Shing Lai Chuk v. The Commissioner of Estate Duty

HCED 1/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ESTATE DUTY APPEAL NO. 1 OF 2007

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BETWEEN

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Before: Hon Reyes J in Court

Date of Hearing: 4 June 2008

Date of Judgment: 4 June 2008

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J U D G M E N T

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I.  INTRODUCTION

1.Leung died on 22 November 2000.  The Commissioner assessed Leung’s estate at $29,098,300 with duty of $4,364,745 being consequently payable.  Such duty not having paid for some time, interest on the amount now stands at over $2 million.

2.By this appeal, Shing (Leung’s wife and executrix) challenges the Commissioner’s assessment of estate duty. 

3.Shing claims that the Commissioner has over-assessed the value of Leung’s estate.  She says that by way of resulting trust she has a half (if not an entire) beneficial interest at least in certain properties comprising Leung’s estate.  It is her contention that the total value of Leung’s estate is accordingly no more than $16,846,893.58 with $2,527,034.04 duty payable.

4.Shing says that her beneficial interest arises because, at the time of her marriage to Leung in the early 1960s, she contributed her then savings of $8,000 to purchase a pig farm. 

5.The earnings from the farm (it is said) generated savings of $10,000 which enabled Leung to purchase a medicine shop (Wing Shing Tong (WST)).  Eventually (according to Shing), the earnings from the shop gave the Leung and Shing the means to close WST and to start Shu Hing Medicine Company (SHMC).  The couple (Shing contends) then ran SHMC as their joint business although SHMC was registered under Leung’s name alone.

6.SHMC was a profitable business.  Leung and Shing (according to Shing) used the monies thus earned to invest in real property and the stock market.  The latter assets (it is said) were also all joint investments.  For example, among the real properties purchased was Ping Shan Lot 1660.  This (Shing says) became the matrimonial home, although only registered in Leung’s name.

7.In about 1981 Shing says that she and her husband established Shu Hing Cheung Company Ltd. (SHCCL) to hold their family assets.  She and Leung were the original directors and shareholders.  Later their children (once grown) also became shareholders of SHCCL.  From time to time (it is said) Leung injected funds into SHCCL out of the couple’s earnings from their investments and SHMC.

8.By reason of the foregoing, Shing’s case is that she retains at least a half beneficial interest in:-

(1)     Leung’s interest in SHMC (assessed at $26,583).

(2)     Lot 1660 (assessed at $1.4 million at the time of Leung’s death);

(3)     a debt of over $21 million payable by SHCCL to Leung at the date of his death; and,

(4)     stocks and securities held in an HSBC account (assessed at some $1.6 million).

II.  DISCUSSION

A.  Evidential difficulty

9.There must at least be an evidential burden on Shing to establish that, contrary to documents showing that the legal title in the various properties mentioned vested in Leung, the same were nevertheless held in whole or part on resulting trust for Shing.  Regrettably, however sympathetic the Court may be, its difficulty is that there is an almost complete lack of evidence to substantiate Shing’s case. 

10.At best there is Affirmation evidence from Shing who is now over 70 years old and seriously ill with cancer.  Perhaps not surprisingly because of the inevitable clouding of Shing’s memory with the passage of time and the poor state of Shing’s health, that evidence is unclear, contradictory or just difficult to believe.  I am therefore unable to place much (if any) weight on Shing’s Affirmation evidence.

11.There is also the circumstance which Ms. Yvonne Cheng (appearing for the Commissioner) presses upon me that Shing’s claim to a beneficial interest in the categories of property listed above was only asserted at a late stage.  Previously, Shing had confirmed to the Commissioner that she did not have any beneficial interest.

12.The assessment was issued on 29 December 2006.  That was the result of a long series of correspondence between the Estate Duty Office (EDO) and Shing’s solicitors.  Because of Shing’s illness, the process inevitably took some time.  However, prior to the issue of the assessment, Shing’s solicitors wrote to the EDO on 27 October 2006 stating that they had no objection to the duty proposed to be assessed.  This assessment was expressly made on the basis that Leung owned the properties assessed absolutely.

13.It was not until 17 January 2007 that Shing’s solicitors objected to the assessment that had by then been issued.  It was only at that time that the allegations of Shing’s half share in the SHCCL debt and Lot 1660 were first made.  The claim to an interest in the securities held by HSBC and in SHMC were themselves not advanced until later on 5 December 2007.

14.If Shing had always had a beneficial interest in her husband’s property, it is curious that nothing was said about this until after an assessment had been made.  As Ms. Cheng submits, I do not think that it is an answer to say that Shing is an unsophisticated person.  At all times Shing was represented (and so would have been properly advised) by solicitors.

15.Mr. Jasper Kwan (appearing for Shing) suggests that Shing suffered from poor health and emotional distress following Leung’s death.  She therefore left the administration of the estate to her son Leung Yiu Cheong (LYC).  This (it is submitted) led to “communication breakdown and misunderstanding”.

