Case Document

100%Judiciary

HCMP003956/2002

HCMP 3956/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3956 OF 2002

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IN THE ESTATE OF CHEUNG KUNG HAI, DECEASED

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BETWEEN
	WONG POH GEAK also known as CHEUNG PO GEAK	1st Plaintiff
	CHEUNG POH CHOO	2nd Plaintiff
	CHEUNG POH LUCK also known as KWAN POH LUCK	3rd Plaintiff
	CHEUNG POH CHIT also known as LAU PO CHIT also known as LAI CHEUNG POH CHIT	4th Plaintiff
	CHEUNG PUI YUEN	5th Plaintiff
	CHEUNG PHEI CHIET	6th Plaintiff

	AND

	CHIN LAN HONG, CHEUNG KEE WEE and CHEUNG LIN WEE (sued as the Executors and Trustees of the Estate of CHEUNG KUNG HAI, DECEASED)	Defendants

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Coram: Hon Reyes J in Court

Dates of Hearing: 27, 28 and 29 January 2004

Date of Decision: 29 January 2004

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D E C I S I O N

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I. Principles

1.In deciding whether or not to order the relief sought by the Plaintiffs in these proceedings, I propose to be guided by the principles which I am about to enumerate.

2.First, an executor stands towards a residuary legatee as a fiduciary to a beneficiary. The residuary legatee has an interest in ensuring that the executor administers an estate properly.

3.Second, as a matter of general principle, a beneficiary should be allowed to see documents in the custody, possession or power of his fiduciary relating to assets over which the latter exercises duties in equity in favour of the former. Such documents would typically be those which show what assets are held by the fiduciary on behalf of the beneficiary, how the fiduciary has dealt with these assets, and what the beneficiary's financial position is in the course of his fiduciary's stewardship.

4.Third, where a fiduciary refuses to provide relevant documents to a beneficiary and the beneficiary applies to the Court to compel disclosure, the Court has a discretion whether or not to override the general principle. The Court's discretion to order or refuse disclosure of documents is one facet of the Court's jurisdiction to supervise the administration of trusts. But the Court will normally exercise its discretion in favour of disclosure of relevant documents, unless a fiduciary can show that there are special circumstances justifying the withholding of the documents. Special reasons include issues of personal or commercial confidentiality or matters suggesting that the interests of the beneficiaries as a whole would be compromised if disclosure were made.

5.Fourth, similar considerations influence the Court's approach to applications for an inventory and account of a deceased's movable and immovable property under Probate and Administration Ordinance (Cap. 10) ("PAO") s. 56. Personal representatives are under a duty to render an account to the beneficiaries of an estate. The Court should therefore lean towards ordering an account as a matter of general principle.

6.Fifth, there may be situations (such as here) where a personal representative says that it would be premature, oppressive or inappropriate to order an account because an estate is still under administration and probate has not yet been granted or because the estate is in delicate negotiations with the Estate Duty Office or some other reason. In such cases, the Court has a discretion whether to order an account sooner rather than later and whether to order an account in whole or in part on some discrete issue or issues or not at all. But, in light of the general principle, the Court must carefully scrutinise the reasons given for postponing the rendering of an account.

7.Sixth, where the Court orders an account, it can direct that such is to be done on affidavit with relevant documents exhibited. In exercising its discretion whether to make such a direction, the Court may consider whether a list of assets or a set of accounts will be of much (if any) assistance to a beneficiary without some explanation (backed by supporting documents) of how the inventory of assets was determined or how the accounts were compiled.

8.Seventh, where it appears, perhaps from the number and type of objections made by a beneficiary to an account rendered or perhaps from the rival contentions of beneficiary and fiduciary on some issue or issues, that there is:-

(1) a serious question or dispute between beneficiary and fiduciary as to what constitutes the assets of an estate or as to the proper administration of the estate; and,

(2) such dispute cannot be resolved by the provision of a verified account by the personal representatives,

the Court may in it discretion order that there be an inquiry into the question. The Court can order an inquiry in other situations. The specific example which I have just mentioned is one which is pertinent to my deliberation here.

