LAU KOON YING MATTHEW, as the executor of the estate of LAU YIU WING, Deceased v. LAU TARK WING AND ANOTHER

HCAP 23/2013
HCA 2305/2012
HCA 2306/2012

[2020] HKCFI 3129

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO 23 OF 2013

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BETWEEN

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2305 OF 2012

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BETWEEN

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2306 OF 2012

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BETWEEN

(Consolidated by Order of Master K Lo dated the 9^th September 2013)

(De-consolidated by Order of Registrar K W Lung dated the 24th day of February 2016)

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(Heard together)

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D E C I S I O N
(On Variation of Costs Order Nisi)

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Introduction

1.  On 21 August 2020, this Court handed down a judgment in relation to the defendants’ appeals against the Master’s decision on taking of accounts etc (“Judgment”).  As set out in the Judgment, this Court allowed the appeal on only one ground, namely Ground 1 in relation to whether the Master had erred in ordering Compound Interests in respect of the relevant principal sums ordered respectively in the 3 Actions.  In this decision, I shall continue to adopt the abbreviations in the Judgment unless otherwise indicated herein. 

2.  In the Judgment, this Court made a costs order nisi that P was to pay ⅓ of Ds’ costs of and incidental to the appeal, with certificate for two counsel (“Order Nisi”).  Ds now apply for a variation of the Order Nisi. 

3.  Ds seek to vary the Order Nisi in two aspects:

(i) That the Order Nisi in relation to the appeal should be varied to one as set out hereinafter;

(ii) That an order should be made to provide for the costs below.

Orders sought by Ds

4.  Ds seek the following orders:

(i) P to pay 80% of Ds’ costs of and incidental to the appeal, with certificate for two Counsel;

(ii) Ds to pay 75% of P’s costs of and incidental to P’s application by summons filed on 20 December 2017 for the taking of account (including the hearing on 23 November 2018 before the Master).

Discussion

Costs of the appeal

5.  It was submitted on behalf of Ds  that in depriving them ⅔ of their costs of and incidental to the appeal, the Court’s approach, which appeared to be based on the fact that Ds succeeded on only one out of three grounds of appeal, was wrong in principle, and that the approach should be that the percentage of reduction should be based on a rough and ready estimate  of the time and expense taken up in dealing with the two unsuccessful grounds of appeal, and that taking into the time and costs of the other two grounds, the reduction warranted should be not more than 20% of the costs of the appeal.

6.  The Order Nisi was made on a rough basis. Having checked the duration of the hearing, I am prepared to accept that the actual time and effort spent during the hearing on Ground 1 was more than that spent on the other two Grounds. Further, as pointed out by Mr Lam SC, a total of 10 pages of Ds’ Skeleton Submissions for the appeal were dedicated to Ground 1 whereas Grounds 2 and 3 combined only took up 3.5 pages (which was roughly 74% of the combined submissions on the Grounds), and that for P’s Skeleton Submissions, 4.5 pages were allocated to Ground 1 and slightly more than 2 pages for Grounds 2 and 3.   I further accept that Ground 1 involved more legal arguments.

7.  Although Ground 2 had no merit, as submitted by Mr Lam, there were two issues identified by this Court under Ground 3, and this Court agreed with Mr Lam’s submissions on the first issue.

8.  Having considered all the above and the circumstances in this case, I am prepared to vary the Order Nisi to reflect more closely as to the actual time and effort spent on Ground 1 on which Ds were successful.  I will order P to pay 75% of Ds’ costs of and incidental to the appeal, to be taxed if not agreed, with certificate for two Counsel.

Costs below

9.  The Master had awarded the costs to P in relation to the summons issued by P on 20 December 2017 for the taking of account (including the hearing on 28 November 2018 and any reserved costs, with certificate for one Counsel, to be taxed if not agreed.

10.  The Master had identified 5 issues and one of the issues was the appropriate period and rate of the interest for the sums to be determined upon the account taking. Mr Lam argued that as this Court held that the Master was wrong on the compound interest point, the question that this Court should consider is, had the Master made the correct decision on this point what would have been the appropriate costs order.

11.  Having considered the findings of the Master against Ds and the comments made by the Master in light of the unsatisfactory state of the evidence and accounts adduced by Ds at that time, I am of the view that even if Ds had succeeded on the compound interest point before the Master, the appropriate costs order would have been that P be awarded costs of his summons. 

12.  Having regard to the above, I do not propose to disturb the costs order made by the Master.

Order

13.  My order is thus the Order Nisi be varied to P to pay 75% of Ds’ costs of and incidental to the appeal, to be taxed if not agreed, with certificate for two Counsel.

14.  As for the costs of Ds’ summons issued on 8 September 2020 for variation of the Order Nisi, Ds have succeeded to vary the Order Nisi of the appeal, but failed in respect of the costs below.  I will order P to pay 50% of Ds’ costs of this summons, to be taxed if not agreed.  As the matter is a simple one, I will only allow certificate for one Counsel.

Mr Robin D’Souza, instructed by Wellington Legal, for the plaintiff in HCAP 23/2013, HCA 2305/2012 and HCA 2306/2012

Mr Paul Lam SC and Ms Astina Au, instructed by Hon & Co, for the defendants in HCAP 23/2013, HCA 2305/2012 and HCA 2306/2012

HCAP 23/2013
HCA 2305/2012
HCA 2306/2012

[2020] HKCFI 2107

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO 23 OF 2013

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BETWEEN

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IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2305 OF 2012

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BETWEEN

____________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2306 OF 2012

____________

BETWEEN

(Consolidated by Order of Master K Lo dated the 9^th September 2013)

(De-consolidated by Order of Registrar K W Lung dated the 24th day of February 2016)

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(Heard together)

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J U D G M E N T

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Introduction

1.  Before the Court are appeals out of time by the defendants in three actions against a decision made by Master J Wong (“Master”) on the taking of accounts.  Included in the notices of appeal are applications for extension of time to appeal.

2.  The three actions (respectively “Probate Action”, “2305 Action” and “2306 Action”) concern the estate of Mr Lau Hin Chi, deceased (“Grandfather”), and the estate of Mr Lau Yiu Wing, deceased (“Father”).  The  three actions (collectively “3 Actions”) were tried together in June 2017 before Chow J who handed down a judgment on 25 September 2017 (“Chow Judgment”)[1].  In the present judgment, this Court will adopt those abbreviations in the Chow Judgment, unless otherwise indicated herein.

3.  As seen in the Chow Judgment, the main protagonists in the 3 Actions are Matthew and his uncle Tark Wing. Matthew sues in his capacity as executor of Father’s estate in the Probate Action and the 2305 Action and he sues in his personal capacity in the 2306 Action.  For easy reference, he will be referred to as “P” in this judgment.  Tark Wing is sued in both his personal capacity and as executor of Grandmother’s estate in the Probate Action, and he is also a defendant in his personal capacity in both the 2305 Action and the 2306 Action.  Wing Hing and Caba are two companies controlled by Tark Wing (collectively “Companies”).  Wing Hing is a defendant in the 2305 Action, and both the Companies are defendants in the 2306 Action.  For easy reference, Tark Wing and/or the Companies will be collectively referred to as “Ds” in this judgment.

4.  In relation to the Probate Action, Chow J gave judgment for P’s claim in respect of Father’s share of the proceeds of sale of Lot 2785 and Lot 3825 but rejected the rest of P’s claims.  In relation to the 2305 Action and the 2306 Action, Chow J accepted P’s claim in respect of the rental proceeds generated from Lot 3763C, Lot 3763D and ½ share of Lot 3763 (RP).  Chow J ordered, amongst other things, that :

(1) An account be taken of the Father’s share of the proceeds of sale of Lot 2785 and Lot 3825 received by Ds (“Sale Proceeds”);

(2) An account be taken of the rental proceeds received by Ds in respect of Lot 3763C, Lot 3763D and ½ share of Lot 2763 (RP) (“Rental Proceeds”);

(3) The questions of (i) the appropriate period and rate of interest and (ii) what (if any) credit should be given for the construction costs of 4 houses (“Construction Costs”), which were built respectively on Lot 3763C (“House C”), Lot 3763D (“House D”), Lot 3763 RP (“House RP”) and Lot 884 (“House 884”) be dealt with in the taking of the accounts.

5.  The summonses in the 3 Actions for the taking of the accounts were issued by P on 20 December 2017 before the Master.

6.  There was a hearing for directions on 16 January 2018 before the Master.  According to the Master’s notes/record, the Master had asked the parties to consider how the taking of account was to be pursued, whether by way of affidavit evidence, examination of witnesses (deponents of affidavits) and/or submissions, and whether expert evidence was needed. The Master ultimately directed, amongst other things, that:

(1) Ds were to file within 42 days an account of the Sale Proceeds, namely HKD 1,084,617 received on or about 21 September 1992, with all vouchers receipts documents and statements (“Supporting Documents”), verified by affidavit identifying its whereabouts in whole or in part at all material times since receipt, the income and profits made therefrom, the properties or assets acquired therefrom and such interests accumulated and received;

(2) Ds were to file within 42 days lodge file and serve an account of the Rental Proceeds received by them on behalf of P and Father, with such account made with reference to the Schedule in the 1^st affirmation filed by P’s solicitor, with all the Supporting Documents and identifying the  whereabouts in whole or in part of the Rental Proceeds at all material times since receipt, the income and profits made therefrom, the properties or assets acquired therefrom and such interests accumulated and received;

(3) D were to file an affirmation within 42 days in response to P’s solicitor’s 1^st affirmation setting out in particular their position in relation to the questions of interests and what (if any) credit should be given for the Construction Costs;

(4) Within 42 days, P was to (a) upon receipt of the accounts, set out his list of objections if any or notices of surcharge and falsification if any, and (b) upon receipt of Ds’ affirmation in response under (3) above, to file and serve an affirmation in reply.

(5) For the purposes of the taking of accounts, the evidence having filed and was to be filed by the parties in the 3 Actions be used interchangeably.

7.  As seen from the above directions, Ds’ accounts should identify (i) the whereabouts of the Sale Proceeds, and the Rental Proceeds, in whole or in part, at all material times since receipt; (ii) the income and profits made therefrom; (iii) the properties or assets acquired therefrom; and (iv) such interests accumulated and received.

