consented to the 1^st Defendant’s sale to the 2^nd Defendant, as alleged by the Defendants.

33.Although the Declarations signed by the 1^st brother, the 8^th sister and the 9^th brother have been produced in evidence, and the 1^st brother and 8^th sister had in their witness statements disavowed the contents of the Declarations, the Defendants have not called the 9^th brother to give evidence as to his alleged gift of his share of the Estate to the 1^st Defendant, and to give support and credence to the Defendants’ assertion that they had obtained the consent of all the siblings to the sale of the Property. The Court is entitled to draw adverse inference against the Defendants, that any evidence from the 9^th brother would not have assisted the Defendants’ case.

34.In my judgment, the Defendants’ version of the sale of the Property with the knowledge and consent of the Plaintiffs and all the other siblings is contradicted by the evidence of the 1^st brother and the 8^th sister (who are not parties in the action), and inconsistent with the evidence of the 1^st and 2^nd Plaintiffs which I prefer. Further, their case is not borne out by the Whatsapp Messages on which the Defendants rely.

35.As pointed out by Counsel for the Plaintiffs, when the Defendants were confronted with the fact that the assertions they have made, as to the siblings’ consent to the sale, of the gifts made to the 1^st Defendant, and as to the quotations they had allegedly obtained from the banks, have either not been pleaded or referred to in their witness statements, the only excuse proffered by the 2^nd Defendant was that her lawyers should be blamed for not including all relevant materials which she had given them, or that they had misunderstood her instructions. Their explanation given in court as to the figure of $3,960,000, and their attempt to distance themselves from the admitted market value which was higher than the price at which the Property was sold to the 2^nd Defendant, is unconvincing. On the whole, I do not regard the Defendants as forthright or truthful witnesses, and do not consider their evidence to be reliable. To the contrary, the claims they made in their evidence have all been self-serving.

36.In summary, I reject the Defendants’ evidence that the Plaintiffs had agreed to the 1^st Defendant’s sale of the Property to the 2^nd Defendant.

37.Even if the 1^st Plaintiff had, by virtue of the Whatsapp Messages, agreed to the sale of the Property to the 2^nd Defendant at $3.3 million, the 1^st Defendant still has the onus to prove that this sale at $3.3 million was at market price, and was in the interests of the beneficiaries of the Estate.

Any breach by the administratrix of her duties?

38.As a matter of law, it is undeniable that when an administrator of an estate sells the estate, he/she is under the duty to sell it under every possible advantage to the beneficiaries (Lewin on Trusts, Vol II (20^th Ed) at para 37-034).

39.In Lam Sik Shi v Lam Sik Ying, Administrator of the Estate of Lam Tin alias Stan Lam Tim, deceased & Anr (unreported, HCA 1605/2004 & HCA 894/2011, 3 October 2006), the Court recited the principles applicable to a trustee’s sale of property, quoting from the judgment in Killearn v Killearn [2011] EWHC 3775 (Ch):

“‘(i) It is the overriding duty of a trustee when selling a trust’s property to do so under every possible advantage to his beneficiaries. Authority for that is the case of Downes v Graysbrook (1817) 3 Mer. 200; see also Re Cooper and Allen’s Contract (1876) 4 Ch D 802.

(ii) The duty includes a duty to secure by every means in the trustee’ power a proper competition for the trust property in order to obtain the best price; see Harper v Hayes (1862) Gif 210.

(iii) The duty requires the trustee to investigate a higher offer after the stage at which an ordinary vendor might consider himself morally bound by a lower offer; see Buttle v Saunders [1952] 2 All ER 193.

(iv) The trustee must not make a sale with a view to advancing the particular purposes of one party interested in the execution of the trust at the expense of another; see Ord v Noel (1820) 5 Madd 438.

(v) Where a trustee exercises a power vested in him such as a power of sale, the burden of proof lies on him to show that it is a fit and proper exercise of the power; see Norris v Wright (1851) 40 Beav 291.

