Charles Yu Chiu Kwan v. Edna Yu Chan Shek Yin

HCMP000965/1980

Administration action - Executor - Duty to render proper accounts - Failure of that duty - Personal liability of Executor to pay costs.

BETWEEN

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Coram: Rhind, J.

Date: 22 April 1982

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JUDGMENT

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1. By his will, dated the 16th October, 1962, Yu Un Ek (hereafter called "the deceased") left 50% of his estate to his son, the plaintiff, and 5% to his daughter, Diana, by his first marriage which had been to one Chun Lan Yin, who had died in about 1952. The remaining 45% of his estate went to his children by his second marriage which had been to the defendant who is the plaintiff's step - mother. From that second marriage, there had been two sons and one daughter. Those sons of the defendant by the deceased each got 20% of the estate and their daughter got 5%.

2. The defendant was made the sole executrix of the will.

3. The deceased having died on the 12th January, 1978, the defendant, as sole executrix, was granted probate on the 10th September, 1979.

4. By the present summons, the plaintiff seeks the following orders from the Court -

5. There was also a paragraph in the summons seeking an order that the defendant should forthwith assign the plaintiff's half interest in certain real estate which was particularised, but that order is no longer sought, it being common ground that such assignments have now been duly made.

6. The estate is one of some complexity, comprising shares in about 50 different companies, some private, some public, both in Hong Kong and overseas, although the majority were in Hong Kong. In addition, there were 3 different lots of real estate in Hong Kong. The administration of the estate was further complicated by virtue of the deceased having held some property in trust for family friends.

7. Since shortly after the death of the deceased, the same firm of solicitors has acted for the defendant in the administration of the estate. It is my understanding from the defendant's counsel that throughout, she has acted under the advice and guidance of those solicitors.

8. As long ago as the 24th March, 1980, the plaintiff began to show his dissatisfaction at the way in which the defendant was administering the estate. By his solicitor's letter of that date, the plaintiff made two requests of the defendant, namely,

He has repeated those two demands many times since, and those, basically, are the same demands which he still makes by the present summons.

9. After being pressed by the plaintiff's solicitors, the defendant's solicitors by their letter dated the 9th June, 1980, sent the plaintiff's solicitors what was de scribed as a "cash account" for the period ending 31st May, 1980. The plaintiff's solicitors by their letter dated the 25th June, 1980 sought detailed explanations of that "cash account" from the defendant's solicitors. By their letter dated the 24th July, 1980 the defendant's solicitors purported to offer such explanations.

10. The so-called "cash account", together with the purported explana-tions in the defendant's solicitors' letter of the 24th July, 1980, comprised the only accounts which the defendant has ever supplied to the plaintiff. To my mind, those accounts come nowhere near to complying with the duty required of an executrix to supply a proper account to a beneficiary. What the defendant supplied to the defendant was little better than a sizeable, yet woefully incomplete, quantity of undigested material. An executrix is a species of trustee. Like any other trustee an executrix must at all reasonable times be ready to render a clear arid accurate statement of accounts to a beneficiary, so that the beneficiary is able to see his entitlement under the trust. This duty of an executrix is explained in paragraph 1,551 of Volume 17 of the Fourth Edition of Halsbury's Laws of England.

"Duty to keep accounts. It is the duty of personal representatives to keep clear and accurate accounts, and always to be ready to render such accounts when called upon to do so."

11. Comfort is sought by the defendant's counsel in a further sentence from the same paragraph, which reads -

"Where they (personal representatives) are required ` by the beneficiaries to furnish accounts, they may demand to have the costs of doing so paid or guaranteed before complying with the request."

Re Bosworth, Martin v. Lamb⁽¹⁾ is the sole authority cited for this proposition.

12. I will assume for the moment that the later sentence embodies a correct general propositions. There then appears to be a distinction between keeping accounts, and furnishing accounts. Nowhere is it suggested that any entitlement on the personal representatives' part to demand the costs of furnishing accounts in any way absolves them from the duty to keep clear and accurate accounts and always to be ready to render such accounts when called upon to do so.

13. The gravamen of the plaintiff's case against the defendant is a failure to keep clear and accurate accounts. Unless clear and accurate accounts are kept, what will there be to furnish to the beneficiary?

14. In my view the very most the personal representatives can ask the beneficiary to pay is the cost of supplying a copy of the clear and accurate account which the personal representatives are supposed to have kept. In fact, the practice as I understand it, is that every beneficiary usually gets a copy of the estate accounts free, the cost being borne by the estate. I am certainly aware of no authority to the effect that the Personal representatives are entitled to pass on to the beneficiary the costs of their keeping clear and accurate accounts.