8.  On 22 March 2018, Tark Wing filed an affirmation on behalf of Ds.  He had exhibited, amongst other things,  (1) a schedule showing the total net Rental Proceeds in respect of  House C, House D, ½ of House RP   from 1 January 1997 until 30 September 2018 of HKD 2,318,060, with HKD 2,918,493 being the gross rental income  from Houses C and D and HKD 1,215,450 being the gross rental income from House RP (“LTW-1”)[2]; (2) a schedule showing an amount of HKD 369,018 to the credit of Tark Wing after setting out the Constructions Costs of HKD 3,851,893 and deducting therefrom (i) net Rental Proceeds of HKD 2,318,050; (ii) the Sale Proceeds of HKD 1,084,617; and (iii) interests of HKD 80,198 for the Construction Costs (“LTW-5”)[3]; and (3) a schedule showing the calculations for the  Construction Costs of HKD 3,851,893, which included (i) “actual costs” of HKD 3,291,894 (for Father’s share of the costs using the figures from P’s expert[4]); (ii) landfill costs of HKD 200,000; (iii) land premium of Lot 884 of HKD 300,000; and (iv) fung shui fees of HKD 60,000 for 3 houses attributable to P (Father and P) (“LTW-6”)[5].

9.  The taking of accounts was heard before the Master on 23 November 2018 and the Master handed down a decision on 29 April 2019 (“Decision”)[6].  The order made by the Master was essentially:

(1) In the Probate Action, Ds to pay P a sum of HKD 7,252,785.41, being the amount of the Sale Proceeds together with interests, calculated at the prime rate published by the Hong Kong Monetary Authority plus 1% compounded on yearly restsat the end of each calendar year (“Compound Interests”) for the period from 21 September 1992 to 29 April 2019 (per schedule attached to the order), together with interests  from 30 April 2019 until payment at judgment rate[7];

(2) In the 2305 Action, Ds to pay P a sum of HKD 6,956,135.86 being the net amount of the  Rental Proceeds in respect of Lot 3763C and ½ share of Lot 3763 (RP) together with  the Compound Interests  for the period from 1 January 1997  to 29 April 2019 (per schedule attached to the order), together with interests from 30 April 2019 until payment at judgment rate[8];

(3) In the 2306 Action, Ds to pay P a sum of HKD 3,893,950.20 being the net amount of the Rental Proceeds received from Lot 3763D together with the Compound Interests for the period from 1 January 1997 to 30 April 2019 (per schedule attached to the order), together with interests from 30 April 2019 until payment at judgment rate.

(4) No credit was to be given to the Construction Costs.

(collectively “Master’s Orders”)

10.  As seen above, the calculation of the Compound Interests commenced from 21 September 1992 in the Probate Action, and 1 January 1997 respectively in the 2305 Action and 2306 Action (respectively referred to hereinafter as “Commencement Date”).

11.  On 27 May 2019, Ds lodged notices of appeal in the 3 Actions to the Court of Appeal against the Master’s Orders.  Further supplementary notices of appeal were filed in the Court of Appeal on 12 September 2019. By a judgment of the Court of Appeal dated 11 December 2019 (“CA Judgment”), the Court of Appeal struck out Ds’ notices of appeal on a procedural error with costs in favour of P.  The Court of Appeal held that the appeals should not have been brought before the Court of Appeal but should have been brought before a single judge of the Court of First Instance.  Thereafter, on 20 December 2019, Ds filed the present notices of appeal respectively in the 3 Actions (“Notices”).

12.  At the hearing before this Court, Counsel Mr Paul Lam SC and Ms Astina Au appeared for Ds (appellants) and Mr Eugene Fung SC and Mr Robin D’Souza appeared for P (respondent).

Procedural matters

Whether the appeal should be held in open court

13.  As submitted by Mr Lam SC, the present appeal is different from a usual appeal against a master’s decision in interlocutory matters. The Master’s Orders are in the nature of final orders.  As confirmed by the Court of Appeal in the CA Judgment[9], the Master’s Orders were made pursuant to Order 44 rule 11 of the Rules of High Court (RHC), and hence  Order 44 rule 12 governs any  appeal, and Order 58 rule 1 shall apply, with, amongst other things, the following modifications[10]:

(1) the hearing shall be in open court unless the Court directs otherwise (Order 44 rule 12(1));

(2) the notice of appeal shall state the grounds of the appeal (Order 44 rule 12 (1A) (a); and

(3) no fresh evidence (other than evidence as to matters which have occurred after the date of the master’s order) shall be admitted except on special grounds (Order 44 rule 12 (1A) (b))

14.  Further, it is set out in paragraph 44/12/2 of Hong Kong Civil Procedure, 2020 Ed Vol 1 (HKCP), where an inquiry involves an assessment of damages, an appeal from the master’s decision shall lie directly to the Court of Appeal under Order 58 rule 2 of RHC; otherwise,   an appeal from a master’s decision on an account or inquiry is to a single judge in chambers under Order 58 rule 1, save that for an order made by the master under Order 44 rule 11, the hearing is in open court, unless otherwise directed.

15.  This Court directed that the appeal be heard in open court.   Further, it is stated in paragraph 43/3/1 of HKCP, an inquiry under Order 43 rule 3 of RHC is technically in open court, referring to Order 38 rule 1 of RHC.  Thus, it would appear that the hearing on 29 April 2019 before the Master for the taking of accounts should also have been held in open court, instead of in chambers open to public.

The evidence on taking of accounts

16.  As seen in paragraph 43/3/1 of HKCP, on an enquiry under Order 43, the evidence is generally given on affidavit, with cross-examination if necessary, though pleadings are sometimes directed in complicated cases.

17.  The Court may, pursuant to Order 38 rule 2(3) of RHC, on the application of any party, order the attendance for cross-examination of the person make any such affidavit.

18.  In the present case, P’s evidence was provided by 3 affirmations on his behalf from his solicitor Chao Kwok Hsien Wellington (“Mr Chao”) of Messrs Wellington Legal notwithstanding that the practice of solicitors making affirmations on behalf of clients has been said to be inappropriate and should only be done in exceptional circumstances[11].  Ds’ evidence was provided by an affirmation from Tark Wing of 21 March 2018.  As seen in the Decision, his  application to file a 2^nd affirmation was later dismissed for reasons set out therein[12].

19.  Even though the Master had raised the issue of examination of witnesses at the direction hearing on 16 January 2016, neither side had made any application for cross examination of witnesses, and the taking of accounts took place before the Master based only on affirmation evidence filed in connection with the summonses for taking account, and evidence filed in the 3 Actions. 

The Grounds of Appeal

20.  Ds’ grounds of appeal set out in the Notices were essentially the same, and they were[13]:

(1) The Master erred in ordering the Compound Interests (as opposed to simple interest) on the principal sum of HKD 1,084,617 (Sale Proceeds)[14], HKD 2,646,751.50[15] and HKD 1,309,210[16] respectively in the Probate Action, the 2305 Action and the 2306 Action (“Ground 1”);

(2) In light of P’s serious and unreasonable delay in commencing the actions, the Master erred in ordering interest to accrue from the respective Commencement Dates in the 3 Actions (“Ground 2”);

(3) The Master erred in holding that no Construction Costs were to be deducted (“Ground 3”).

Extension of time

21.  Ds sought extensions of time for filing the respective Notices pursuant to Order 58 rule 1(3) and Order 3 rule 5 of the RHC.  In considering whether to extend time to appeal, the court has to consider all the relevant factors, particularly: (1) the length of the delay; (2) the reasons for delay; (3) the merits of the proposed appeal; (4) the degree of prejudice to the other party[17].

22.  The Notices were filed more than 7 months after the deadline of 13 May 2019 (ie 14 days after the Decision). 

23.  As mentioned earlier, Ds first lodged notices of appeal against the Master’s Orders to the Court of Appeal on 27 May 2019.  According to Ds, this was on advice of Counsel, under the belief that at the time that the Decision was akin to a judgment from the Court of First Instance, and hence not governed by Order 58 rule 1 of RHC. 

24.  Essentially, the delay was due to Ds’ erroneous belief that (i) the time of appealing was 28 days from the Master’s Orders; and (ii) the appeal was direct to the Court of Appeal.  This eventually led to the CA Judgment. 

25.  Ds lodged the Notices 9 days after the CA Judgment.  Having considered the evidence, I am satisfied that the delay was caused by a genuine but unfortunately mistaken belief on the part of Ds’ legal representatives as to the proper procedure and avenue of the appeal and it was not a case of wilful or intention delay on the part of Ds.

26.  Although mistake or oversight made by legal representatives is not generally a good excuse for delay, I accept that the mistake was in relation to a procedural issue in respect of which there was no direct authority at the time.  As seen in the Chow Fu Hsien v K Vision International Investment (HK) Limited, HCA 2884/2004, unrep, 20.07.10 in which Recorder Yu had initially raised the issue whether the Court of First Instance had the jurisdiction to hear the appeal against the orders before Master Lung in relation to the taking of account and interest, although he later accepted jurisdiction.  The route or procedure for an appeal did not appear to be that clear and there did not appear to be any authorities directly on the point.  P did not object to the steps taken by Ds initially.  Having considered all this, I am of the view that the present case is one where the delay caused by a mistake of Ds’ Legal representative should be regarded as excusable.

27.  There was no sufficient evidence that P would suffer any material or irreparable prejudice if an extension of time were to be granted.  The main issue in the appeal is the merits of the proposed appeal since if the proposed appeal is devoid of merits, then it would not be appropriate for the Court to extend time. 

28.  Hence, quite appropriately, both Senior Counsel concentrated their submissions at the hearing on the merits of Ds’ proposed appeal, which I will consider hereinafter. 

Ground 1

Master’s reasons for ordering the Compound Interests

29.  The   Master gave 4 reasons for awarding the Compound Interests (“4Reasons”), and they were[18]:

(a) Tark Wing from time to time still maintained defences having been rejected by the trial judge Chow J (“Reason (a)”);

(b) Tark Wing had not provided truthful/accurate accounts (“Reason (b)”);

(c) There was no reason why P should not be granted the Compound Interests because it was a right of the beneficiary in case where the accounting party was unable/unwilling to account (“Reason (c)”);

(d) The case of Ting Yuk & Ors v Ting Yee & Ors did not assist Ds because that case dealt with an assessment of damages and not taking of an account and the learned master refused to do so because she did not see fit to so order in the particular circumstances of the case (“Reason (d)”).

30.  Mr Lam submitted that none of the 4 Reasons (whether individually or collectively) constituted good and sufficient reasons to order the Compound Interests, and that in relying on the 4 Reasons, the Master failed to have any or any proper regard for the correct legal principles governing the grant of compound interest.