(vi) Finally, a trustee in breach of duty is personally liable for any loss caused to the beneficiary; see Taylor v Taylor (1833) 6 Simons 281.’ (Emphases added)”

40.The executor or administrator, as trustee of the property of the estate, is therefore under a duty to take steps to ensure, to the best of the trustee’s abilities, that there is proper and adequate competition for the trust property being sold, in order to obtain the best possible price. On the evidence, the 1^st Defendant had not engaged or contacted any estate agent for the sale of the Property. She claims, for the first time in the course of cross-examination, that she had inquired with her relatives and friends as to the possible sale, but that is not sufficient when it was an easy task for her to have put the Property on the market through a professional estate agent.  The 1^st Defendant did not even advertise the Property for sale.

41.There is no evidence that the 1^st Defendant had obtained any proper valuation of the Property, to ascertain the then prevailing market price. The 1^st Defendant made bare assertions that she had asked for quotations from two banks, and that the bank staff had verbally told her that the Property had a market value of about $3 million. There is no document in support of this, and the 1^st Defendant’s claim is hardly credible.  Even if her claim is true, the oral over-the-counter estimate can hardly be accepted as a reliable valuation, in the absence of any proper market research.  It is doubtful that any bank would give any valuation in such an informal, off-hand manner.

42.The Defendants sought to rely at trial on some historic transaction records of the Property from a source, but such data was obtained not by the 1^st Defendant but the 2^nd Defendant, and there is no claim that the 1^st Defendant had been given, or was in possession or had knowledge of such data. In any event, the data can hardly support the 1^st Defendant’s Defence, when it was obtained only after the commencement of the litigation, and not before the sale of the Property.

43.As the Plaintiffs pointed out, the 2^nd Defendant was accordingly the only potential buyer and the actual buyer. There was no competition for the sale to the 2^nd Defendant, and on the authorities, the 1^st Defendant was clearly in breach of her duty to procure the best price for the sale, by her failure to procure and investigate higher offers.

44.Not only was the price at which the Property was sold to the 2^nd Defendant below the admitted market value. On the evidence, the 2^nd Defendant was not able to make payment of the balance of the purchase price on the scheduled date for completion. Completion was delayed for 9 days to 29 July 2015, which was breach of the Agreement for Sale and Purchase. The 1^st Defendant nevertheless agreed to the delayed completion, and did not even present the 2^nd Defendant’s cheque for the balance of $331,683 payable on 29 July 2015, until nearly one month later, on 27 August 2015. This was abviously to favour the 2^nd Defendant, and was for her convenience. The 1^st Defendant did all this without informing or seeking the consent of the Plaintiffs, or any of the other beneficiaries of the Estate who had an interest in the Property, its sale, and whether completion should be delayed.

45.On the evidence, I am satisfied that the 1^st Defendant had made a sale of the Property to advance the particular purposes and interests of herself, and of the 2^nd Defendant, at the expense and to the detriment of the other beneficiaries of the Estate. This was all in breach of her fiduciary duties as the administratrix.  Her purported ignorance of the duties expected of an administratrix does not afford her any defence.

Failure to keep proper accounts and to account for monies comprising the Estate

46.On the evidence, there is no doubt that the 1^st Defendant failed to keep a proper account of the Estate and to account to the beneficiaries for the assets, monies and expenses of the Estate.

47.In Chow Chak Yu v Chow Man Chit & Ors (unreported, HCMP 797/2016, 17 January 2017), Chow J explained:

“‘40. Generally speaking, to render a proper account of the estate of a deceased person, the personal representative is required to:-

(1) show the opening balance (including capital assets) and closing balance;

(2) of give details of movement of assets, incomes and expenditure the estate;

(3) give details of the whereabouts of all properties (including cash) of the estate which the personal representative is duty bound to administer; and

(4) support the account with documentary evidence.