16.But LYC in Affirmation states:-

“After the death of my late father, I saw my mother being very weak and emotional.  However, she was named as the sole executrix in the last Will of my late father.  We saw that she simply had no energy to take care of the matter and therefore volunteered to take care of the matters for her.  I assisted my mother to liaise with and to give instruction to our legal representative.  She briefly told us the properties held by my late father were jointly owned by my late father and her.  I gave such instruction to our legal representative accordingly.  However, I personally did not know exactly how much property that my father owned. I only had a clearer picture when the schedule of property was worked out by our legal representative and the Inland Revenue Department.  I noted that my late father owned quite some properties, some of which might be his own.  I briefly talked to my mother and she apparently agreed. However, I did not dare talking to her in details as whenever she talked about my late father, she was in emotional distress.  Thus, according to my understanding, I gave instructions to our legal representative that the capital injected into the Company [SHCCL] and the house erected in Lot 1660 were jointly owned properties of my parents.  This was later found out by my mother to be not wholly correct.”

17.This evidence is difficult to reconcile with Shing’s belated assertion of a beneficial interest in Leung’s property.  If Shing had indeed all along been aware that she had an interest in at least some property held in her husband’s name and if (through LYC) her solicitors had been so informed shortly after Leung’s death, how did Shing’s solicitors come to accept the EDO’s proposed assessment on 27 October 2006?

18.The sudden change in Shing’s position suggests to me that the Court should view her Affirmation evidence and that of LYC with scepticism and caution.  I am unable to take that evidence at face value.

B.  Acquisition of properties

B.1    Pig farm

19.At its most extreme, Shing’s case asserts that the entire of Leung’s estate ultimately derived from her initial savings which were used to buy a pig farm.  This is hardly credible.

20.There is little (if any) corroborative evidence in relation to the acquisition by Leung and Shing of a pig farm.  Shing deposes that she sold her jewellery for more than $4,000 in order to erect a house on relevant land for about $8,000.  Ms. Cheng points out that this seems unlikely given that (from documents in the Land Registry) it appears that the land only cost $1,500.  This discrepancy casts doubt on the reliability of Shing’s recollection as to her contribution towards the pig farm.

21.Further, as Ms. Cheng points out, the mere fact that Shing contributed whatever amount to the acquisition of some asset in Leung’s name, does not automatically mean that Leung held such asset on resulting trust in whole or in part for Shing.  It is more plausible that, insofar as Shing provided monies to Leung, Shing gave such as an outright gift, motivated by true love and affection for her husband and the desire to help him in his business. 

22.Shing herself affirms:-

“I entrusted all our family assets in the hand of my late husband as many other village women did.  As matter of fact, before my late husband left me, I even did not have my own personal bank account.  We did not think it was a problem as the family bonding to us was most important of all.”

23.I agree with Ms. Cheng’s submission that this sentiment is more consistent with a general intention to make a gift of monies to Leung, secure in the knowledge that as husband and father he would take care of the family.

B.2    SHMC

24.There is no evidence as to the profits generated from the pig farm.  It is said that the farm yielded $10,000 and such was used to purchase WST.  But there appears to be no record of WST. 

25.Further, even if rearing pigs produced $10,000, for the reasons already discussed, it does not follow that all or even part of it represented Shing’s share from an initial capital investment in the farm.

26.The money earned from WST is said to have been used to set up SHMC.  But again there is no evidence of this.  Nor is there anything to suggest what portion of whatever money was invested in SHMC actually came from Shing.

B.3    Lot 1660

27.There is no documentary evidence of the source of the funds for the purchase of Lot 1660.  Like Shing, Leung himself invested in real estate and shares and it is possible the funds for the acquisition of the property came from him.  Insofar as it is being suggested that the consideration for Lot 1660 originated from the pig farm, I am not satisfied that the chain of funding (allegedly by Shing herself) has been adequately demonstrated.

B.4    SHCCL

28.In this case, Shing held an equal shareholding to that of Leung.  For what it is worth, this fact undermines the suggestion that assets registered in Leung’s name alone were jointly owned by the couple.  Instead, it would seem that whenever Leung and Shing intended that they should hold separate interests, they made provision (as with SHCCL) for the relevant asset to be registered in both their names.

29.As for the SHCCL debt, SHCCL’s audited statements (signed by Leung and Shing) refer to a shareholder’s loan for which “[t]he shareholder has agreed not to demand for repayment of any of the amounts due to him unless the Company has adequate financial resources to repay”.  The reference to “him” would seem to refer to Leung.  But I would accept that this is not necessarily conclusive as sometimes documents (like statutes) may indiscriminately use the masculine to refer to women.

30.At the end of the day, the real hurdle is (I think) the lack of evidence that the shareholder’s loan emanated in any way from Shing as opposed to Leung.

B.5    Shares and other securities

31.Shing apparently did not even know of these until told by the EDO.  In that circumstance, I accept Ms. Cheng’s submission that it is difficult to attribute ownership in the shares to Shing.

III.  CONCLUSION

32.Shing has failed to discharge the evidential burden on her.  Her appeal fails and is dismissed.

Mr. Jasper H.F. Kwan, instructed by Messrs Raymond Chan, Kenneth Yuen & Co., for the Plaintiff

Ms. Yvonne W.S. Cheng, instructed by the Department of Justice, for the Defendant