15. Re Bosworth dealt with the situation of some claimants whoa believed they might have some entitlement under a will. To test their entitlement they wanted detailed information including accounts from the trustees. The trustees told the claimants they were not entitled to anything under the will, and said they would only supply the information sought if the claimants undertook to pay the costs of procuring it. It turned out the claimants had not been entitled to anything under the will. The court supported the trustees in the attitude they had adopted, and made the claimants pay their costs.

16. It is difficult to see how that case supports the proposition which Halsbury seeks to base on it. The claimants turned out not to be beneficiaries even, so the decision is hardly an authority on the duty of trustees to those who unquestionably are beneficiaries.

17. A detailed analysis of the defects in the so-called "cash account" and purported explanations supplied by the defendant is to be found in a report made on the 1st November, 1980 by Messrs Ronald H T. Lee & Co., a firm o￡ certified public accountants employed by the plaintiff to scrutinze the accounts which the defendant had supplied.

18. Although theoretically it might be said that Messrs Ronald H.T. Lee & Co. were not independent witnesses, having been retained by the plaintiff, I, nonetheless, formed the opinion, that their report was in fact impartial, balanced and fair. It was the type of experts' report on which a court felt it could confidently rely, as no partisan feeling was manifested in it.

19. The report makes what I regard as the wholly valid point that it is essential for any accounting system to show at least the opening capital assets, details of the movements of capital assets, the present capital assets, details of income earned, and details of expenditure. The report elaborates on how the defendant's accounts fall short of those basic requirements. For example, there were no details of sales of quoted shares between the date of the deceased's death and the 30th June, 1980, so that the accountants were unable to work out the bonus shares entitlements, as well as the dividends during that period. The information supplied by the defendant disclosed discrepancies about the number of shares she was holding, revealing in some instances that the shares she held appeared to be short whereas in others there was an excess. In respect of those same quoted shares which had been sold since the 12th January, 1978, the dividends from the date of the death to the 15th October, 1979 were totally unaccounted for. With regard to quoted shares which had remained unsold since the date of death again there was a considerable number of discrepancies in the shares held by the defendant, in some cases the amount she held appear-ing short, whereas in others she held an excess. In one account, the defendant was shown to have received dividends of HK$29,537.60, and in another HK$79,457.47. The accountants were unable to verify the accuracy of those figures because of the absence of dividend warrants or information in respect of the number of shares, the date of dividend and payment date.

20. I have selected but a few of the defects in the defendant's accounts pointed out by the plaintiff's accountant. Even to a non-accountant, such as myself, it is clear on a common sense basis that the accounts supplied by the defendant in mid-1980 came nowhere near to being clear and accurate. Those accounts, to my mind, failed in their purpose, which should have been to satisfy the plaintiff that the defendant, as executrix, was administering the estate in such a way that the plaintiff could rest assured that he would get his full entitlement under the trust. In mid-1980 the defendant was not ready to render clear and accurate up-to-date accounts when called upon to do so; neither has she been so ever since, according to the evidence before me.

21. Being dissatisfied with the defendant's accounts and with the rate at which she was distributing the estate, the plaintiff filed the present summons on the 24th October, 1980. At that stage, the defendant had offered to make an interim distribution of a comparatively small pro-portion of the plaintiff's entitlement of stocks and shares, but she did have an excuse for the apparent slowness in the distribution because the final estate duty clearance had not been issued yet. She was anxious to protect herself against possible claims to further estate duty by holding on to the bulk of the assets. With hindsight, I think it can fairly be said that even at that stage she adopted an over-conservative stance by holding on to such a large proportion of the assets, because on a common sense basis the contingent liability for estate duty was not likely to be particularly large, but that is now really a matter of historical interest only on the view I now take of this case. The distribution of assets is now very much a subsidiary issue and not really live any longer; the main issue now is whether the defendant fulfilled her accounting responsibilities.

22. Shortly after the plaintiff issued his summons on the 24th October, 1980, there was a meeting between the parties held at the office of the solicitors for one of them, which resulted, in effect, in a temporary truce. Under the terms of that truce, which were formally embodied in a letter I dated the 11th December, 1980 from the defendant's to the plaintiff's solicitors, the defendant agreed to assign the plaintiff his half share in the real estate straight away, and also agreed to transfer one quarter of the balance of the stocks and shares of the estate together with certain other stocks and shares to the plaintiff as soon as practicable. The balance of the plaintiff's entitlement to stocks and shares in the estate was to be transferred to him after the finalisation of the estate duty position. Nothing was said about accounts in that letter of 11th December, 1980.