9.I would sum up the foregoing propositions by characterising orders for the discovery of documents, the rendering of accounts or the holding of inquiries as part of the arsenal of tools which the Court can deploy in exercising its equitable jurisdiction to ensure that trusts or estates are properly administered. The Court's discretion is a flexible jurisdiction. I agree with Mr Wong SC (appearing for the Plaintiffs) that as a matter of first impression there is no reason why one should treat the theoretical underpinning behind the grant of an order of discovery, inventory, account or inquiry as substantially different. Taking into account all circumstances, the Court decides which tool or combination of tools (if any) might best be employed at any given moment to ensure that a trust or estate is properly administered and a beneficiary's interests therein are handled with a reasonable degree of transparency by the trustees or fiduciaries concerned.

10.I am mindful of the statement (brought to my attention by Mr Tang SC (who appears for the Defendants)) in Biggs and Rogers, Probate Practice & Procedure (5th ed.) p. 208 that:-

"The court's jurisdiction is limited to ordering the delivery of an inventory and account of the estate. It is not for the court to make any other order or direction relating to the estate's administration."

But I am not sure how helpful that statement is in practice. No authority is cited by the authors in its support. From the context of the authors' discussion, the statement seems to be limited to the Court's exercise of its powers under Administration of Estates Act 1925 s. 25, roughly the equivalent in the UK of PAO s. 56. However limited the Court's jurisdiction may be under PAO s. 56, I doubt that the Court's inherent jurisdiction to supervise the administration of a trust or estate (an inherent jurisdiction recognised by Lord Walker in Schmidt v. Rosewood Trust Ltd. [2003] 2 WLR 1442 at §66) can be so circumscribed.

11.The issues before me have been reduced to the discrete requests summarised in the document ("the Document") entitled "Plaintiffs' Proposed Orders" which Mr Wong handed up yesterday. For the sake of clarity, a copy of the Document will be attached to this Decision. I now consider the various paragraphs of the Document in light of the principles which I have just enunciated.

II. Discussion

Paragraph 1

12.There is no dispute between the parties that the Court should order a determination of the legal and beneficial ownerships in Worldcup Investments Inc., Doran Limited and Profit-taking Co. Ltd. (collectively, "the 3 companies") and the assets held by those 3 companies or their subsidiaries. There is no dispute among the parties that the validity of debts of $19,409,347.38, $22,743,584.78 and $76,501,395.13 alleged to be due from the Estate to Doran, Profit-taking and Worldcup respectively should also be investigated. There is no dispute that any investigation of the foregoing matters should take place sooner rather than later. The only substantial question is over the mechanism of where (whether in these proceedings, HCMP 5186 of 2003 ("5186") or some other proceedings) and how that investigation should be ordered.

13.On that question I agree with Mr Wong. I do not see the point in waiting for 5186 to come for hearing before I make an Order which everyone believes desirable. I initially had reservations about making an order here because, although there is substantial overlap between the parties seeking relief (and the reliefs sought) here and in 5186, the parties and reliefs in the 2 proceedings are not identical. But Mr Wong's solicitors also act for those plaintiffs in 5186 who are not parties ("the non-party plaintiffs") to these proceedings. Mr Wong has told me on instructions from his solicitors that, if inquiries of the nature sought by the Plaintiffs in Document §1 are directed here, the non-party plaintiffs will not pursue the reliefs sought by §§1 and 2 of their Originating Summons in 5186.

14.I propose to leave the parties to agree directions as to the precise procedure and questions to be canvassed in the determination which I order under Document §1. By procedure I mean matters such as:-

(1) whether the determination should proceed within the current Originating Summons ("the OS") or by separate proceedings instituted by the Plaintiffs pursuant to a Court direction under (say) Order 15, Rule 5;

(2) who should be joined as parties;

(3) whether the determination should proceed on the basis of pleadings and witness statements or affidavit evidence subject to cross-examination;

(4) whether there should be discovery on Peruvian Guano principles or under some more limited principle; and,

(5) what sort of preliminary timetable is proposed.

Once the parties have come to some view, the OS can then be restored before me and I can make any agreed orders or determine any points of difference as to the mode of proceeding.

