Kong Colin Chung Ping and Another v. Kong Wing on and Others

Read the full judgment text of HCMP 2045/2012 on BabelCite. This High Court CFI judgment was delivered on 24 February 2015.

1. This was the hearing of the remaining substantive issues of the plaintiffs’ amended originating summons dated 20 May 2013, the other issues having been determined at earlier hearings.  The issues that arise are whether the plaintiffs are entitled to an account from the 1 st defendant of his dealings with the estate of the testator when he was executor and to an order for payment by the 1 st defendant to the estate of all sums found due on the taking of the account.  At the conclusion of the h

Cites 2 cases

Case No.HCMP 2045/2012
Court
High Court CFI
Date24 Feb 2015
Judge
Case Document
100%Judiciary

HCMP 2045/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2045 OF 2012

_______________

  IN THE ESTATE OF Kong Wing Hong (江永康) late of House No 8, Windsor Park, 2/88 Ma Ling Path, Kau To, Shatin, New Territories, Hong Kong, deceased (“Deceased”)
  and
  IN THE ESTATE OF Order 85, rule 2 of the Rules of the High Court (Cap 4A)
  and
  IN THE MATTER OF sections 33 and 56 of theProbate and Administration Ordinance (Cap 10)and section 63 of the Trustee Ordinance (Cap 29)

_______________

BETWEEN

  KONG COLIN CHUNG PING (江正平)
(also known as COLIN CHUNG PING KONG)
1st Plaintiff
  KONG JOANIE CHUN‑MUN (江正文)
(also known as JOANIE CHUN MUN KONG, also known as JOANIE‑CHUN MUN KONG, also known as JOANIE C M KONG)
2nd Plaintiff
 

and

 
  KONG WING ON (江永安) defending by his guardian ad litem MOY NUI CHENG 1st Defendant
  LI KA SING, the executor of the Estate of KONG WING HONG (江永康), deceased 2nd Defendant
  ON HONG NING DRUG COMPANY LIMITED 3rd Defendant

_______________

Before: Deputy High Court Judge Le Pichon in Chambers
Date of Hearing: 2 and 3 February 2015
Date of Judgment: 24 February 2015

________________________

J U D G M E N T

________________________

1.This was the hearing of the remaining substantive issues of the plaintiffs’ amended originating summons dated 20 May 2013, the other issues having been determined at earlier hearings.  The issues that arise are whether the plaintiffs are entitled to an account from the 1st defendant of his dealings with the estate of the testator when he was executor and to an order for payment by the 1st defendant to the estate of all sums found due on the taking of the account.  At the conclusion of the hearing judgment was reserved which I now give.

BACKGROUND FACTS

2.The plaintiffs are the grandchildren of the testator who died in June 2003.  They are beneficiaries under the testator’s will.  The 1st defendant is their great uncle, the brother of the testator who was the executor of the estate until his removal by an order made in these proceedings on 13 November 2013.

3.The general background is outlined in §§2‑6 and 8‑9 of the judgment handed down on 10 March 2014 (“the Judgment”).  For ease of reference, they are set out below:

“2. The testator died on 9 June 2003 leaving a last will and testament dated 11 March 1996 and a codicil dated 24 June 1997 (‘the 1997 codicil’). The defendant obtained a grant of probate to the testator’s estate on 6 March 2006. He is the testator’s younger brother and was 83 years of age at the testator’s death.

3. There are four beneficiaries under the testator’s will and 1997 codicil: the defendant, Tam Wai Fong (the testator’s long‑term partner) and the plaintiffs (the testator’s grandchildren).

4. The testator and the defendant (‘the brothers’) had operated in partnership a pharmaceutical business and related business trading under the business name of On Hong Ning Drug Company (‘the Business’) since about 1950. They were also equal shareholders (each holding one share) and permanent directors for life of On Hong Ning Drug Company Ltd (‘the Company’) and On Hong Ning Drug Company (Mongkok) Ltd (‘the Mongkok Company’), incorporated in 1970 and 1969 respectively (collectively ‘the Companies’). However, it would appear that the Company has never been in operation and the Mongkok Company has been dormant since the end of 1993.