The relevant legal principles on compound interest 

31.  That the court may award compound interest in its equitable jurisdiction can be seen in China Everbright-IHD Pacific Ltd v Ch’ng Poh (2002) 5 HKCFAR 630[19].  In his judgment, Lord Millet, NPJ had referred to the principle as explained by Lord Hatherley in Burdick v Garrick (1870) 5 LR CH App 233 in paragraph 108 as follows:

“The principle on which the English Court of Chancery awarded compound interest was explained by Lord Hatherley in Burdick v Garrick(1870) 5 LR Ch App 233 at p 241:

‘the Court does not proceed against an accounting party by way of punishing him for making use of the Plaintiff’s money by directing rests, or payment of compound interest, but proceeds upon this principle, either that he has made, or has put himself into such a position as that he is to be presumed to have made, 5 per cent., or compound interest, as the case may be. If the Court finds ... that the money received has been invested in an ordinary trade, the whole course of decision has tended to this, that the Court presumes that the party against whom relief is sought has made that amount of profit which persons ordinarily do make in trade, and in those cases the Court directs rests to be made.’…” (emphasis added)

32.  Part of the above passage was also cited by Lord Browne-Wilkinson in Westdeutsche Bank v Islington LBC [1996] 1 AC 669.  In the Westdeutsche Bank case, Lord Browne-Wilkinson held that:

“The award of compound interest was restricted to cases where the award was in lieu of an account of profits improperly made by the trustee. We were not referred to any case where compound interest had been awarded in the absence of fiduciary accountability for a profit.” (emphasis added)

33.  Lord Browne-Wilkinson further cited at pp 701F-702A the following judgment of Buckley LJ in Wallersteiner v Moir (No 2) [1975] QB 373, at 397:

“It is well established in equity that a trustee who in breach of trust misapplies trust funds will be liable not only to replace the misapplied principal fund but to do so with interest from the date of misapplication. This is on the notional ground that the money so applied was in fact the trustee’s own money and that he has retained the misapplied trust money in his own hands and used it for his own purposes. Where a trustee has retained trust money in his own hands, he will be accountable for the profit which he has made or which is assumed to have made from the use of the money. In Attorney-General v Alford, 4 De GM & G. 843, 851 Lord Cranworth LC said: ‘What the court ought to do, I think, is to charge him only with the interest which he has received, or which it is justly entitled to say he ought to have received, or which it is so fairly to be presumed that he did receive that he is estopped from saying that he did not receive it.’ This is an application of the doctrine that the court will not allow a trustee to make any profit from his trust. The defaulting trustee is normally charged with simple interest only, but if it is established that he has used the money in trade he may be charged compound interest … The justification for charging compound interest normally lies in the fact that profits earned in trade would be likely to be used as working capital for earning further profits. Precisely similar equitable principles apply to an agent who has retained moneys of his principal in his hands and used them for his own purposes: Burdick v Garrick.” (emphasis added)

34.  Lord Browne-Wilkinson then concluded by saying that:

“These authorities establish that in the absence of fraud equity only awards compound (as opposed to simple) interest against a defendant who is a trustee or otherwise in a fiduciary position by way of recouping from such a defendant an improper profit made by him[20] …”

35.  Lord Hatherley’s passage in Burdick v Garrick, supra, was also cited by Ribeiro PJ in the Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681, and after citing the passage, Ribeiro PJ had gone on to explain that:

“142. Thus, compound interest may be appropriate where the trustee or fiduciary has misappropriated funds which the Court assumes would have been used by him to earn profits and, instead of ordering an account of those profits, orders him to pay compound interest on the sum extracted. Where the fiduciary is ordered to pay equitable compensation on the basis of gains which the Court finds would have accrued to the trust estate if he had duly performed his fiduciary duty, it would be double-counting and punitive to order the amount of equitable compensation to carry compound interest.”

36.  With the above principles in mind, I turn to the present case.

The nature of the Master’s Orders

37.  Mr Lam submitted that no compound interest should be awarded because the award was “compensatory in nature” and not in lieu of, or in substitution for an account of profits[21].

38.  On the other hand, it was Mr Fung’s submissions that the Master’s Orders were not “equitable compensation” or  “compensatory in nature”[22].

39.  In the Libertarian case, Lord Millett NPJ had explained the taking of an account in the equitable context as follows (with emphasis added):

“167. It is often said that the primary remedy for breach of trust or fiduciary duty is an order for an account, but this is an abbreviated and potentially misleading statement of the true position.  In the first place an account is not a remedy for wrong.  Trustees and most fiduciaries are accounting parties, and their beneficiaries or principals do not have to prove that there has been a breach of trust or fiduciary duty in order to obtain an order for account.  Once the trust or fiduciary relationship is established or conceded the beneficiary or principal is entitled to an account as of right.  Although like all equitable remedies an order for an account is discretionary, in making the order the court is not granting a remedy for wrong but enforcing performance of an obligation.

168. In the second place an order for an account does not in itself provide the plaintiff with a remedy; it is merely the first step in a process which enables him to identify and quantify any deficit in the trust fund and seek the appropriate means by which it may be made good.  Once the plaintiff has been provided with an account he can falsify and surcharge it. If the account discloses an unauthorised disbursement the plaintiff may falsify it, that is to say ask for the disbursement to be disallowed. This will produce a deficit which the defendant must make good, either in specie or in money. Where the defendant is ordered to make good the deficit by the payment of money, the award is sometimes described as the payment of equitable compensation; but it is not compensation for loss but restitutionary or restorative. The amount of the award is measured by the objective value of the property lost determined at the date when the account is taken and with the full benefit of hindsight.

169. But the plaintiff is not bound to ask for the disbursement to be disallowed.  He is entitled to ask for an inquiry to discover what the defendant did with the trust money which he misappropriated and whether he dissipated it or invested it, and if he invested it whether he did so at a profit or a loss.  If he dissipated it or invested it at a loss, the plaintiff will naturally have the disbursement disallowed and disclaim any interest in the property in which it was invested by treating it as bought with the defendant’s own money. If, however, the defendant invested the money at a profit, the plaintiff is not bound to ask for the disbursement to be disallowed.  He can treat it as an authorised disbursement, treat the property in which it has been invested as acquired with trust money, and follow or trace the property and demand that it or its traceable proceeds be restored to the trust in specie.

170. If on the other hand the account is shown to be defective because it does not include property which the defendant in breach of his duty failed to obtain for the benefit of the trust, the plaintiff can surcharge the account by asking for it to be taken on the basis of “wilful default”, that is to say on the basis that the property should be treated as if the defendant had performed his duty and obtained it for the benefit of the trust.  Since ex hypothesis the property has not been acquired, the defendant will be ordered to make good the deficiency by the payment of money, and in this case the payment of “equitable compensation” is akin to the payment of damages as compensation for loss.

171. In an appropriate case the defendant will be charged, not merely with the value of the property at the date when it ought to have been acquired or at the date when the account is taken, but at its highest intermediate value. This is on the footing either that the defendant was a trustee with power to sell the property or that he was a fiduciary who ought to have kept his principal informed and sought his instructions.

172. At every stage the plaintiff can elect whether or not to seek a further account or inquiry.  The amount of any unauthorised disbursement is often established by evidence at the trial, so that the plaintiff does not need an account but can ask for an award of the appropriate amount of compensation. Or he may be content with a monetary award rather than attempt to follow or trace the money, in which case he will not ask for an inquiry as to what has become of the trust property. In short, he may elect not to call for an account or further inquiry if it is unnecessary or unlikely to be fruitful, though the court will always have the last word.”

40.  As seen in paragraph 168 quoted above, once the plaintiff has been provided with an account which discloses an unauthorised disbursement, the plaintiff may falsify it, that is to say ask for the disbursement to be disallowed, and this will produce a deficit, and where the defendant is ordered to make good the deficit by the payment of money, although the award is sometimes described as the payment of equitable compensation, but it is not in fact compensation for loss but restitutionary or restorative.

41.  As stated in paragraph 20-017 in Snell’s Equity 24^th Edition[23]:

“(3) Taking the account. What information and documents an accounting party must provide depends on the circumstances and should be considered at the hearing. The essential requirement is that the beneficiaries receive sufficient material to enable them to under the movements on the account, the nature of the investments, the monies expended and recovered, the income earned, the expenses paid, and how, and when and on what basis investment decisions were made. In some cases, this may require formal trust accounts but in other cases less formal documents may suffice or a narrative explanation may be required.

The accounting party first submits their verified accounts and explanation and supporting documents as appropriate, and the beneficiary may then raise any specific objections they may have. Objections to an account presented to the court as complete are either by way of surcharge or falsification. The beneficiary surcharges the account when they contend that the accounting party should have charged themselves on the incoming side of the account with more than had admitted. The beneficiary falsifies the account when they challenge an item of discharge entered into the outgoings side of the account.

(4) Burden of proof.  The beneficiary carries the burden of proving surcharges and the accounting party carries the burden of proving their discharge …”

42.  In the present case, Mr Chao filed 3 affirmations filed on behalf of P, which I will refer to respectively as his 1^st, 2^nd and 3^rd affirmation.

43.  In his 1^st affirmation, Mr Chao had deposed to the following, amongst other things:

(1) Regarding the Sale Proceeds, as there were no documents to determine the whereabouts of the Father’s share of the Sale Proceeds, the accounts of Tark Wing and Grandmother were defective and P was entitled tosurcharge the account on the basis of wilful default (para 12); as for the Interest, where the Father’s share of the Sale Proceeds were not identified and misappropriated, the Court would require the accounting party to pay compound interest at the rate of prime plus 1% (para 13); additionally P sought interest on yearly rests (para 14); (emphasis added)

(2) Regarding the Rental Proceeds, if in the event that  Tark Wing, Caba, Wing Hing were unable to provide proper accounts on the income and profits derived from the Rental Properties, the accounts of Tark Wing and the Companies would be defective and P was entitled tosurcharge the account on the basis of wilful default (para 25); as for Interest, the courts would require the accounting parties to pay compound interest at the rate of prime plus 1%  and additionally P sought such compound interests on yearly rests (para 26). (emphasis added)

44.  It was seen from the above that in Mr Chao’s 1^st affirmation P’s case was that if the accounts were defective, P sought to surcharge the account on the basis of wilful default.