23. The arrangement between the parties contemplated by the solicitors I letter of the 11th December, 1980 was more or less implemented, although the plaintiff got slightly less than the one quarter of the stocks and shares he had been promised. However; nothing more was said until the final estate duty clearance was granted on the 15th June, 1981. The fact of such final clearance was communicated by the defendant's solicitors to the plaintiff's solicitors on the 19th June, 1981.

24. After attending that meeting with the defendant at a solicitor's office in the latter part of 1980, the plaintiff .did not begin to press for action again until the 5th August, 1981, when his solicitors wrote to the defendant's solicitors on the twin themes of wanting full distribution and a full account. The time specified by the plaintiff's solicitors for full distribution was one week, and for the full account, two weeks. Those requests were repeated in another letter from the plaintiff's solicitors to the defendant's solicitors, dated the 13th August, 1981.

25. Next, on the 19th October, 1981 the plaintiff's solicitors wrote to the defendant's solicitors requesting the defendant to supply the plaintiff

The letter on

"Our client also wishes to know when your client will effect final distribution of the estate. You would appreciate that without a proper estate account our client is unable to ascertain his true entitlement to the deceased's estate. We should be obliged if you would let us know within 7 days from the date of this letter whether your client will be prepared to supply us with the said estate account and the date for final distribution of the estate."

26. Despite further reminders dated the 27th October, 1981 and the 20th November, 1981 from the plaintiff's solicitors to the defendant's solicitors, the defendant made no effort to furnish an estate account to the plaintiff. However, there was some action on the distribution front as the defendant's solicitors communicated with the plaintiff's solicitors concerning the transfers of various shares comprised in the estate. After allowing the summons to lie dormant for over one year, the plaintiff took action to revive it on the 9th December, 1981; when his solicitors issued a Notice of Intention to Proceed after the expiration of one month. That notice resulted in the proceedings which were heard before me on the 19th February, 1982.

27. Between the date of the notice of the plaintiff's intention to proceed and the hearing, there was a great flurry of activity on the defendant's solicitors' part in effecting transfers of stocks and shares to which the plaintiff was entitled. From a chart entitled "Distribution of Shares", prepared by the plaintiff's solicitors, it is clear though, that there are still several lots of shares which remain to be transferred to the plaintiff. However, it can certainly now be said that the defendant's solicitors are moving with all proper haste to ensure that the plaintiff's shares get trans-ferred to him as soon as possible. On the distribution aspect, I do not regard the plaintiff as any longer having much real cause for complaint. Although the defendant's solicitors can hardly be said previously to have shown exemplary speed in the distribution of this estate, I do not, on the other hand, think they have strayed far from the bounds of what is in practice the usual pace for a solicitor to wind up an estate, bearing in mind the complexity of the present estate because of the large number of different stocks and shares comprising the assets.

28. Because at the hearing the defendant was prepared to consent, to an order that the estate should be distributed within 4 months, I have made an order in those terms. However, without such consent from the defendant, I would not have felt justified in going to the length of making an order for distribution at this stage, because I am satisfied that the defendant is in any event attending to the distribution now with all proper speed. Had the plaintiff's request for an order from the court for distribution stood alone I would have been inclined to dismiss it with costs, as I do not think it could have been regarded as reasonable.

29. By contrast, I consider the plaintiff's complaint against the defendant of not being ready with proper accounts to have been reasonable at all times. To my mind, the plaintiff's request for an order directing the defendant to furnish proper particulars and accounts of the estate is now, and at all times has been unanswerable. There is no doubt that the defendant has had the best of motives in keeping the estate accounts in the way she has. She has done much of the accounting herself so as to save expense to the estate. However, in this branch of the law good intentions do not excuse bad accounting procedures.

30. A trustee, such as an executrix, is obliged to keep accounts properly, and if she is unable to do so, she is required to employ someone I competent to do so. Having failed so long in her duty to keep proper accounts, the defendant has at last decided to take steps to remedy the position. Her solicitors letter of the 12th February, 1982 to the plaintiff's solicitors announced that the defendant has told her solicitors to instruct a firm of professional accountants to prepare audited accounts for the estate. That is a sensible course for her to have adopted at last, but it has come too late to save her the costs of the present proceedings, in my opinion.