15.It may help if I indicate my thinking as to how the determination might proceed. I believe that there is sense in what Mr Tang says that, as a matter of tidiness, any investigation under Document §1 should proceed in separate proceedings and the OS left for questions arising from time to time in relation to the administration of the deceased's estate. I would therefore be inclined to order that any inquiry proceed under a separate action number. I think that I have jurisdiction to direct that an inquiry proceed under a separate action number either under Order 15, Rule 5(1) or the Court's inherent jurisdiction to control its procedures.

16.I have just referred to ordering an "inquiry". In connection with my terminology, I should mention Mr Tang's submission that I cannot order an inquiry in these proceedings on the issues raised by Document §1 because such determination would not be inquisitorial but adversarial in effect. From the point-of-view of the 3 companies (Mr Tang reasoned), the Plaintiffs here are making adverse claims to the beneficial interests claimed by the 3 companies. I think that Mr Tang's point is more semantic than real. Hong Kong Civil Procedure 2003 Note 43/1/2 (p. 651) states:-

"Accounts and inquiries may deal with purely formal matters (such as computing the interest payable on completion, in a specific performance action), or they may be indistinguishable from a full trial with witnesses. For this reason there is no standard procedure laid down in the rules."

The word "inquiry" then is infinitely nuanced in its spectrum of procedures. To paraphrase the White Book, at one end it may be a simple inquisition into the amount of interest owed by a party; at the other end it may be an adversarial proceeding little different from actions handled by the Court on a daily basis. I do not think that categorisation of a question as adversarial or inquisitorial in nature, assists greatly in the Court's determination whether or not to order an inquiry into such question.

Paragraph 2

17.Although there may be discovery in connection with the inquiry which I have just ordered in relation to Document §1, I think that the Plaintiffs' request for discovery in Document §2 is nonetheless justified. Independently of the determination of the beneficial interests in the 3 companies, the Plaintiffs are entitled to sight of the evidentiary material which leads the Executors to believe that the 3 companies and their sizeable assets do not belong to the Estate. This is especially so where the Executors themselves claim in their personal capacities to have beneficial interests in the 3 companies to the exclusion of the Plaintiffs. By the same token, requests for documents relating to alleged debts of the Estate to the 3 companies should be disclosed.

18.I would therefore order the discovery sought by Document §2. But, in ordering disclosure, I would make 2 qualifications.

19.First, I would delete the words "Without prejudice to the generality above" or similar expressions used in Documents §2. I would replace such expressions with the word: "Namely:" I would also insert the word "directly" before every use of the word "evidencing" in Documents §2.

20.The purpose of these amendments is to make it clear that I am not, at least for the moment, envisaging full-blown disclosure in the Peruvian Guano sense. I am conscious that wide disclosure in the Peruvian Guano sense may be difficult where the Executors are still in the relatively early stages of their administration. Where the line is to be drawn between "direct" evidence and peripheral relevance, can (I think) for now be left to the good sense of the parties and their legal advisors.

21.Second, I stress that I am ordering disclosure of documents in the control, custody or possession of the Estate, as opposed to one or other of the 3 companies or other parties. Again I am conscious that in real life it may not always be easy to differentiate whether a document is in the possession, control or custody of the Estate or (say) one of the 3 companies. This may especially be the case where, for example, the same person, firm or company has handled matters pertaining to the deceased and the 3 companies. Again, for now, I think that I will have to leave the way that the line is drawn to the good sense of the parties and their legal advisors. If there is a problem, the OS can be restored for the further direction of the Court.

Paragraph 3

22.Explanation and documents have been proffered for the items in Document §§3(i) and (ii) by letter from the Executors' solicitors dated 5 December 2003. Mr Wong says that, even if the contents of that letter on the 2 items were reduced to affidavit form, the Plaintiffs would not be satisfied. Mr Wong says that the explanation is inadequate.

23.I am not persuaded that it is appropriate at this stage to order a full-blown inquiry on the 2 items. I take on board Mr Tang's submission that, in the scale of things, these 2 items are for relatively trivial amounts. What I propose to do is to order that the Executors swear an affidavit accounting for the 2 "repayments" and exhibiting any documents relied on in support of the explanation. The Executors have heard in what ways the Plaintiffs are dissatisfied with the accounting given in their December 2003 letter. The affidavit prepared may, if the Executors wish, make good any deficiencies perceived by the Plaintiffs, especially documentary deficiencies. But that is a matter which I shall leave to the Executors. I note, however, that on this matter their obligations is to give as "true and perfect" an account as possible.