45.  Then in Mr Chao’s 2^nd affirmation, P’s case was  Ds’  accounts were severely deficient and that P was entitled to treat the accounts as wilful default on the part of Tark Wing or alternatively P and/or Father sought to trace their interest into the misappropriated funds including the income and/or profits generated therefrom into properties subsequently constructed, owned or purchased by Tark Wing including the  house at Lot 3763E[24].

46.  Mr Chao had stated that as Ds had wilfully failed to render a proper account of the Sale Proceeds and Rental Proceeds, the consequence of which was that the Court would presume that such funds were used by Ds to earn profits, and if such profits were not identifiable, the court would order the fiduciaries to pay compound interest on the sums taken and therefore P was entitled to seek compound interest[25].

47.  As seen in paragraph 5 of  the Decision[26], the Master had summarised P’s case in Mr Chao’s his 1^st affirmation  and in paragraph 5 (3) the Master stated :

“Regarding the Interest, compound interest should be calculated at the rate of prime plus one because ofwilful default.” (emphasis added)

48.  After setting out Tark Wing’s case, the Master also set out again P’s case  as seen in Mr Chao’s  2^nd affirmation, namely amongst other things, Tark Wing’s purported accounts were severely deficient and there were new allegations and claims and all these were wilful default to render proper accounts and as such, compound interest could be ordered against the accounting parties[27].

49.  Thus, P’s case would appear to be that compound interest should be awarded because of Tark Wing’s wilful default in rendering proper accounts, and this appeared to be also the Master’s understanding of P’s case.

50.  However, the “surcharge of the account … on thebasis of wilful default” referred to by Lord Millet in paragraph 170 in the Libertarian case was when the account was defective because it did not include property which the defendant in breach of his duty failed to obtain for the benefit of the trust.  The property in that case was the shares which the defendant failed to acquire on the plaintiff’s behalf, and the Court then assessed as to how much the plaintiff would have gained had the shares been purchased.

51.  Mr Fung submitted that the accounts in relation to the Sale Proceeds and Rental Proceeds contained unauthorised disbursements.  In relation to the Sale Proceeds were concerned, it was asserted by Tark Wing that they had been paid to the Grandmother and the entire amount used by the Grandmother for the construction of houses[28].  As for the Rental Proceeds, Ds asserted that various disbursements had been made, including 10% general wear and tear, 16.5% tax payment by the Companies,  HKD 300,000 as land premium paid to the Government, HKD  300,000 landfill works and HKD 20,000 per house for Fung Shui practices[29]. The Construction Costs were HKD 3,851,893, after applying the entirety of the Sale Proceeds of HKD 1,084,617 and Rental Proceeds from 01.01.1997 to 30.09.2018 of HKD 2,318,060, and interests of HKD 80,198 towards the total Construction Costs, there was a shortfall of HKD 369,018 to the credit of Tark Wing.  

52.  Mr Fung informed the Court that before the Master, P objected to the unauthorised disbursements and electedto falsify the accounts submitted by Ds by asking the Master to disallow all the disbursements, and if such were disallowed, a deficit would be produced and Ds would need to make good the deficit by payment of money, and that although the award was sometimes described as a payment of equitable compensation, as had been explained by Lord Millet NPJ, it was restitutionary or restorative in nature, and not compensatory in nature.

53.  As seen in the Decision, the Master held that Tark Wing was fully liable to repay to P (as executor for Father’s estate) the Sale Proceeds of HKD 1,084,617 in full and disallowed any of the disbursements (including the Construction Costs).  As for the Rental Proceeds, the Master accepted P’s calculations of rental income and expenses in the schedule “CKHW-8”[30] and ruled that Tark Wing’s proposed deduction of expenses were vague and unreliable and not supported by documents.

54.  There was no evidence that P had asked for any further account or inquiry to discover what Ds did with the trust money.  Thus, although P’s case in Mr Chao’s affirmations appeared to be different in that he was seeking a surcharge, there was nothing to contradict what Mr Fung had said, that at the taking of account hearing, P had elected to falsify the accounts only and asked for disbursements to be disallowed, ie instead of seeking a surcharge or any further inquiry as to profits.

55.  As seen in the Decision, what the Master in effect did was not allowing any deductions/disbursements/expenses claimed by Ds from the accounts.  Further, as pointed out in the CA Judgment, the present case does not come within the situation in which P can surcharge the account by asking for it to be taken on the basis of “wilful default” as explained by Lord Millet[31].

56.  Having considered the above, I am of the view that the Master’s Orders were restitutionary or restorative in nature, and not compensatory in nature.  

The 4 Reasons

57.  Out of the 4 Reasons, so far as Reason (a) was concerned, the Master had mentioned that Tark Wing had raised a number of defences at the trial regarding P’s claim that Father never received the Sale Proceeds, and all were rejected by Chow J, and the Arrangement (as defined in the Chow Judgment) alleged by Tark Wing failed.  The Master then went on to say that:

(1) The suggestion that the Father agreed that [the Sale Proceeds] could be applied to the Construction Costs was rejected, and the payment of [the Sale Proceeds] to the Grandmother also constituted a breach [of his fiduciary duty owed to the Father], the defence of limitation did not succeed and hence Tark Wing should account[32];

(2) By his affirmation filed for the purpose of the taking of account, Tark Wing repeated that the Sale Proceeds were passed to the Grandmother.  He had no record except that he knew it was used by her for construction of houses[33]. With respect, such argument was no longer available to Tark Wing[34]. (emphasis added)

58.  For (1) above, the Master’s finding appeared to be based on Mr Chao’s allegation in paragraph 8 (ii) of his 2^nd affirmation that Tark Wing’s defence in the Probate Action, namely that Father had indicated to Tark Wing he did not want any of the Sale Proceeds to be remitted to him in London and the same could be contributed and/or applied towards the Construction Costs, had been specifically rejected by Chow J, referring to paragraph 43 in the Chow Judgment. It was thus that the Master said that Tark Wing was repeating the bare allegation in his affirmation filed on 22 March 2018[35].

59.  However,  what Chow J did not accept or what he had rejected in paragraph 43 of the Chow Judgment was the existence of the alleged agreement by Father and Chow J had said the alleged agreement was based on Tark Wing’s bare assertion and not supported by any contemporaneous documents[36].  Thus, Chow J did not find that Father had agreed.  In so far as I can see, Chow J did not make any specific finding as to whether as a fact the Sale Proceeds were contributed and/or applied towards the Construction Costs, and this was a matter he ordered to be dealt in the taking of the accounts. Further, in so far as I can see, in paragraph 44 of the Chow Judgment, Chow J did not reject Tark Wing’s case that he had paid the Sale Proceeds to Grandmother, and his finding was only that Tark Wing’s payment of the same to Grandmother in the absence of proof of consent or approval by Father constituted a breach of Tark Wing’s fiduciary duty, and he thus held that P was entitled to an account of Father’s share of the Sale Proceeds received by Tark Wing and Grandmother[37], subject to the defence of limitation which he later also rejected[38].  

60.  As seen in the Chow Judgment, a major plank of the then defences of Ds in the 3 Actions was there was the alleged “Arrangement” amongst the 4 family members, namely Grandfather, Grandmother, Father (for himself and P) and Tark Wing.  Under the alleged Arrangement, amongst other things, a village house was to be built on each of Lot 3763C, Lot 3763D, Lot 3763E and Lot 884 and the Construction Costs would come from the Grandfather and/or Grandmother as well as from the compensation monies received in Father’s name from the resumption of Lot 3757 and the Lau House and that Father and Tark Wing would also make some contributions.  In essence, the 4 family members (ie Grandfather, Grandmother, Father and Tark Wing) would pool together their resources to fund the construction of the houses and related expenses[39]. Further as a result of the alleged Arrangement, it was Ds’ case at the trial that  the Rental Proceeds generated from Lot 3763C ( House C), Lot 3763D (House D) were given to Grandmother while the Rental Proceeds generated from Lot 884 (House 884) were given to Father[40].

61.  Chow J did not accept Tark Wing’s evidence regarding the alleged Arrangement for reasons set out in the Chow Judgment[41].  Again, what was rejected by Chow J was, in so far as I can see, the existence of the alleged Arrangement.  There had been no specific rejection of Tark Wing’s evidence that the Sale Proceeds were passed to Grandmother or that she had used the proceeds for construction of houses.  In fact Chow J  had stated that on the whole, he had believed that there was probably some general discussion amongst the Grandfather, the Grandmother, the Father and Tark Wing on how the construction of the new houses on Lot 3763 and Lot 884 was to be funded[42].

62.  In light of the above, it did not appear that Tark Wing was maintaining defences which were rejected by Chow J.  

63.  Having said this, it would  appear the Tark Wing did seem to have put forward different calculations or as found by the Master, running a different case for the taking of accounts to that for the trial[43]. 

64.  The Master’s above finding was based on P’s complaint of Tark Wing’s “New Claim” in relation to Tark Wing’s “New Calculations” in LTW-5. In LTW-5, according to Tark Wing’s calculations, the total Construction Costs were a total of HKD 4,564,256 and  P’s share came to HKD 3,851,893, and after applying P’s share of the Sale Proceeds of HKD1,084,617 towards his share of Construction Costs, there was a shortfall, which should then be met or deducted from P’s share of  the net Rental Proceeds[44].  This was different from Tark Wing’s case during the trial as his then case was that under the alleged Arrangement,  contributions towards the Construction Costs were to come from 4 family members (ie Grandfather, Grandmother, Father and Tark Wing) and which  were to be paid from not only the Sale Proceeds but also the proceeds from the resumption of Lot 1219A and Lot 3757 and the Lau House  (collectively “Resumption Proceeds”), and the sum total would should have been  sufficient to cover all the Construction Costs of the houses[45].

65.  In any event, as pointed out by Mr Lam, Reason (a) was not a valid reason for the Master to award compound interest.  I agree.  In fact, during the appeal, Mr Fung indicated that he would not seek to rely on Reason (a) to argue for upholding the Master’s Orders.

66.  As for Reason (b), the Master found that Tark Wing had not provided truthful/accurate accounts.  It was clear the accounts from Tark Wing did lack the Supporting Documents.  The sale of Lot 2785 and Lot 3825 took place in September 1992, and the 4 houses were constructed/completed in about 1997, and these were events spanning some 20-25 years ago.   P did not commence the 3 Actions until 2012/2013, which was some 5 or 6 years after Father’s death in 2007.  That there was a lack of the Supporting Documents was unsurprising.