31. At the hearing before me, the defendant's counsel indicated that his client was willing to consent to an order requiring her to furnish proper particulars and accounts of the estate within 4 months. However, such a concession at that late stage in no way rendered it unreasonable for the plaintiff to have brought the present proceedings.

32. Moreover, there were grounds for saying that the defendant had not acted reasonably in relation to these proceedings. On the 1st February, 1982, the plaintiff's solicitors had written to the defendant's solicitors asking what the defendant's attitude was towards the proceedings, but no reply was given to the plaintiff's solicitors. Even when it come to the actual hearing on the 19th February, 1982, the defendant, through her legal advisers, at first sought to resist the proceedings on the technical ground that she wanted to get the other beneficiaries joined into the proceedings. She had never raised the possibility before. I regarded that as no more than an obstructive ploy which was unreasonable, as there was nothing in the plaintiff's summons which was in any way detrimental to the other beneficiaries.

33. As will already have been gathered, when I came to deal with the summons on the merits the defendant was prepared to concede virtually everything that the plaintiff was asking for, apart from costs. The only explanation as to why the defendant has seen fit to resist the plaintiff's proceedings at all obviously lies in a disagreement as to who should bear the costs.

34. Certainly, the plaintiff is entitled to his costs, as I consider he acted perfectly reasonably in bringing these proceedings for an account. The question which then remains is whether his Costa should be borne by the estate or by the defendant personally. My conclusion is-that it should be the defendant personally who pays the plaintiff's costs. To use the language of In re Skinner, Cooper v. Skinner,⁽²⁾ there has been " gross and indefensible" neglect by the defendant in relation to the accounts. If she had fulfilled her duty properly as a trustee, these proceedings would never have been necessary. The defendant will also have to bear her own costs of these proceedings, without being entitled to indemnity from the estate.

35. I did give some thought as to whether the defendant should also be required to pay the costs of the audit personally, as happened to the trustees in Skinner.

36. I decided though, that such an order against the defendant would be unnecessarily punitive. If she had employed an accountant from the outset, she would-have been able to insist on the estate paying his professional fees, and just because she has been late in deciding to employ an accountant does not to me seem an adequate reason for imposing his fees on her now. It would only be if her lateness in employing an accountant had led to additional accounting fees becoming payable that I would have regarded it as reasonable to require her to pay the accounting fees, but there is no reason to suppose that has happened here.

37. Immediately at the end of the hearing I made the following interim orders -

38. On that occasion I reserved the question of costs and any other orders which might on reflection deem appropriate.

39. For the reasons outlined above, I order that the defendant personally bear the plaintiff's costs of the proceedings, and that she also bear her own costs without indemnity from the estate. There are no other orders which I regard as appropriate at this stage.

40. There remains one further aspect to this case which calls for comment.

41. The defendant started out with the not unworthy object of saving expense to the estate yet, sadly, she has finished up being declared per-sonally liable for costs occasioned by neglect in relation to her accounting duties.

42. How has such a state of affairs occurred? She sought legal advice on the administration of this estate at a very early stage. She selected a highly reputable firm of solicitors, and has at all stages acted under their guidance, the court has been told.

43. If she disregarded the advice of her solicitors, then she has only herself to blame for the mess she has now landed in. However, if her solicitors have allowed her to fall into the present trap without warning her of the duties expected of an executrix, then her solicitors might well have to shoulder the ultimate responsibility for what has happened. Certainly there is not a hint in the documents before me that the defendant's solicitors harboured any doubts about the propriety of the accounting practices being adopted by this lay executrix they were acting for. A strong endorsement of what the defendant was doing is to be found in the defendant's solicitors letter of the 24th July, 1980, to the plaintiff's solicitors.

44. It may well be that after reviewing what has happened in this case the defendant's solicitors might feel that they should accept responsibility for the costs which it has been my painful duty to inflict on the defendant. I express myself somewhat tentatively on this because I am well aware that the defendant's solicitors are not on trial in this action, and should in no way be condemned on costs unheard. It could well be that there are circum-stances of which I am unaware that show the defendant's solicitors' position in an entirely different light from that appearing at the moment on such information as is available to me.

45. If the defendant's solicitors feel no responsibility for what has befallen their client, I have no doubt that a firm of their reputation will fulfill their duty of advising her to seek independent legal advice from a different firm of solicitors on the question of ultimate responsibility for the legal costs I have ordered her to bear.

46. I am directing that a copy of this judgment, together with a Chinese translation, be sent by the court to the defendant by registered mail.

(1)    (1889) 58 L.J. Ch 432