24.If the Plaintiffs are still dissatisfied with the affidavit to be provided by the Executors, the OS can be restored for further argument (in light of the Plaintiffs' specific objections at that stage) as to whether further relief (including, but not limited to, an inquiry) is warranted. Having said that, I hope that these 2 small matters can be resolved without the need for further intervention by the Court.

Paragraph 4

25.In light of my proposed order under Document §3, I do not propose to make any further discovery order under Document §4. If there are any further evidential documents not already disclosed, they could presumably be exhibited to the affidavit of account which I have ordered. I appreciate that in real life, however inadequate available documentation may be as evidence, sometimes there might just be no further directly relevant documents in existence or every document which the Executors have been able to find has been disclosed. Accordingly, given what has already been discovered, it seems to me that ordering a full explanation by affidavit would be more effective than ordering further discovery.

Paragraph 5

26.I am not satisfied by the explanation given by the Executors of the circumstances surrounding the alleged indebtedness of $708 million of E Tung Properties to the Estate. I think that Mr Tang's reference to E Tung's Audited Accounts for the financial year ended 31 January 2000 raises more questions than it answers. What, for instance, about the indebtedness of $168,900,177.40 evidenced by the accounts even after the debt of $708 million was apparently reduced? How was that debt repaid by E Tung to the Estate?

27.But I do not believe that now is the time to order an inquiry to the matter. I believe that the appropriate remedy is to direct the Executors to give an explanation on affidavit of the items mentioned in Document 5(1)-(5). Relevant documents may be exhibited to the affidavit in order to support the matters therein deposed.

28.In respect of Document §5(6), I think that the Plaintiffs are entitled to an explanation of the substantial bad debt provisions of $25,307,415 and $71,000,000 found in E Tung's Audited Accounts for 31 January 2001. I do not think that the Plaintiffs should be barred from seeking an explanation by the mere fact that the accounts are audited accounts. I therefore direct that the Executors also give an account of the write-offs by affidavit.

29.As a result of this direction, the Plaintiffs will have an opportunity to study the matter and, if they feel that further explanation or relief is required, they may restore the OS. Should such transpire, I would then expect the Plaintiffs specifically to identify outstanding issues or questions relating to the reduction of E Tung's debt to the Estate. The Court can then decide whether further relief (including, if necessary, an inquiry) is warranted. For the time being, what it seems to me that the Plaintiffs want above all else on the issue of E Tung's debt is more information.

Paragraph 6

30.Unlike the situation in respect of Document §4, disclosure of supporting documents in connection with Document §5 has been scanty. The affidavits which I have directed may or may not include all documents directly evidencing E Tung's debt and its reduction. I therefore think that it is appropriate in the circumstances to supplement the order for an account in relation to Document §5 with the discovery order sought by Document §6.

31.I would, however, amend Document §6 by inserting the word "directly" before the word "evidencing" whenever it appears. I would also delete the words: "Without prejudice thereto" from the final sentence of Document §6 and turn the remainder of that last sentence into Document §7(7) to read as follows: "Documents recording or directly evidencing the reasons, deliberations, and decisions to make provisions for such doubtful debts."

Paragraph 7

32.This inquiry request overlaps with that in Document §1. Insofar as it does not, the matters set out here can form part of the determination which I have directed under Document §1.

Paragraph 8

33.This discovery request overlaps with the discovery which I have ordered in Document §2. Insofar as it does not, I order the discovery sought, subject to the qualifications which I have expressed in connection with my order under Documents §2.

Paragraph 9

34.This matter is connected with the 3 companies.

35.Mr Tang suggests that the issues raised by Documents §§9(1) to (4) should be re-formulated as a single question on the beneficial ownership of the $3,637,510 said to have been declared by Hi Yip. I think that the suggestion makes sense. But it is not necessary to formulate now the precise question which it is proposed that the Court should determine in an inquiry. Fine-tuning can take place later.