5. The Business was and continues to be conducted from two addresses:

(1) the basement, ground floor, 1st, 2nd, 14th floors and roof of 792 Nathan Road (‘the Nathan Road premises’) being part of a building that comprises 16 floors in total (‘the Prince Edward Building’); and

(2) the building comprising the basement, ground floor and 1st floor of 313 Nathan Road (‘the Jordan premises’)

The Nathan Road premises and the Jordan premises are hereafter collectively referred to as ‘the Premises’.

6. The brothers were tenants in common of the Prince Edward Building and the Jordan premises. While the Business occupied the Premises, there was no lease and during the testator’s lifetime no rent was paid or other payment made in respect of such occupation.

7. …

8. In September 2012, the plaintiffs issued an originating summons for:

(1) the removal of the defendant as executor of the estate;

(2) the appointment of a fit and proper person to replace him as executor;

(3) an order for a true and perfect inventory and account of the estate to be made by the defendant pursuant to section 56 of the Probate and Administration Ordinance;

(4) an account by the defendant of his dealings with the estate and any assets therein; and

(5) an order for payment of all sums found due on the taking of such account and other consequential relief.

9.   The plaintiffs complained that the defendant (who was the sole executor until 13 November 2013) failed to render proper accounts, failed to properly administer the estate and by occupying the Premises and not accounting for rental income, put himself in a conflict of interest situation and was in breach of his fiduciary duties.”

In this judgment, I propose to adopt the nomenclature used in the Judgment.

4.To continue the narrative of relevant facts, evidence filed by the 1st defendant in opposition to the originating summons disclosed that he and the testator as landlords and the Company as tenant had entered into two tenancy agreements on 10 January 1996.

5.Those agreements had been drafted by the brothers’ then solicitors and were in identical terms save for the description of the relevant property to which each related.  The term was for five years but the commencement date was left blank.  The rent was $3 per month with the right for the tenant “to sub‑let or to authorize use of the Premises by way of Licence to [the brothers] or any one of them trading as On Hong Ning Drug Company”, with an option for the tenant to renew four times each time for a term of five years but without the option clause.  At the date of the testator’s death the tenancy agreements were undated and had not been executed by the Company.  The Company is the 3rd defendant.  

6.On 18 April 2013, several months after the originating summons was taken out, the 1st defendant filled in the commencement date of the term, and caused the rubberstamp of the Company to be affixed to each of the tenancy agreements and signed the same as “Chairman”.

7.The validity or otherwise of the tenancy agreements disclosed by the 1st defendant was added by amendment as a further issue for the court’s determination.  The Judgment (to which reference should be made) decided that the tenancy agreements are void and unenforceable.

8.As regards the testator’s will, the 1st defendant explained that he and the testator had executed a deed dated 11 March 1996 whereby they agreed to execute mutual wills under which each bequeathed to the other shares and interest in the Companies and the Business conditional on the other surviving him, failing which they would fall into his residuary estate.

9.Apart from mutual wills executed on the same day, each of them also executed a codicil dealing with bequests relating to other assets that were not the subject matter of the mutual wills.  In the testator’s case, the codicil executed contemporaneously with the will was superseded by the 1997 codicil.  The plaintiffs are beneficiaries under the provisions of clauses 3(b) and (c) and 5(c) and (d) of the 1997 codicil.

10.By clause 3 the testator bequeathed the “Windsor Park property” to his trustee to hold upon trust as to 20% for Madam Tam, 55% for the 1st plaintiff and 25% for the 2nd plaintiff absolutely save that the property could not be sold without the consent of the 1st defendant during his lifetime.  There were further “directions” as to the application of the proceeds of sale that were somewhat unconventional: in the event of a sale of the Windsor Park property, at least 80% of the net proceeds must be applied in the purchase of a real property in an urban district of Hong Kong in the names of the same three beneficiaries in the same proportions.

11.The testator then devised and bequeathed his residuary estate to the 1st defendant as trustee upon trust for sale and conversion with full discretion to postpone sale and by clause 5, his trustee was directed to hold his residuary estate upon trust to pay out of the rental income within his residuary estate:

(1) during her lifetime, a monthly sum to Madam Tam corresponding to the rental of a total gross office area of 2000 sq ft of any portion of the Prince Edward Building or $40,000 whichever was the higher; and

(2) during the 1st defendant’s lifetime, an annual sum of $100,000 (which could be adjusted for inflation) from such rental income to the 1st defendant.