67.  As to the allegation of the accounts being not truthful, in so far as I can see, this referred to the P’s allegation of Tark Wing trying to deceive the Court over the deductions of rates in LTW-1.  This allegation of P’s stemmed from enquiries made by Mr Chao and his office to the Rating and Valuation Department and found out that the rates for the years 1997/1998 to 2011/2012 turned out to be much less than the amount of 5% estimated by Tark Wing[46]. However, in the end, there was no actual finding by the Master that there had been any deception or attempted deception on the part of Tark Wing, and all the Master pointed out was how unreliable the 5% estimate of Tark Wing for rates could be[47].

68.  As pointed out by Mr Lam, which I agree, providing inaccurate accounts or Reason (b) was not a valid reason for ordering the Compound Interests.

69.  Reason (d) was not really a reason.  Mr Fung did not seek to rely on Reason (d) to uphold Master’s Orders.

70.  That left only Reason (c).  

71.  Mr Fung submitted that the intended appeal was only against the conclusion by the Master and not his reasons.  He further submitted that that Reason (c) was important referring to paragraph 26 of the Decision.  In that paragraph, Master had referred to the authorities of Westdeutsche Bank v IslingtonLBC [1996] AC 669 and Libertarian Investments Ltd v Hall (2013) 16 HKCFAR 681.  Mr Fung submitted that Master was considering when the court could grant compound interest in lieu of a proper account, and that Reason (c) was consistent with the approach in the authorities as Tark Wing did not provide proper accounts and that Master could order compound interest in lieu of an account of profit.

72.  In relation to the Sale Proceeds, as seen earlier, the Master held that Tark Wing was repeating the same defences which had been rejected by Chow J and did not allow the deductions.  In relation to Rental Proceeds, the Master  held that the proposed deduction of expenses from the accounts of the Rental Proceeds were vague and unreliable and stated that the obligation laid squarely on the accounting party to provide the accounts and if he failed to do so, the beneficiary could of course either falsify or surcharge[48]. This then led to the Master’s Reason (c), namely that it was “a right of the beneficiary in case where the accounting party was unable/unwilling to account”.

Whether the Master had erred in ordering the Compound Interests

73.  As Buckley LJ had said in the Wallersteiner case, the defaulting trustee is normally charged with simple interest only, but if it is established that he has used the money in trade he may be charged compound interest, and the justification normally lies in the fact that profits earned in trade would be likely to be used as working capital for earning further profits.

74.  Buckley LJ had explained why he agreed that the case was one in which it was proper to charge compound interest with yearly rests[49] :

“There has been no investigation of what profit, whether in the form of dividends or otherwise. Dr Wallersteiner had secured by the acquisition the Harley Baird shares. The transaction was, however clearly one of a commercial character, and in the absence of evidence to the contrary, the court should assume that it had been profitable to him. Accordingly, it is in my opinion, equitable that the judgment awarded against him should include interest as a conventional measure of the profit he is to be taken to have made. Considering the nature of Dr Wallersteiner’s operations as a financier and as a dealer in and manipulator of large shareholdings in commercial companies, it is in my opinion right to treat the investment in shares of Hartley Baird as made by him in the course of that business and as calculated to be commercially valuable to him in the prosecution of that business. I accordingly agree that this is a case in which it is proper to charge compound interest with yearly rests.”

75.  Further, as said by Ribeiro PJ in the earlier quoted paragraph 142 of his judgment in the Libertarian case, compound interest may be appropriate where the trustee or fiduciary has misappropriated funds which the Court assumes would have been used by him to earn profits and instead of ordering an account of those profits, orders him to pay compound interest on the sum extracted.

76.  It is also stated under the section on “Personal Remedies against Trustees for Breach of Trust” in Lewin on Trusts, Volume II 12^th Edition, paragraph 41-62[50] as follows:

“Usually, simple interest is charged, from the date of breach, but compound interest with yearly, or even half-yearly, rests may be ordered (apparently in the court’s discretion) where the trustee has used the trust funds in his own business, if capital employed in it yields income, or, we consider, in cases of fraud or misconduct, at any rate if the trustee has benefitted personally, as well as for breach of a trust to accumulate income. …”

77.  Mr Fung on the other hand relied on the earlier quoted passage from Buckely LJ in the Wallersteiner case, and submitted that where a trustee or fiduciary uses the misappropriated money for his own purpose, or obtained a benefit therefrom, equity would require such a benefit be stripped in the form of compound interest on the misappropriated money to be payable by the trustee/fiduciary.

78.  Mr Fung pointed out that there was ample basis to support that (1) Tark Wing had used the Sale Proceeds for his own purpose and that (2) Tark Wing and the Companies had used the Rental Proceeds for their own purposes as follows:

(1) In relation to the Sale Proceeds:

(i) Master had referred to Tark Wing’s evidence that the sum of HKD 1,084,617 was given to Grandmother who then used it for the construction of “houses”[51];

(ii) it was common ground that Tark Wing had been an owner of Lot 3763E and ½ share Lot 3763 RP since 13 September 1994, and that a 3 storey house was constructed on Lot 3763 E and a 2 storey temporary house was built on Lot 3763 RP, ie House RP since around 1997;

(iii) Thus, on Tark Wing’s evidence, the Sale Proceeds were used by him which resulted in him getting a substantial benefit, namely an interest in the houses which stood on his and/or his share of the land.

(2) In relation to the Rental Proceeds:

(i) Tark Wing’s case was that only HKD 2,318,060 was accountable and there were various expenditures[52];

(ii) In giving Reason (c), the Master obviously had in mind the principles and the passages quoted earlier, which was quoted in the Westdeutsche Bank case and also what Ribeiro PJ said in the Libertarian case, and that because of Tark Wing’s failure to provide a proper account, the Court was unable to ascertain whether he and the Companies had made any actual profit from the Sale Proceeds and the Rental Proceeds, and that the Master considered that P was entitled to ask for compound interest in lieu of an account of profit.

79.  At the account taking hearing, P’s Counsel submitted that because D’s accounts contained numerous inaccuracies and generalised propositions, they were defective and the necessary inference was that they were used by Tark Wing and the Companies for their own purposes, and that the Court should adopt P’s calculations[53].

80.  Although the Master had said that he agreed with the submissions of P’s Counsel[54], Mr Lam pointed out  that whether Ds had used P’s share of the Sale Proceeds and/or the Rental Proceeds for their own purposes or obtained benefit therefrom or not, this was not one of the 4 Reasons given by the Master for ordering the Compound Interests.

81.  Mr Lam submitted that on a breach of trust duties, it would usually follow that the trustee failed to use the trust funds for the beneficiary, and thus must have used for the trustee’s own purposes or benefit, but it would not mean that in every case involving a breach of trust, compound interests would be payable, and that this would in fact be against the authorities.   Mr Lam referred the Court to the facts of the Burdick case.  In that case, a solicitor was sued by the widow as administratrix of the estate of a deceased client to recover moneys due to the estate.  The money were sale proceeds of the client’s property and which were paid into the solicitor’s general account of his firm.  The Vice-Chancellor had ordered compound interest at first instance.

82.  On appeal, Lord Hatherley LC held that, the principle laid down in the case of Attorney General v Alfred 4 DM & G 843 was sound principle, namely that the Court does not proceed against an accounting party by way of punishing him for making use of the plaintiff’s money by directing rests, or payment of compound interests, but proceeds upon this principle, either that he has made, or has put himself into such a position as that he is to be presumed to have made, 5 percent (the ordinary rate of interest) or compound interest, as the case may be.  It was held by Lord Hatherley LC that  a solicitor’s business was not a business in which they could make compound interest on the money embarked, or in which half-yearly rests, or yearly rests, would be made in making up the account, and that a solicitor’s profit arose from the time and the labour which he bestowed upon in cases in which he was engaged and therefore no case arose in which one could say that a profit had been made, or necessarily was profit to be inferred, and that consequently that there was an error in the Vice-Chancellor in directing compound interest[55].

83.  Sir GM Giffard, LJ agreed with Lord Hatherley LC that compound interest ought not to be charged and he had also held the principle was clearly laid down by Lord Cranworth in Attorney-General v Alford and that the question of interest clearly depended upon the amount which the person who had improperly applied the money could be fairly presumed to have made, and that if he had applied it to his own use, it was quite right to say that he ought never to be heard to say that he had made less than 5 percent (ordinary rate of interest) and that that was a fair presumption to make; but if one sought to go further than that, and to charge him with more than 5 percent, one must make out case for that purpose and that in the case, the money went into the common account of the solicitor’s firm and consequently, there being neither proof nor presumption that compound interest was made[56].

84.  In the present case, Tark Wing’s evidence was that the Sale Proceeds were paid to Grandmother who had used the same towards the Construction Costs.  As said earlier, there was no rejection of this evidence by Chow J.  Also, as seen in the Chow Judgment, Tark Wing’s evidence during the trial was that the net rental income from House C and House D was given to Grandmother while the net rental income from the House 884 was given to Father[57]. Again, in so far as I can see, there was no rejection of Tark Wing’s such evidence. All Chow J had said was Ds’ defence in the 2305 Action and the 2306 Action was based on the Arrangement and in view of his conclusion regarding the Arrangement, the defence could not stand and that Ds had to properly account to P the Rental Proceeds[58].

85.  As seen in LTW-1, the expenses deducted by Tark Wing from the Rental Proceeds were  (i) “specific expenses” of agency fees and rates; (ii) 10% general wear and tear expense including re-painting works prior to taking on new tenants, repairs to boundary wall, regular clearing of septic tanks and sewage, maintenance of external water pipes, major repair for roof of House D in 2004/2005, electricity charges for ground floor of House C, damage to metal gate of House D and emergency repairs to main power supply; in his affirmation, he had also mentioned replacement of antennae, cleaning of air-conditioning, plumbing and other overall expenses; (iii) about 16.5% tax payable by the Companies as the houses were managed by the Companies.

86.  According to Tark Wing, after the above deductions, the total net sum of P’s share of the Rental Proceeds from House C and House D were HKD 1,865,688 and from House RP was HKD 904,745, making a total of HKD 2,318,060.

87.  The Master did not accept Tark Wing’s calculations on the basis that Tark Wing’s proposed deductions were vague and unreliable and not supported by documents for essentially 3 items  (i) the 10% repairs for wear and tear; (ii) the 5% rates and/or government rent; (iii) 16.5% taxes paid by the Companies[59] .

88.  Tark Wing had in his affirmation stated that neither his beloved mother nor he had done anything wilfully to hide any money and/or to create a scheme whereby they profited for themselves[60].