36.In principle, I believe that the issues raised by Document §9 along with the issue of the beneficial ownership of Hi Yip (which may be a subsidiary or asset of Worldcup), can and should conveniently form part of the determination which I have directed under Document §1.

Paragraph 10

37.I would make the discovery order sought, subject to the insertion of the word "directly" before "evidencing". The Plaintiffs are entitled to see the evidential basis for the assertions made.

Paragraph 11

38.I do not think that it would be appropriate to order an inquiry at this stage on this issue. I would instead direct that the Executors provide an affidavit accounting for the $11.7 assigned and exhibiting supporting documents. If there remains a dispute over the matter, the OS can be restored for further direction on appropriate relief (if any).

Paragraph 12

39.The discovery to date on this matter being scant, I would order the disclosure sought. But I again qualify the word "evidencing" in the request by the insertion of the word "directly".

Paragraph 13

40.I would make the discovery order sought.

III. Conclusion

41.It will be seen that, in general, I have ordered the discovery, accounts or inquiries sought by the Plaintiffs. Mr Tang submitted that the administration of the Estate was a vast and complex undertaking. It would not (he argued) be of any help to the beneficiaries as a whole if the Executors were constantly diverted from their administration by requests for explanation or documents. He also intimated that delicate negotiations between the Executors and the Government on estate duty may be jeopardised by the Court making the orders sought by the Plaintiffs.

42.I did not find the argument of vastness and complexity convincing. Like it or not, that is the nature of this particular estate. Although vastness and complexity are factors which the Court may take into account in the exercise of discretion, I doubt whether ultimately it can be a decisive factor as to how the discretion should be exercised. To put it another way, I do not believe that equity's approach should be radically different depending on whether an estate is simple or complex. Accordingly, absent cogent evidence, citing chapter and verse on just how the Plaintiffs' demands are hindering the proper administration of the Estate, I am unable to treat assertions of "vastness and complexity" as a special circumstance militating against the grant of the relief sought by the Plaintiffs. I note incidentally that, from the case report, the estate or trust in Schmidt appears (if anything) to have been even more vast and complex than that in the present case. That did not prevent the Privy Council from concluding that equity was bound to order discovery in the interests of beneficiaries under a discretionary trust.

43.Nor did I regard the Executors' fears over its estate duty negotiations as justified. At no time have the Plaintiffs threatened to intervene in those negotiations or conduct parallel talks of their own with the Estate Duty Office. Accordingly, I did not think that I could attach much weight to this factor in the exercise of my discretion.

44.Taking the materials before me in the round, I have not found any special circumstances to negative the principle that, in general, equity should be protective of the interests of beneficiaries. This is not to say that there can never be a time when requests made by beneficiaries of their fiduciaries turn out on examination to be so petty, unreasonable or oppressive that the Court should refuse such requests. I would only stress that, before such time is reached, the Court will need to be satisfied by hard evidence which condescends to particulars (as opposed to vague assertion) that the requests being made are out of all proportion and can hardly redound to the good of the beneficiaries as a whole.

45.I shall now hear the parties on the following matters:-

(1) The time by which any affidavits and discovery which I have directed should be provided.

(2) Who should bear the costs of the Executors' compliance with any order for discovery and accounting which I have directed.

(3) Who should bear the costs of the present application before me.

(4) Whether the Executors should bear any costs personally and (if so) what costs.

(5) Any other matters of relevance.

46.Before doing so, I would add 2 footnotes to this Decision.

47.First, in ordering an inquiry under Document §1, I should not be taken as saying that the plaintiffs in 5186 or some of them were justified in taking out separate proceedings for relief which significantly overlapped with that sought here. It is normally an abuse of process to commence 2 actions seeking substantially the same relief. I do not wish my decision here to preclude any debate as to the proper incidence of costs for the whole or part of 5186.

48.Second, Mr Tang invited me to reserve 5186 to myself. I do not think that would be in the best interests of the parties. That would mean that the hearing of 5186 would be constrained by my diary. The greater the number of judges able to hear 5186, the more quickly 5186 is likely to be listed for a hearing. If the parties wish, they may seek to have 5186 (whenever it comes up for a hearing) listed before me. But I cannot presently say how promptly such a matter would or would not come before me. For that reason, I decline Mr Tang's invitation.