12.Then by clause 5(c) and (d) the testator directed his trustee:

“(c) … to hold the rest of the rental income arising from my real estate within my Residuary Estate which shall for the time being remain (sic) unsold as to both capital and income upon trust to divide the same into three equal shares and hold the same in trust:-

(i) as to two such equal shares upon trust for distribution to my grandson … at the expiry of the first five years of his marriage provided that he gets married and his marriage subsists for no less than five years; and

(ii) as to one such equal share upon trust for the maintenance of my granddaughter … until she is 18 years old and thereafter the portion of such one equal share which remains unused shall be held by my Trustee for distribution to my grand‑daughter … at the expiry of the first five years of her marriage provided that she gets married and her marriage subsists for no less than five years; and

(d) … to hold the rest of my Residuary Estate upon trust for distribution, after the death of my companion … and my brother [the 1st defendant] as to 2/3 share thereof to my grandson … absolutely and as to 1/3 share thereof to my grand‑daughter …absolutely.”

As at the hearing date, the 1st plaintiff remains unmarried but the 2nd plaintiff married in August 2012.

13.After the testator’s death in 2003, the 1st defendant continued to carry on the Business and remained in occupation of the Premises from which he conducted the Business.  As earlier noted, the existence of the tenancy agreements was first disclosed to the plaintiffs some nine and a half years after the testator’s death, in December 2012.

14.The brothers were co‑owners of the Jordan premises and the Prince Edward Building.  The Business was carried on at the Jordan premises as well the Nathan Road premises that comprised 5 of the 16 floors plus the roof of Prince Edward Building.  The remaining eleven floors of Prince Edward Building were therefore available for letting.

15.The originating summons was issued in September 2012 following a period of 15 months during which, despite numerous requests, the plaintiffs were unable to obtain accounts of the estate from the 1st defendant.  On 13 November 2014 the master made an order appointing the 1st defendant’s wife Moy Nui Ching as his guardian ad litem on the ground of mental incapacity.

THE ISSUES

16.The plaintiffs’ case is that:

(1)   The 1st defendant acted in breach of his fiduciary duty and/or duty of care by occupying property forming part of the estate (being the testator’s undivided half share in the Premises) for the purposes of his own business paying only nominal rather than market rent.  Therefore he should account to the estate for the difference or make equitable compensation (“the nominal/market rent issue”).

(2)   The 1st defendant acted in breach of his duty of care as executor by failing to take reasonable steps to rent out vacant floors of Prince Edward Building.  On this basis he must account for what the estate has lost (“the vacancies issue”).

(3)   The necessary expenses incurred for the maintenance of the Windsor Park property should be borne by the estate and the 1st defendant is not entitled to claim from the plaintiffs a share of such expenses corresponding to their respective shares in the Windsor Park property (“the Windsor Park expenses issue”).

17.At the outset of the hearing, there were other issues that the parties had referred to in their written submissions such as “the Windsor Park rental issue” and “the Waterloo Road expenses issue”.  Those issues are no longer live issues and do not require determination.

18.The 2nd defendant who was appointed executor in place of the 1st defendant on 13 November 2012 supports the plaintiffs’ position under the first and third issues.

The nominal/market rent issue

19.The plaintiffs’ case is grounded on basic trust principles that apply when a person holds office as trustee or representative of an estate: he must not enter into any engagement in which he has or can have a personal interest that may conflict with the interests of the estate.  Further, as fiduciary he is not allowed to profit from a trust through the use of trust property or by virtue of his trusteeship in the absence of any express provision authorizing it.

20.As the 1st defendant was both executor and trustee of the testator’s estate until he was removed from office in November 2013, during that period, those principles applied.

21.I found at the previous hearing relating to the validity of the tenancy agreements that it was not the testator’s intention to make a bequest of the Premises to the 1st defendant (see §71 of the Judgment).  He did not bequeath his half share in the Premises to the 1st defendant which he could easily have done.  Rather, he had other testamentary intentions in mind: his share of the Jordan premises and Prince Edward Building was to form part of his residuary estate.  That intention is to be gathered from the way the bequests made in favor of Madam Tam and the 1st defendant in clause 5(a) and (b) of the codicil were framed.

22.Mr Lynn who appeared for the plaintiffs submitted that the 1st defendant was in breach of trust by using and occupying trust property for his personal benefit to the exclusion of the estate and, as such, is accountable for market rent or alternatively the 1st defendant must pay equitable compensation to the estate.  Mr Siu who appeared for the 2nd defendant made similar submissions: he submitted that as executor, the 1st defendant allowed himself as the other co‑owner to use the premises rent‑free to the exclusion of the estate.  That rendered him accountable to the estate for its share of the market rent.