...

41.    Moreover, it is not acceptable for the personal representative merely to give to the beneficiary a bundle of documents relating to the estate and leave it to the beneficiary to sort out the documents himself (Re Estate of Lee Da Kor, at paragraph 37).’ (Emphases added)”

48.The account made by the 1^st Defendant of the proceeds received by the 1^st Defendant in relation to the sale of the Property, as ordered by the Master on 13 September 2019, is hopelessly inadequate. She did not give any explanation for the multiple cash withdrawals made by her from the bank account into which the sale proceeds had been paid.  The proceeds of sale of the Property had in fact been paid into the 1^st Defendant’s own personal bank account, and had been mixed with her own funds. The 1^st Defendant stated that she could not recall the purpose of cash withdrawals totaling $870,200, representing one‑fourth of the sale proceeds.

49.Of the withdrawals made from the proceeds, the solicitors formerly acting for the 1^st Defendant explained in November 2019 that a sum of $1,300,000 had been used to settle the indebtedness owed by the 5^th brother to a third-party. The 5^th brother had died in November 2014, and it is inconceivable how the 1^st Defendant could have been acting under the instructions of her deceased brother in November 2019, when she allegedly settled the debt. Stating the obvious, the proceeds of sale of the Property represented Mother’s Estate – and not the estate of the 5^th brother. The 1^st Defendant had no right to use the monies of the Estate to discharge the debts of the 5^th brother.

50.In her Defence, the 1^st Defendant also stated that the proceeds of sale of the Property had been used to discharge the living, medical, hospital and funeral expenses of the 5^th brother. There is no justification why the assets comprising Mother’s Estate should be used to pay for the 5^th brother’s expenses.

51.If the 1^st Defendant claims that her siblings owed her any money which she had paid for Mother, or that the 1^st Plaintiff is indebted to her in respect of any personal loans she had made to the 1^st Plaintiff, this must be pursued by separate action in her name, to pursue her personal cause of action against any of her siblings.  It is no answer to raise these alleged debts in these proceedings against the Plaintiffs’ interests in the Estate.

52.In conclusion, I find that the 1^st Defendant has been in breach of her duties to keep proper accounts of the Estate, and to provide a proper account to the beneficiaries of the Estate upon their request.

Liability of the 2^nd Defendant

53.The Plaintiffs’ claim against the 2^nd Defendant is pleaded (in paragraph 13 of the Statement of Claim) as a case of knowing assistance of the 1^st Defendant’s breach of trust and/or fiduciary duties, and that the 2^nd Defendant was not a bona fide purchaser for value without notice.

54.On behalf of the Plaintiffs, Counsel contended that the 2^nd Defendant had actual as well as constructive knowledge of the 1^st Defendant’s breach of trust, and relies on the judgment in Sun Sek Haw & ors v Au So Kum [1999] 3 HKLRD 12, and the observations made therein:

“There is, of course, no doubt that a bona fide purchaser for value without notice takes free from any trust. But if a purchaser receives trust property with actual or constructive notice that it was trust property and that the transfer to him was in breach of trust, then he becomes a constructive trustee.”

55.In Baden v Societe Generale pour Favoriser le Development du Commerce et de l’Industrie en France SA (Note) [1993] 1 WLR 509, constructive notice was explained to be knowledge of circumstances which would indicate the facts to an honest and reasonable person, or knowledge of circumstances which would put an honest and reasonable person on inquiry.

Knowledge: applicable legal principles

56.The authorities are clear, that for the purpose of deciding whether a defendant is dishonest to be liable for dishonest assistance (the previous label for the tort being “knowing assistance”), it is necessary for the Court to ascertain the actual state of the defendant’s subjective knowledge or belief as to the facts. Only upon ascertaining the defendant’s actual state of mind as to knowledge or belief as to facts can the Court decide whether the defendant was dishonest by the objective standards of ordinary and decent people (Ivey v Genting Casinos (UK) Ltd [2018] AC 391, Group Seven Ltd v Nasir [2020] Ch 129. There is no requirement that the defendant must appreciate that what he has done is, by those objective standards, dishonest.