89.  I accept Master’s decision on the Compound Interests was made as a matter of exercise of discretion.  Mr Fung had referred the Court to the judgment of Recorder Benjamin Yu, SC in the Chow Fu Hsien case, supra, which was an appeal from two orders of Master Lung including one on interest.  Recorder Yu had held that whether interest should be compounded was a matter for the Court’s decision and, referring to Hanbury & Martin, Modern Equity 18^th Ed, p 690 that compound interest is charged where that fairly represents what the trustee may reasonably be treated as having received, and that Recorder Yu was of the view that that was the position of the trustee in that case[61].

90.  As seen in Recorder Yu’s judgment, the taking of the account in that case was severely handicapped by the absence of primary documents and, in particular, the accounting records of the defendant.  As seen in Master Lung’s two decisions which were not referred to this Court, the taking of account was pursuant to a summary judgment obtained by plaintiff against the defendant, and the taking of account took place over 5 days with cross examination of witnesses and in the end Master Lung essentially accepted the evidence of the plaintiff’s accountant expert and ordered in favour of the plaintiff and initially made an order nisi for simple interest.  On an application for variation of the plaintiff, Master Lung varied his order nisi and ordered compound interest against the defendant.

91.  Master Lung had given the following reasons for ordering the Compound Interest:

“(1) The plaintiff now claims against the defendant company, of which she is one of the shareholders, holding 35% beneficial interest of the defendant’s interest in the Celebrity Plaza;

(2) Defendant company is a corporate vehicle carrying on the development of the project of construction of Celebrity Plaza;

(3) It can be seen quite clearly that the plaintiff’s interest is in fact an investment in the development of the Celebrity Plaza project;

(4) Ultimately, the plaintiff should be placed to the same position as if the Trust Deed, under which she is entitled to the 35% of the defendant’s interest in the project;

(5) The time for the plaintiff’s interest in the project to be realized has to be the time when Celebrity Plaza has been completed, which is in 2004, about the time the plaintiff demanded the defendant to account for her interest and the defendant denied her entitlement.

(6) The defendant admits [see counsel’s reply submission para 18] that it was involved, apart from Celebrity Plaza, another project, namely Sunshine Plaza.  According to the expert’s report at [B-239] paragraph 5.5, the defendant has reallocated certain of the accounts and transferred certain amounts from various accounts payable to the capital reserve.  The expert was unable to identify those accounts.  Nor was the defendant able to give evidence to those accounts.  The presumption in Wallersteiner v Moir (No 2) [1975] 1 QB 373 shall become operative.  The defendant is unable to adduce evidence to rebut this presumption[62].”

92.  In the above case, the defendant carried on a business as a property developer, and the above evidence indicated that part of the trust funds had gone into a second property project.  It was in those circumstances that that Master Lung found that the defendant was unable to rebut the “presumption” (sic) in the Wallersteiner case.  On appeal, it was in that context that Recorder Yu found that Master Lung’s exercise of discretion should not be disturbed.

93.  In the present case, the parties were all family members and the fiduciary relationship arose out of a familial and not commercial context.  Tark Wing had said that the present dispute between him and P only arose after Father had passed away.  It was also Tark Wing’s evidence that all along Ds had managed and dealt with the rental properties.  There was no sufficient evidence that Tark Wing or Grandmother had received any compensation for their efforts.  There was no evidential foundation for any assumption that there was any actual gain/profits or assumed gain/profits made by Tark Wing and/or Grandmother.  Tark Wing was a professional accountant, and there was no sufficient evidence that he was involved in any commercial trade or transaction.  The evidence seemed to indicate that Grandmother was a housewife and in any event, there was no evidence to show she had been involved in any commercial trade or transaction.  There was also no evidence that Tark Wing and/or Grandmother had carried on any business as property developers, apart from building the houses on the family lots.  There was also no evidence as to the nature of the business of the Companies, whether they were involved in any commercial trade or activities or investments, apart from rendering service to Tark Wing in collecting the rental income from and managing the houses on Lot 3763 and on DD 884. 

94.  Further, there was no sufficient evidence that whether Tark Wing, or Grandmother, or the Companies had put themselves in a position that would attract a presumption that compound interest had been made on the Sale Proceeds or the net of the Rental Proceeds.

95.  There was no finding by the Master that Ds had utilised the Sale Proceeds or the net Rental Proceeds for a commercial advantage and/or earned any profits as a result thereof.

96.  Mr Lam further pointed out that the Master had adopted the rate of prime plus 1% and had referred to Waddington Limited v Chan Chun Hoo Thomas & Ors, CACV 10/2014, unrep 20.05.16 in which this rate was generally accepted as reflecting the theoretical costs to the plaintiff of borrowing the withheld sums commercially[63].  In that case, the lower judge ordered the pre-judgment interest on the judgment sum to be 2.5% per annum and declined to award compound interest with monthly rests.  On the cross-appeal by the plaintiff/respondent, the rate was changed to prime plus 1% per annum but compound interest was refused.  It can be seen in the Court of Appeal judgment, the lower judge ordered simple interest because he did so because he felt that the case was not one in which the appellant had misappropriated company funds and used them for his own purposes but was on a less serious level[64].  The Court of Appeal agreed with the appellant’s senior counsel’s submission that the normal rule was for award of simple interest and that there must be features justifying a departure from it before an award of compound interest could properly be made, and that the situation in that case, of conflict of interest, was not as serious as a case of misappropriation[65]. 

97.  Having considered the authorities, the evidence and all the circumstances of this case, I am of the view that Master’s Reason (c) for ordering the Compound Interests was flawed and there seemed to be a misunderstanding on the law on his part, and I have come to the conclusion that his exercise of discretion in ordering the Compound Interest was plainly wrong.  There are merits in Ground 1 and I am prepared to allow the appeal on this ground.

Ground 2 

98.  The Master awarded interests from the date of 21 September 1992 in the Probate Action, and from the date of 1 January 1997 in both the 2305 Action and the 2306 Action.  The Commencement Dates were dates on which P’s causes of action were deemed to have accrued.

99.  Mr Lam submitted that in using the Commencement Dates, the Master had ignored the fact that there was serious and inordinate delay on the part of P in commencing the 3 Actions, namely 4 November 2013 for the Probate Action, and 12 December 2012 for the other 2 Actions, and that the dates of the commencement of the respective 3 Actions should be used instead.

100.  However, Mr Fung submitted that Ds did not advance any submissions on the interest period issue before the Master, and P did not adduce any additional evidence to specifically deal with any delay allegation, and that this was a new point raised on appeal.

101.  There was no explanation from Ds as to why this issue was not specifically raised before the Master, although Mr Lam argued that the Master was aware of the issue. 

102.  In my view, it is too late to raise this on appeal.  I do not find there are merits in Ground 2.

Ground 3

103.  So far as the Sale Proceeds were concerned, as said earlier, there was no specific finding by Chow J that no part of the Sale Proceeds went towards the Construction Costs and in fact, this was a matter which Chow J had specifically directed the Master to consider during the taking of account. 

104.  The Master had referred to Father’s share of  the Resumption Proceeds totalling about HKD 2.7m on which Tark Wing had not said anything[66].

105.  The Resumption Proceeds from Lot 1219A were a total of HKD 1,910,000 of which Father’s half share was HKD 955,000[67].  As pointed out by Chow J, it was never Tark Wing’s defence that the Resumption Proceeds from Lot 1219A were to be used for the Construction Costs[68]. Notwithstanding the lack of pleading, it appeared to be Tark Wing’s oral evidence at the trial that the Resumption Proceeds from Lot 1219A were used for the Construction Costs.   In the end, Chow J had found that the burden was on P to prove that Tark Wing paid Father’s share of the Resumption Proceeds from Lot 1219A to Grandfather or otherwise used it without Father’s consent or approval, and that P had not discharged the burden on him, since those proceeds were first paid in a bank account held in joint names of Father and Tark Wing and there was evidence that Father had taken HKD 50,000 from the joint bank account for his own use. 

106.  As for the Resumption Proceeds from Lot 3757 and the Lau House, these came to a total of HKD 1,810,094 which were paid into Father’s bank account at HSBC of which Grandmother held a power of attorney[69].  The finding of Chow J was that there was no evidence that Tark Wing took or improperly used the Resumption Proceeds from Lot 3757 and the Lau House without the consent or approval of the Father. Further, as stated in the Chow Judgment, P had accepted that the Resumption Proceeds from Lot 3757 and the Lau House contributed towards the that part of the Construction Costs of the House  884[70].

107.  As Chow J had ordered the question of what credit (if any) should be given for the Constructions Costs be dealt with in the taking of the accounts, this was an indication that Chow J did not exclude the possibility that the Sale Proceeds, or a part thereof, could have gone towards the Construction Costs, together with all or part of the Resumption Proceeds from Lot 1219A and/or from Lot 3757 and the Lau House.

108.  There were necessarily two issues arising out of the question of whether any credit should be given for the Construction Costs, namely:

(i) What were the Constructions Costs for the houses?

(ii) Whether any part of P’s share of the Sale Proceeds went towards the Construction Costs?

109.  So far as issue (i) was concerned, it was submitted before the Master on behalf of Tark Wing that even if the Master did not accept Tark Wing’s evidence of the Construction Costs, the alternative was to use the figures produced by P’s expert Mr Terence Kwan, namely HKD 4,564,256 in the report prepared by Mr Kwan (“Kwan Report”).

110.  Tark Wing himself had said that it was no longer possible for him to find all the supporting documents after all those years and he was prepared to accept the figures in the Kwan Report.  I had earlier said this was understandable as the 3 Actions were commenced some 15 years after the completion of the 4 houses.  In fact, there was no dispute that there were indeed houses constructed on Lot 3763 and Lot 884, including Father’s House C, House D and ½ of House RP for which Ds had to account for Father’s share of the Rental Proceeds therefrom.  I agree with Mr Lam’s submission that the estimates in the Kwan Report could have been adopted in the absence of the supporting documents from Ds.

111.  But there was still issue (ii).  As said earlier, there were “New Calculations” in LTW-5 and a different case was put forward by Tark Wing in that the Construction Costs relating to House C, House D, House RP and House 884.  What is clear is that Tark Wing did not refer to the Resumption Proceeds in LTW-5.

112.  The Master had held that Tark Wing did not adduce evidence to show or to try to show how actually the Construction Costs were paid and shared[71].