23.For her part, Ms Wu who appeared for the 1st defendant raised several defences.  They are considered in turn below.

(a) Right as co‑owner to occupy the Premises rent‑free

24.It was submitted that the 1st defendant as one of two tenants in common of the Premises has a right to occupy the whole of the Premises without making any payment of rent.  That right stems from his ownership of a separate and distinct share.  Nevertheless, it was accepted that such occupation could only be non‑exclusive as a co‑owner has no right to oust the other co‑owner from possession.

25.I do not take issue with those statements concerning the rights of a co‑owner at law but what we have here is an entirely different situation.  First, on the evidence, it is evident that the 1st defendant did not purport to occupy the Premises through exercising his rights as a co‑owner. Rather, it was on the basis (subsequently found to be erroneous) that there were valid tenancy agreements.  Second, had the tenancy agreements been valid, they would necessarily have conferred exclusive possession on the tenant.  So occupation of the Premises, albeit based on a mistaken view as to the validity of those agreements, could only have been on an exclusive basis with the necessary consequence of ousting the other co‑owner ie the estate.  Third, the 1st defendant had a duality of roles: one by dint of being one of two co‑owners and the other as the representative of the other co‑owner.

26.The conflict of interest arises because on becoming executor, the 1st defendant had a duty to look after the interests of the other co‑owner, namely, the estate.  There was no one else who could have done so on the estate’s behalf.

27.While as a co‑owner the 1st defendant could do as he pleased and exercise his personal rights having regard to his personal interests only, on becoming executor, his fiduciary role and duties altered that and imposed constraints.  Without relinquishing his fiduciary role, it was not permissible for him to make decisions or act in relation to his own share that would have the effect of impinging on, or adversely affecting, the interests of his co‑owner ie the estate.

28.For those reasons, I consider that the 1st defendant’s rights as a co‑owner cannot and do not provide an answer to the complaint of the plaintiffs and the 2nd defendant.

(b) Estoppel by convention

29.Ms Wu then submitted that the brothers shared a common assumption, namely, that upon the death of either of them, the survivor would be able to continue to operate the business at the Premises as before, with the least disruption as possible, relying on §48 and §5 of the 1st defendant’s 1st and 2nd affidavits to support her formulation of the “common assumption”.

30.It was said that:

(1) the common assumption was formed between the parties prior to the tenancy agreements and the death of the testator;

(2) the common assumption is supported or evidenced by the terms found in the tenancy agreements;

(3) such terms had been communicated through the tenancy agreements signed by both the brothers; and

(4) the contents of the common assumption are sufficiently certain.

31.The legal principles are not in doubt: see First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569 at §79.  The question is whether the factual elements can be established.

32.The formulation of the common intention appears to be based on two passages in the 1st defendant’s evidence, namely, §48 of the 1st affidavit and §5 of the 2nd affidavit. But a fair reading of the passages relied on requires §5 of the 2nd affidavit to be read with §4 that immediately preceded it.  If that is done, it is immediately apparent that the common assumption as formulated by the 1st defendant is uncertain in that nothing is said about duration of the arrangement as to which there was evidence.

33.Those passages of the 1st defendant’s evidence were considered in the context of what the 1st defendant stated was the “intention” or objective of the Deed and mutual wills.  At §§72, 74‑77 of the Judgment I analyzed the inconsistencies and/or discrepancies arising regarding duration.  I maintain that view.  Accordingly, I do not consider the common assumption as formulated is sufficiently certain in light of the 1st defendant’s own evidence.  Reliance on the tenancy agreements as supporting the common assumption as formulated is equally misplaced and runs into the same difficulties.

34.Further, to succeed in his defence, the 1st defendant has to show detriment.  But the detriment alleged to have been suffered as a result of the common assumption is not identified.  The only tangential reference to it in the written submissions is that “[t]here is obviously detrimental reliance on the part of the 1st defendant in case of departure in view of the plaintiffs’ current claim against him”.

35.It seems to be suggested that a loss will be sustained if the plaintiffs’ claim is established.  If that is said to be the detriment, where is the causal connection between the common assumption and the detriment?  That element is critical and must be established to the court’s satisfaction.  For the reasons explained in greater detail at §§39‑43 below, I am not so satisfied.