57.As to what can constitute actual knowledge, the Court in Group Seven explained (at paragraph 59 of the judgment):

“The discussions of knowledge by Lord Hoffman and Lord Millett in Twinsectra [2002] 2 AC 164 indicate that knowledge of a fact may be imputed to a person if he turns a blind eye to it, … or if in legal parlance he deliberately abstains from inquiry in order to avoid certain knowledge of what he already suspects to be the case. It is convenient to use the expression ‘blind-eye knowledge’ to denote imputed knowledge of this type. In the context of dishonest assistance for breach of trust or fiduciary duty, it was common ground before us, and we consider it correct in principle, to equate blind-eye knowledge with actual knowledge for the purposes of the first stage of the test laid down in Tan [1995] 2 AC 378 and endorsed in Barlow Clowes [2006] 1 WLR 1476 and Ivey. It is important, however, to understand the limits of the doctrine. It is not enough that the defendant merely suspects something to be the case, or that he negligently refrains from making further inquiries. As the House of Lords made clear in Manifest Shipping Co Ltd v Uni-Polaris Insurance Co Ltd (The Star Sea) [2003] 1 AC 469 the imputation of blind-eye knowledge requires two conditions to be satisfied. The first is the existence of a suspicion that certain facts may exist, and the second is a conscious decision to refrain from taking any steps to confirm their existence: see the speech of Lord Scott of Foscote at para 112, and the observations to similar effect of Lord Hobhouse of Woodborough at para 25. The judgments also make it clear that the existence of the suspicion is to be judged subjectively by reference to the beliefs of the relevant person, and that the decision to avoid obtaining confirmation must be deliberate.” (Emphases added)

58.The Court continued in the judgment to make it clear (at paragraph 61) that a person’s beliefs may include suspicions which he harbors, but which in and of themselves fall short of constituting blind-eye knowledge, and the existence of such suspicions, and the weight (if any) to be attributed to them, are matters to be taken into account at the objective second stage of the test of dishonesty.

Dishonesty

59.Actual knowledge and suspicion or belief are judged subjectively, but whether liability for dishonest assistance can be established is determined by the objective standards of honest and ordinary bystanders.

60.In the Court’s determination of whether the defendants were honest or dishonest according to the objective standards of ordinary decent people (Group Seven Ltd v Nasir [2020] Ch 129), even gross negligence on the part of the defendants is not sufficient to establish dishonesty for the claim of dishonest assistance (Ivey v Genting Casinos (UK) Ltd [2018] AC 391, at para 62). A dishonest state of mind may involve knowledge that the transaction is one in which one cannot honestly participate, or it may involve suspicion that certain facts may exist, combined with a conscious decision not to make inquiries which might result in actual knowledge of those facts (Barlow Clowes International v Eurotrust International Ltd [2006] 1 WLR 1476). The latter constitutes blind-eye knowledge, but that suspicion, subjectively determined by reference to the person’s belief, must be firmly grounded and targeted on specific facts, and there must be a deliberate decision to avoid obtaining confirmation of facts the existence of which the person has good reason to believe. A vague feeling of unease, holding general concerns, or having unanswered questions about the transaction are not sufficient to give rise to blind-eye knowledge (Bilta (UK) Ltd v Natwest Markets plc [2020] EWHC 546.

State of the 2^nd Defendant’s knowledge

61.The 2^nd Defendant is the daughter of the 1^st Defendant.  She knew that the 1^st Defendant was the administratrix of the Estate of her grandmother, and that the Property was the only asset of the Estate. She knew that her mother, uncles and aunts were all beneficiaries of the Estate and had interests in the Property. 