113.  Even though P had accepted that the Resumption Proceeds from at least Lot 3757 and the Lau House had contributed to the Construction Costs relating to House 884, there was no evidence in Tark Wing’s affirmation as to how the Resumption Proceeds were applied towards the Construction Costs of the other 3 houses.  There was no mention by Tark Wing of the Resumption Proceeds at all.   

114.  As there was no evidence put forward by Tark Wing, I do not find that Ds can now complain about the Master coming to the view that Tark Wing had failed to discharge his burden to show that any Construction Costs should be deducted.  I thus do not find there was merit in Ground 3.

Conclusion

115.  Having regard to all above said, to summarise, I find there are merits in Ground 1.  I am therefore prepared to grant Ds extension of time to appeal under Ground 1 only, and I further allow Ds’ appeal on Ground 1. I order that that the Compound Interests in the Master’s Orders be replaced by simple interests only.  The rest of the Master’s Orders are not to be disturbed.

116.  As for costs, as Ds had succeeded on only Ground 1 in their appeal, I order P to pay 1/3 of Ds’ costs of and incidental to the appeal, with certificate for two counsel.  This is an order nisi, which is to be made final after 21 days.

117.  Lastly, I would like to thank all Counsel for their assistance to the Court.

Mr Eugene Fung SC and Mr Robin D’Souza, instructed by Wellington Legal, for the plaintiff in HCAP 23/2013, HCA 2305/2012 and HCA 2306/2012

Mr Paul Lam SC and Ms Astina Au, instructed by Hon & Co, for the defendants in HCAP 23/2013, HCA 2305/2012 and HCA 2306/2012

HCAP 23/2013
HCA 2305/2012
HCA 2306/2012
[2019] HKCFI 995

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO 23 OF 2013

________________________

________________________

________________________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2305 OF 2012

________________________

________________________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2306 OF 2012

________________________

(Consolidated by Order of Master K. Lo dated the 9^th September 2013)
(De-consolidated by Order of Registrar K. W. Lung dated the 24^th day of February 2016)
(Heard together)

_______________

TAKING OF ACCOUNT

_______________

INTRODUCTION

1.  This is a family dispute, essentially between a nephew (“Matthew”) and his uncle (“Tark Wing”). The former is a qualified lawyer, and the latter, a chartered accountant.

2.  Briefly, in the capacity of as the executor of the estate of his father (the “Father”), Matthew commenced one probate action and two High Court actions against Tark Wing and two of his companies (“Caba” and “Wing Hing”).  In the probate action, Matthew also sued his grandmother (the “Grandmother”).  After her passing away, the matter was taken up by Tark Wing as executor for her estate. 

3.  Matthew made a number of claims in the 3 actions.  After a trial of six days, by a judgment handed down on 25 September 2017, the Hon Chow J found him succeeding in some of the claims but also failing in some.  

4.  In so far as the successful claims, the learned Judge ordered and directed for a taking of account, namely:  

(1)  an account be taken of the Father’s share of the proceeds of sale of Lot 2785 and 3825 (“the Sale Proceeds”) received by Tark Wing and the Grandmother; 

(2)  an account be taken of the Rental Proceeds (“the Rental Proceeds”) received by Tark Wing, Caba and/or Wing Hing; and 

(3)  the questions of (i) the appropriate period and rate of interest (“the Interest’), and (ii) what (if any) credit should be given for the construction costs of the houses on Lot 3763C, Lot 3763D, Lot 3763RP and Lot 884 (“the Construction Costs”), be dealt with in the taking of the accounts. 

SUMMONS (TAKING OF ACCOUNT)

5.  Matthew’s solicitor then issued the present summons for taking of account.  He also prepared the supporting affirmation.  As to the 4 matters identified by the judge above, with available information, the solicitor said, inter alia, that:  

(1)  About 7 million was payable because there were simply no documents to determine the whereabouts of the Father’s share of the Sale Proceeds.  

(2)  Regarding the Rental Proceeds, a sum of $10.5 million approximately was payable for the period from 1997 to 2018, based on the limited disclosure^[1] by Tark Wing, Caba and/or Wing Hing herein. 

(3)  Regarding the Interest, compound interest should be calculated at the rate of prime plus one because of wilful default.  

6.  The solicitor asked the court to order for the production of the relevant accounts and affirmation to address on the question of the Interest and the Construction Costs.  

7.  Parties appeared before me on 16 January 2018 and discussed how the accounts were to be taken.  To sum up the directions given by me, regarding the Sale Proceeds and the Rental Proceeds, Tark Wing and/or the defendants had 42 days to prepare the accounts with all vouchers receipts documents and statements, verified by affidavit.  They should also prepare an affirmation by the same time setting out their position on the Interest and the Construction Costs.  

8.  Matthew also had 42 days to make a reply.  Parties were directed to agree on issues of dispute, failing which to lodge those of their own.  The evidence having filed in each of the three actions could be used inter-changeably. 

9.  On 22 March 2018, to comply with the directions, Tark Wing filed his affirmation.  He deposed, among others, that:

(1)  The Sale Proceeds of $1,084,617 was passed to the Grandmother.  He had no record except that he knew it was used by her for constructions of houses.  The Nephew and the Father would be benefited from it.  Nevertheless, he was willing to account for the sake of argument.

(2)  Only a grand total of $2,318,060 was accountable. It was calculated by his record. He did not keep any receipts or invoices as the Father had never asked. He included 10% general wear and tear to offset general maintenance and 16.5% tax payable by Caba and Wing Hing. 

(3)  (i)  No compound interest should be ordered.  

      (ii)  $3,851,363 would be the Construction Costs.  Apart from the evidence produced at trial, he added that $300,000 land premium was paid to the Government.  Further, another $300,000 landfill works were done as well as about $20,000 per house for Fung Shui practices.  

10.  Matthew’s solicitor made a reply by his 2^nd affirmation.  He complained that Tark Wing’s purported accounts were severely deficient.  Such accounts further sought to confuse the issues by raising new allegations and claims.  They were non-starter. New claims could not be argued as they had not been raised at trial.  All these were wilful default to render proper accounts and as such, compound interest could be ordered against the accounting parties.  The calculations of the Rental Proceeds, including purported deductions of specific expenses, 10% normal wear and tear, 16.5% profit tax, were bare assertion and not supported by contemporaneous documents.  As to the Construction Costs, not only there was no evidence showing that the Sale proceeds and the Rental Proceeds went to the Construction Costs, the new calculations of landfill costs, land premium and costs of Fung Shui Master were problematic and not agreed. 

11.  Later, by consent, Matthew’s solicitor made a further reply by his 3^rd affirmation.  Up-dated correspondence among parties were produced and more accurate rates calculations, including concessions from government, were presented. 

THE HEARING

12.  Parties appeared before on 23 November 2018 for one day for the taking of account.  They were all represented by counsel, Mr Robin D’Souza, for Matthew and Mr Richard Leung, for Tark Wing and all other defendants. 

PRELIMINARY MATTER

13.  Two days before the hearing, Tark Wing issued a summons to seek leave to adduce his 2^nd affirmation.  He explained that he had missed a point in his earlier affirmation.  He sought to clarify that the sum of $300,000 land premium was paid by him to the bank account of his brother. 

14.  Having heard submissions from both counsel, to avoid wasting of time and costs, I allowed the application on a de bene esse basis.  Upon thought, by the present decision, I will dismiss it.  

(a)  The application is late.  

(b)  Tark Wing admitted that he only missed it.  Hence, it was something that could have been mentioned in his earlier affirmation.  

(c)  By allowing the 2^nd affirmation to be relied upon by him at the taking of account, Matthew would be prejudiced to pursue the matter further (by checking with the bank) and make a reply.  

(d)  Last but not least, the evidential value of the such piece of evidence is on the low side.  Tark Wing was not producing evidence (copy cheque or confirmation obtained from the bank) showing that the payment of land premium of $300,000 in question did come from him. Instead, he was only telling what he remembered.  

ISSUES TO BE DISPUTED

15.  From the written submissions of both counsel, they following arguments could be deduced.  

(a)   What are the applicable legal principles regarding taking of account? 

(b)   How did Tark Wing and the Grandmother deal with the Sale Proceeds, and subject to it, how much they should repay the estate of the Father? 

(c)   How much gross rental proceeds were received by Tark Wing, Caba and/or Wing Hing?  Apart from the Construction Costs, how much expenses were spent by them in earning them?  How did they deal with the Rental Proceeds?  Subject to it, how much they should repay the estate of the Father and Matthew? 

(d)   What is the appropriate period and rate of the Interest for the sums determined in (b) and (c) above? 

(e)   How much Construction Costs were spent?  Have the Father and/or Matthew paid them?  If yes, how and when?  If not, they are to be deducted from the sums payable to them. 

APPLICABLE LEGAL PRINCIPLES

16.  Both counsel made a number of submissions and referred me to a number of authorities.  I set out my view as follows. 

17.  First, the present taking of account exercise was ordered by the trial judge.  There has been no appeal against any of the rulings or decisions.  Hence, the Uncle cannot maintain any defence which had been rejected by the learned judge.  

18.  Second, it is trite law that a defaulting trustee shall restore the lost property to the trust together with an account of profit.  After provision of an account by the trustee, the beneficiary can falsify or surcharge it.  Headnotes no. (3) and (6) of the CFA judgment in Libertarian Investments Ltd v. Hall (2013) 16 HKCFAR 681 summed up the principles clearly. 

“(3)  The basic duty of a trustee or fiduciary who had misappropriated assets or otherwise caused loss or damage to the trust estate in breach of his duty was to restore the lost property to the trust (together with an account of profits if applicable). Where restoration in specie was not possible, the court might order equitable compensation instead. The court was entitled to assess compensation with the full benefit of hindsight. Consequently, loss was assessed at the time of judgment, taking into account any post-breach changes affecting the value of the lost trust property. Where the plaintiff provided evidence of loss flowing from the relevant breach of duty, the onus lay on a defaulting fiduciary to disprove the apparent causal connection between the breach and the loss…

(6) (Lord Millett NPJ, Ribeiro, Chan PJJ and Bokhary NPJ agreeing) Account and equitable compensation were not alternative and inconsistent remedies that a plaintiff must elect between them.  An account was not a remedy for wrong.  Once a trust or fiduciary relation was established the beneficiary or principal was entitled to an account as of right.  Further, an order for an account did not in itself provide the plaintiff with a remedy; it was merely the first step in a process which enabled him to identify and quantify any deficit in the trust fund and seek the appropriate means by which it might be made good.  Once the plaintiff had been provided with an account he could falsify and surcharge it.  At every stage the plaintiff could elect whether or not to seek a further account or inquiry, though the court would always have the last word…” 

19.  Third, both counsel referred me to paragraph 174 of the judgment of Lord Millett NPJ in Libertarian (supra) at p734.  I bear the same in mind throughout the present exercise.