36.For those reasons, it is my view that estoppel by convention has not been made out.

(c) Proprietary/promissory estoppel

37.As Lord Walker noted in the Thorner v Major [2009] 1 WLR 776 at §29, proprietary estoppel

“… is based on three main elements … a representation or assurance made to the claimant; reliance on it by the claimant; and detriment to the claimant in consequence of his (reasonable) reliance.”

38.As I understand it, it was said that on the basis of the mutual agreement between the brothers that upon the death of either of them the survivor could continue to operate the business at the premises with the least interruptions, the brothers signed the tenancy agreements and subsequently executed the Deed and mutual wills.  That was said to constitute a representation that the survivor (the 1st defendant) would be entitled to occupy the Premises rent‑free and that the testator’s estate would be bound by the representation or promise.

39.Assuming (for present purposes) that the representation as stated constituted a sufficient representation or promise for the purposes of proprietary estoppel, the hurdle the 1st defendant has to surmount is to show that there has been detrimental reliance.  In that connection, it is clear from the English Court of Appeal’s judgment in Jones v Watkins (unreported) 26 November 1987; [1987] CA Transcript no 1200 (at p 11) that to found a claim based on proprietary estoppel, not only has the detriment asserted to be established, the court has to be satisfied on an assessment of the evidence as a whole that, on the balance of probabilities, there was a causal connection between the encouragement or representation relied on and an alleged item of detriment.

40.The court must be satisfied that it was the representation or encouragement of the other party which led him to suffer the detriment asserted.  Slade LJ considered that when such a claim is made against the estate of a deceased person, the items of detriment relied on should be specifically alleged and proved and that such detriment should not be readily inferred.

41.No specific items of detriment have been identified.  There is no suggestion (much less evidence) for example that because of the representation the 1st defendant incurred expenditure he would not otherwise have incurred or that the 1st defendant lost an opportunity he would otherwise not have lost resulting in monetary loss.

42.If it is suggested that the detriment is the present claim against the 1st defendant, the loss is dependent on the claim succeeding and in that sense the argument appears to be circular.  Further, even assuming (contrary to my view) that the detriment element is satisfied, causal connection between the representation/promise and the detriment suffered still needs to be established.

43.I do not consider that a causal connection exists.  The representation did not cause the loss.  Rather, it is the 1st defendant’s failure to seek legal advice or to make the appropriate application to the court for directions that has caused the loss.

44.The 1st defendant also relies on promissory estoppel, but the same difficulty arises.  The absence of evidence that the 1st defendant had “altered his position” to render it unconscionable to permit the estate to rely on their legal rights is fatal.

45.As none of the defences raised and considered above provides any answer to the complaint that the 1st defendant had acted in breach of trust, the 1st defendant must account to the estate for the resulting loss.

(d)    Section 60 of the Trustee Act

46.In the event of the court holding that there was a breach of trust, it was submitted that the court should nevertheless relieve the 1st defendant wholly or in part from personal liability pursuant to section 60 of the Trustee Act in that the 1st defendant had acted honestly, reasonably and ought fairly to be excused by the court.

47.Ms Wu relied on the following matters:

(1) The 1st defendant’s occupation of the Premises was based on the tenancy agreements that he honestly believed were valid.  He, as a layperson, had no reason to question their validity as the tenancy agreements were homemade but professionally drafted.

(2) He had been acting in good faith based on that belief and did not try to conceal the tenancy agreements from the plaintiffs.

(3) When the plaintiffs alleged in March 2013 that the tenancy agreements were invalid, he promptly sought legal advice and was advised to seek court directions.

(4) There was every reason for the 1st defendant to believe that the Business could continue to occupy the Premises on a rent‑free basis on the testator’s death given the mutual agreement between him and the testator and they had steps taken in 1996.

(5) In so far as he has used parts (not being part of the Nathan Road premises) of Prince Edward Building for his business he has made rental payments.

48.The law is clear: the burden lies on the trustee to establish that he acted honestly and reasonably and that the discretion to grant relief should be exercised in his favor.

49.The 1st defendant was about 83 at the time of the testator’s death and almost 86 by the date of grant.  The will and codicil were written in English and it would not appear that he is conversant with the English language since the affidavits he has filed contain an interpretation clause.