62.The Plaintiffs rely on their solicitors’ letter of August 2021 to the Defendants, and the 2^nd Defendant’s agreement to $3,960,000 as the market value of the Property, as evidence of the 2^nd Defendant’s knowledge that the sale to her at $3 million was below market value.  However, that letter can only prove the 2^nd Defendant’s knowledge in 2021, and not at the time of the purchase in 2015.

63.Nevertheless, the 2^nd Defendant knew in 2015 that the Property was an asset of the Estate, of which the 1^st Defendant was the administratrix.  On the 2^nd Defendant’s own evidence, she knew that it was the 1^st Defendant’s wish for her to purchase the Property, and the 2^nd Defendant herself wanted to purchase the Property. It seems to be common ground that the mortgage loan was in the name of the 2nd Defendant, because she (and not the 1^st Defendant) had a stable income and would be able to apply for a bank loan. The 2^nd Defendant was aware that apart from herself, there was no other potential purchaser, and that there was in fact no competition in her buying the Property, as none had been procured by her mother.

64.On the evidence, the 2^nd Defendant had actual knowledge that the Property was trust property, and ought to have known that the transfer to her without the knowledge and consent of the other beneficiaries (namely her aunts and uncles) was inappropriate (even if she might not have known that it amounted to breach of trust in law), in circumstances when her mother had failed to take any step to ensure that the Property was sold at market price. Any honest and reasonable person, with knowledge of all these facts, would be put on inquiry as to whether her mother had the right to sell the Property to her, whether her purchase at $3.3 million was proper, and whether the consent from all her aunts and uncles should first be obtained. She failed to make, and abstained from making further inquiries with either her mother, or her other aunts and uncles, and it is obvious that this was to avoid finding out more details of what she suspected was inappropriate and a breach of duties by her mother.

65.Further, when the 2^nd Defendant was not able to obtain adequate funds to complete the purchase under the Sale and Purchase Agreement, and completion had to be delayed, her mother had agreed to it, and the 2^nd Defendant had failed to ask whether her aunts and uncles had been informed and had also agreed to the delayed completion. She knew that her mother was not the absolute owner, nor the sole beneficiary of the Property, and any honest and reasonable person would know that failure to make payment on the scheduled date for completion was a breach of contract, and required the consent of the beneficiaries to the delayed completion.

66.Based on my findings on what the 2^nd Defendant knew and/or suspected, the ordinary, decent and honest person in the position of the 2nd Defendant would have questioned the proprietary of the sale and transfer of the Property to her at $3.3 million, and would have questioned the 1^st  Defendant as to whether the consent of all her aunts and uncles had been obtained to (1) the sale of the Property; (2) the sale to her; (3) the sale at $3.3 million; and (4) the delayed completion of the sale.

67.Without making the enquiries, the 2nd Defendant can be considered to have “blind-eye” knowledge of the 1^st Defendant’s breach of fiduciary duties and trust, and was dishonest in assisting the 1st Defendant’s breach and sale of the trust assets.

Disposition

68.For all the above reasons, I find that the 1^st Defendant was in breach of her duties as the administratrix of the Estate, and that the 2^nd Defendant was not a bona fide purchaser for value without notice of the 1^st Defendant’s breaches of trust and fiduciary duties, but had dishonestly assisted the 1^st Defendant’s breach. The Plaintiffs’ claims, including the claim for the sale of the Property to the 2^nd Defendant to be set aside, are allowed in terms of the prayer in the Statement of Claim. The Order made under paragraph 6 of the prayer will be for delivery of the vacant possession of the Property within 4 months from the date of handing down this Judgment.

69.Costs of the action, including all costs reserved (if any), are to be paid by the Defendants jointly and severally to the Plaintiffs at High Court scale, with certificate for counsel.

Mr Vincent Kee, instructed by Ma Tang & Co, for the 1^st & 2^nd plaintiffs

1^st Defendant appeared in person

2^nd Defendant appeared in person