50.The testamentary dispositions and directions involved were neither simple nor straightforward.  On any view the administration of the estate was likely to last for quite a number of years given the nature of the bequests and the trusts it created.  It is therefore a little surprising that a person in advanced years would wish to take on the responsibility at any rate without seeking legal advice on the matter.  But there is no evidence as to whether and if so what advice the 1st defendant obtained before deciding to accept the appointment as executor or whether he had sought any advice at all as to the duties that would be involved.

51.The submissions made on his behalf boiled down to no more than this: his occupation of the Premises rent‑free flowed from the mutual agreement between him and the testator regarding the Business after the death of one of them and his honest belief that the tenancy agreements, the Deed and mutual wills (prepared by professionals) in the first quarter of 1996 were valid.

52.Those matters do not address the issue of the 1st defendant’s duties and responsibilities as executor.  It would appear that after the testator’s death the 1st defendant simply carried on as before.  It may be that he was badly advised (in which case he will have other recourse) but that is another matter and is not a valid excuse for a breach of trust.  In short, there is simply no evidence as to what advice was sought and rendered.

53.As Mr Lynn submitted, the 1st defendant had a number of options open to him after the testator’s death.  He could have:

(1) disclosed the position to the beneficiaries and sought informed consent;

(2) made an application to the court for directions;

(3) paid market rent; or

(4) renounced probate.

He did none of the above.  He now seeks relief from court from departure of what is an inflexible rule that a trustee must not profit from a trust without express authority.

54.Factually, at the date of the testator's death the tenancy agreements prepared and signed by the brothers seven years earlier remained undated and had not been executed by the tenant.  In those circumstances, in my view, at the very least, a reasonable person would have sought confirmation of their efficacy.

55.While Ms Wu asked rhetorically whether the 1st defendant should have disputed his solicitor’s advice and what should he have done with the legal advice, those questions were premised on professional advice having been given.  However what that advice was and when such advice was rendered is not known. For example, relevant file notes pertaining to such advice are not in evidence. Further, it is unclear whether the point in time Ms Wu was addressing was the date of death or when the tenancy agreements were executed.  Clearly it is advice at the date of death that is relevant here and as already noted, no such evidence is before the court.

56.The 1st defendant now seeks relief from the court for departure of what is an inflexible rule that a trustee must not profit from a trust at least save with express provision.  What would overall fairness require?

57.If relief were granted, it would be tantamount to (1) allowing a trustee to retain profits that resulted from a breach of trust, leaving the beneficiaries who are entirely blameless to shoulder the loss to the estate; and (2) excusing the trustee from not seeking directions from the court.  Such an outcome would not appear to be either desirable or fair.  The fact that the 1st defendant was of advanced years is not a legitimate reason for applying a different standard.

58.Having regard to all the circumstances, I am not persuaded that the circumstances of this case warrant relief under section 60.

59.To conclude, as none of the defences raised and considered above provides an adequate answer to the complaint that the 1st defendant had acted in breach of trust and his fiduciary duties, he must account to the estate for the resulting loss.

The vacancies issue

60.The issue is whether the 1st defendant had taken reasonable steps to achieve the best financial return for the estate.  The plaintiffs’ focus was on what the 1st defendant had done to let the 11 floors of Prince Edward Building (ie those parts that do not constitute the Nathan Road premises) that were available to be let.

61.The complaint was directed at the fact that certain floors had been left vacant for very substantial periods of time.  At §34 of the 1st plaintiff’s 1st affirmation is a table setting out details of floors that had been left vacant for at least four continuous months:


Floor:

4/F

5/F

6/F

8/F

9/F

11/F

Vacant continuously for: (months)

4 months (From 09/2004 to 12/2004)

19 months (From 06/2003 to 12/2004)

19 months (From 06/2003 to 12/2004)

4 months (From 03/2004 to 06/2004)

12 months (From 01/2004 to 12/2004)

8 months (From 05/2006 to 12/2006)

7 months (From 03/2007 to 09/2007)

6 months (From 01/2010 to 06/2010)

21 months (From 10/2010 to 06/2012)

/

26 months (From 05/2008 to 06/2010)

35 months (From 10/2007 to 08/2010)

62.The table shows 11 instances of vacancies ranging from 4 to 35 continuous months.  Six of them show periods of vacancies of 12, 19, 21, 26 and 35 continuous months.  Pausing here, it has to be recognized that vacancies can and do occur even in sought after areas.  Much would depend on market conditions and timing. Moreover, it is accepted that it would be unrealistic to expect rental properties to be let back to back and continuously without interruption.  That said, it is nonetheless of some concern that there have been several lengthy vacancies of 12 continuous months or more.

63.The 1st defendant’s response was that as a co‑owner he would naturally want all of them let.  His evidence is to the effect that he would instruct estate agents to look for tenants but despite his efforts he was unable to let some of the floors in particular during the SARS episode in 2003‑2004 and during the global financial crisis in 2007‑2008.  It should be noted that no fewer than 8 of the 11 instances fell wholly or partly within those periods.  The 1st defendant asserted that he had used his best endeavors to maximize the utilization of the unoccupied floors.

64.The accounts exhibited show that on five occasions between 2004 and 2012, commissions were paid to estate agents in respect of specific lettings.  At a minimum the commissions paid show that the 1st defendant did employ estate agents.

65.While there is little evidence of efforts made in that the 1st defendant has not provided any particulars of his efforts as regards the few remaining vacancies that occurred outside of the SARS and financial crises periods, equally the plaintiffs have not adduced further evidence to rebut the explanation given but rely solely on the 1st defendant’s lack of particulars of his efforts to source tenants.

66.In my view, absent evidence to show that market conditions were such that it would be unlikely or improbable that particular vacancies would have occurred for such extended and continuous periods, it is well‑nigh impossible for this court to conclude that there has been a breach of trust.

67.It should be mentioned that the 1st defendant has been renting several of the floors for his own use for which he has paid rent determined by averaging the rental received in the preceding 6 months.  Rental paid over the years total just over $4 million, the estate’s share being one half of that amount.

68.Mr Lynn faintly suggested that the 1st defendant might have intentionally left some of the floors unoccupied so that they would be available should he need to rent them on an ad hoc basis for his personal needs.  I do not consider that there is any evidence to support such an allegation.  I reject it.

69.In conclusion, on the vacancies issue, it is my view that the plaintiffs have not made out a case that the 1st defendant has been in breach of his duty of care.

The Windsor Park expenses issue

70.I should preface this issue by stating that it is a claim made not by the plaintiffs but by the 1st defendant (through his guardian ad litem) against the plaintiffs.

71.I have not found the claim easy to understand.  It apparently pertains to expenses relating to the Windsor Park property.  Regrettably, the precise nature and scope of the claim have been clouded by a less than imprecise use of terminology.  To add to the confusion, in response to a question put by the court, Ms Wu categorically stated that her client, ie the 1st defendant (who ceased to be the executor on 13 November 2013) seeks an order for payment from this court.

72.If the 1st defendant is seeking an order for payment to him (viz a personal claim), it is not apparent how such a personal claim could have arisen.  If it is a claim made on behalf of the estate that it be reimbursed, a further seemingly insuperable difficulty would then arise: it is the 2nd defendant and not the 1st defendant who now represents the estate in these proceedings and any claim of the estate would have devolved on the 2nd defendant who has not advanced and is not advancing such a claim.

73.The relevant testamentary provisions relating to the Windsor Park property are described in §10 above.  The plaintiffs and Madam Tam were co‑owners in unequal shares but no assent has ever been executed which one would have expected had the 1st defendant considered that the gift was a specific legacy.

74.After the testator’s death, Madam Tam who had been his companion for many years continued to reside and still resides at the Windsor Park property.  During the period between the testator’s death and 1 April 2008 the 1st defendant had defrayed all expenses incurred in respect of the Windsor Park property out of the estate including Madam Tam’s personal expenses.  Since then the estate has continued to defray the necessary expenses for its upkeep and maintenance.

75.The 1st defendant’s position (as stated in §§14‑15 of his 2nd affidavit dated 15 July 2013 and §23 of the 2nd affidavit of his guardian at litem Moy Nui Ching dated 4 December 2014) is as follows:

(1) essential expenses for the upkeep and proper maintenance of the property irrespective of the question of occupation are borne by the estate; and

(2) fees for personal expenses such as utilities for the personal purposes of Madam Tam would not be borne by the estate.

The 2nd defendant supports this approach.

76.The action brought by Madam Tam against the 1st defendant in 2009 for payment of arrears of the monthly payment of $40,000 to which she was entitled under clause 5(a) of the 1997 Codicil was settled by the 1st defendant by apportioning the expenses incurred on that basis.

77.In light of those matters, I find the contention now advanced on the 1st defendant’s behalf surprising.  As I understand it, it is now asserted that expenses for the upkeep and proper maintenance of the Windsor Park property should be borne by Madam Tam and the plaintiffs pro rata as specific legatees, citing Williams, Mortimer & Sunnucks on Executors, Administrators and Probate, 20th Edn at §78‑17.  On that basis, an order that the plaintiffs respectively pay the sums of $638,171.20 and $319,085.60 is sought.  Those sums are stated as their respective current accounts being items 6.1 and 7.1 of Appendix K of the Updated Estate Accounts exhibited to the 1st defendant’s 3rd affidavit dated 10 December 2013.

78.In effect, the 1st defendant is now espousing a position on the issue that is the exact opposite of his earlier stated position re‑interated as recently as 4 December 2014.  However, instead of making that change abundantly clear at the outset, it was addressed as if the claim now made related to expenses of the Windsor Park property that were different in type or nature from those involved in the settlement with Madam Tam.  It came under the heading “The Personal Expenses Issue” in Ms Wu’s written submissions that followed a section headed “The Occupancy Expenses Issue” that concerned Madam Tam’s occupation.  That contributed to the confusion.

79.Be that as it may, the fact is that while executor the 1st defendant had treated and administered the gift of the Windsor Park property as creating a trust, possibly because of the “strings” attached to the gift: see §10 above.  On that basis, expenses for the upkeep of trust property have thus far been borne by the estate.

80.Looking at the wording of clause 3, the provision is unusual and, in my view, is more akin to a trust than an absolute gift.  As such, payment of necessary expenses by the estate is justifiable.

81.Given that the plaintiffs are the ultimate residuary beneficiaries and payment out of the estate would be at their expense at the end of the day, the apparent dogged “insistence” on payment by the plaintiffs of the proportionate share of the expenses now appears academic.  It is inexplicable other than as some misplaced desire on the 1st defendant’s part to cause maximum aggravation.

82.I have little hesitation in rejecting the 1st defendant’s claim for payment to him personally as no basis has been made out to support such a claim.  If the argument now advanced by the 1st defendant is that the sums claimed should be paid to the estate, he no longer has locus, not being the executor.  In any case, on the facts, clause 3(a) has been treated as creating a trust.  To alter the basis of treatment retrospectively, bearing in mind that it is only Madam Tam who is in occupation (the plaintiffs being resident overseas) would appear to be grossly unfair.

Interest

83.While the court has power to order compound interest, I do not consider it necessary to do so by way of compensation.  Although it could be said that the 1st defendant has employed trust property in the pursuit of trade, the facts of this case are unusual and could be said to be unique.  Misguided the 1st defendant may have been but that does not warrant the award of compound interest.

84.Accordingly, I will order that simple interest at 1% per annum above the best lending rate of HSBC prevailing from time to time be paid on the sum found due upon the taking of the account.

Order

85.For the reasons stated, the plaintiffs are entitled to:

(1) an account from the 1st defendant for 50% of the market rental of the Premises occupied by the Business from the date of the testator’s death.  Such account taking is remitted to the master who may give such directions as may be considered necessary to facilitate the taking of the account including the filing of expert evidence on the market rental;

(2) an order that simple interest at the rate of 1% per annum above the best lending rate of HSBC prevailing from time to time be paid on the amount found due on the taking of the account from 9 June 2003 to the date of judgment and thereafter at judgment rate until payment; and

(3) an order that the sum found due on the taking of the account together with the interest ordered be paid by the 1st defendant to the 2nd defendant to be held as part of the residuary estate.

86.On the issue of costs, in the first instance, the parties are to submit their written submissions within 14 days.  If upon reviewing the submissions an oral hearing proves necessary, a date will be fixed for such hearing.

(Doreen Le Pichon)
Deputy Judge of the Court of First Instance
High Court

Mr Andrew Lynn, instructed by Angela Wang & Co, for the 1st and 2nd plaintiff

Ms Teresa Wu and Mr Kerby Lau, instructed by PC Woo & Co, for the 1st and 3rd defendant

Mr Patrick Siu, instructed by CWL Partners, for the 2nd defendant