“Where the absence of evidence is the consequence of the fiduciary’s own breach of duty the court is not without resource, for it can have resort to three principles. First, it may be able to take the fiduciary at his own word and use his falsehoods to establish the facts as if they were true even though they are known to be untrue. Secondly the court is entitled to make every assumption against the party whose conduct has deprived it of necessary evidence. And thirdly the court is entitled to be robust and do rough and ready justice without having to justify the amount of its award with any degree of precision.”

SALE PROCEEDS

20.  At the trial, regarding the claim that the Father never received the Sale Proceeds, Tark Wing raised a number of defences.  All were rejected by the judge.  The Arrangement[2] failed.  The suggestion that the Father agreed that the same could be applied to the Construction Costs was rejected.  The payment of it to the Grandmother also constituted a breach.  The defence of limitation did not succeed. Hence, Tark Wing should account.  

21.  By his affirmation filed for the purpose of the taking of account, Tark Wing repeated that the Sale Proceeds were passed to the Grandmother.  He had no record except that he knew it was used by her for constructions of houses.  Mr Leung reiterated the same.  

22.  With respect, such argument is no longer available to Tark Wing.  In my view, he is fully liable to repay to Matthew, as executor for the estate of the Father, the sum of $1,084,617 together with interest to be determined.  

RENTAL PROCEEDS

23.  Mr D’Souza told me to ignore the accounts prepared by Tark Wing in relation to rental proceeds.  They contained numerous inaccuracies and generalised propositions.  They were defective as they did not provide any information on what the rental proceeds were used for or applied to.  The necessary inference was that they were used by Tark Wing and his companies for their own purposes.  The court should adopt the calculations put forward by Matthew.  

24.  Mr Leung disagreed.  He said that the accounts provided by Tark Wing were sufficient and properly reflected the monies received as rental proceeds.  The assumptions adopted were grounded and sensible.  The accounts therefore provide a realistic and accurate picture.  

25.  Upon consideration, I agree with the submissions of Mr D’Souza.  The rental tables prepared by Tark Wing was unreliable.  On balance, this court accepts the calculations put forward by Matthew.  

(a)  Matthew’s calculations of rental income and expenses are based on the contemporaneous documents having disclosed by Tark Wing herein. 

(b)  Tark Wing’s proposed deduction of expenses are vague and unreliable. They were not supported by documents.  

(i)  A blanket 10% repairs for wear and tear was claimed.  Neither supporting documents nor particulars was provided for. 

(ii)  Another 5% rates and/or government rent was also claimed.  However, with the checking of the exact amount (about $23,000) done by Matthew from the Rating and Valuation Department, one could see how unreliable of the “estimate” of Tark Wing”.  

(iii)  Tax paid by Wing Hing and Caba at 16.5% tax was claimed.  However, this court has not been able to see all the financial statements of these 2 companies and cannot accept on balance that these expenses had been paid.  

(c)  Mr Leung commented that Matthew had been harsh to his client.  The account prepared by Tark Wing was asked to be ignored and something akin to forensic accounting was to be done.  To these, I could only say that the obligation lies squarely on the accounting party and if he fails to do so, the beneficiary can of course either falsify or surcharge him.  

INTEREST

26.  Matthew said that Tark Wing failed to provide accounts or provide proper accounts.  Mr D’Souza relied on the authorities of Wetdeutche Bank v. Lslington L.B.C. [1996] AC 669 and Libertarian (Supra) to pray for compound interest.  

27.  Tark Wing disagreed.  Although Mr Leung agreed that compound interest might be awarded in cases involving breach of fiduciary duty, he submitted that it was entirely inappropriate in the present case.  Parties came from one family.  There was delay on the part of the Father and Matthew.  No fraudulent or greed elements could be found.  The case of Ting Yuk & Ors v. Ting Yee & Ors. was cited.  It was said that only simple interest should be ordered.  

28.  Having ruled against Tark Wing on the provision of his account, as a matter of exercise of discretion, I further agree that he and other defendants should bear compound interest as suggested by Matthew in the circumstances.  

(a)  Tark Wing from time to time still maintain defences having rejected by the trial judge.  

(b)  In my view, Tark Wing has not provided truthful/accurate account.  

(c)  There is no reason why Matthew should not be granted compound interest because it is a right of the beneficiary in case where the accounting party is unable/unwilling to account.  

(d)  The case of Ting Yuk does not assist Tark Wing and his companies.  In the authority, within an assessment of damages (not taking of account), the plaintiffs asked for compound interest.  In the end, the learned master refused to do so because she did not see fit to so order in the particular circumstances of the case. 

CONSTRUCTION COSTS

29.  At the trial, one of the major defences of Tark Wing was that there was an oral agreement (called by the Judge as “the Arrangement”) among all parties.  In short, village houses were to be built and the construction costs would come from the whole family.  They would pool their resources to fund the construction of the houses and related expenses.  

30.  The Judge did not accept such defence.  

31.  However, he also mentioned that:

“40. On the whole, while I believe that there was probably some general discussion amongst the Grandfather, the Grandmother, the Father and Tark Wing on how the construction of the new houses on Lot 3763 and Lot 884 was to be funded, I do not accept that the parties ahd reach any definite, legally binding, Arrangement as alleged by Tark Wing.”

32.  Mr D’Souza said that, notwithstanding the rejection of the defence of “the Arrangement”, the Judge gave a second chance to Tark Wing to prove if any funds from the Father or Matthew did in fact go to the construction of the houses.  However, he relied again on “estimations” without submitting proper documentation.  He also put up a completely different case than what was run at trial.  The state of evidence was highly unsatisfactory.  It was submitted no credit should be given to the construction costs at all.  

33.  Mr Leung asked me to accept the accounts put forward by Tark Wing.  

34.  Upon consideration, I agree with the comments made by Mr D’Souza and conclude that no construction costs are to be deducted from the sums payable to Matthew.  

(a)  Tark Wing was indeed running a different case before me than that before the Judge.  His present case was that only he and the Father (not the whole family) would shoulder the construction costs.  I have not been provided with any explanation of such shift of case and decline to accept it on balance.  

(b)  Tark Wing wasted the chance that the Judge allowed him. He did not adduce evidence to show or to try to show how actually the construction costs were paid and shared. Instead, he relied on the estimates prepared by the expert of Matthew at trial (but not that of his own expert).  

(c)  He purported to add some more expenses to the estimates.  The $300,000 landfill costs and fung shui masters ($20,000 for each house) are bare allegations without documentary proof or sufficient documentary proof.  

(d)  As to the payment of $300,000 land premium, Matthew has been able to find document to show that it came from the Father.  As to the late affirmation or explanation from Tark Wing that such sum in fact came from him, I have decided not to accept such late affirmation and alternatively, it is not accepted on balance. 

35.  As pointed out by Mr D’Souza, one does not forget the Father’s share of other land resumption proceeds totalling about 2.7 million.  Tark Wing has not said anything on it.  

36.  Hence, in my decision, Tark Wing has failed to discharge his obligation to show that any credit should be given for the Construction Costs.  

COSTS

37.  Costs follow event and I see no reason to depart from it.  Hence, there will be an order nisi that all defendants do pay plaintiffs costs of the taking of account, including costs reserved and certificate of counsel for hearing on 23 November 2018, to be taxed if not agreed.  

ORDERS TO BE DRAWN UP

38.  Based upon the above rulings, I will direct the solicitors acting for plaintiffs to submit draft orders within 7 days for approval by this court.  

HCAP 23/2013
HCA 2305/2012
HCA 2306/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO 23 OF 2013

_______________

_______________

_______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2305 OF 2012

_______________

_______________

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2306 OF 2012

_______________

_______________

(Consolidated by Order of Master K. Lo dated the 9^th September 2013)

(De-consolidated by Order of Registrar K.W. Lung dated the 24^th day of February 2016)

_______________

(Heard together)

__________________

J U D G M E NT

__________________

INTRODUCTION

1.  These three actions, which have been tried together, concern the estate of Mr Lau Hin Chi, deceased (“the Grandfather”), and the estate of Mr Lau Yiu Wing, deceased (“the Father”).

2.  In HCAP 23/203 (“the Probate Action”), Mr Lau Koon Ying Matthew (“Matthew”), in his capacity as executor of the estate of the Father, sues his uncle and his grandmother for (inter alia):-

(1) an account of various sums of money allegedly held by them on trust for the Father, and payment of those sums and/or profits therefrom; and

(2) an order for (a) the setting aside of a Deed of Family Arrangement dated 19 November 1997, and (b) the retraction of a Renunciation of Probate dated 14 November 1997.

3.  In HCA 2305/2012 and HCA 2306/2012 (“the High Court Actions”), Matthew:-

(1) in his capacity as executor of the estate of the Father, sues his uncle and his uncle’s company for an account of the rental income generated from properties owned by the Father and collected and held by them, and payment of such income and/or profits therefrom; and

(2) in his personal capacity, sues his uncle and his uncle’s companies for an account of the rental income generated from properties owned by Matthew and collected and held by them, and payment of such income and/or profits therefrom.

4.  In the course of these proceedings, the parties have raised a large number of allegations against each.  Some of those allegations are not relevant to the issues raised on the pleadings.  In view of their family relationship, I do not propose to refer to or resolve all the allegations which the parties have raised unless they are strictly relevant and necessary for a proper resolution of the issues raised on the pleadings in these actions.

BASIC FACTS

(i)   The family background

5.  The Grandfather was an indigenous villager of a village called Shun Fung Wai in Tuen Mun, New Territories.  He was born in 1913, and passed away on 15 July 1997.

6.  From the 1950s to 1970s, the Grandfather ran a small transportation business in the name of Wing Hing Vehicle.  He also kept a pigeon farm from late 1960s to mid-1980s.  In addition, the Grandfather had been the school supervisor of a primary school formed by him and some other fellow villagers for over 20 years.

7.  Madam Tang Mei Ho, deceased (“the Grandmother”) was the wife of the Grandfather (collectively “the Grandparents”).  The Grandmother was born in 1919, and passed away on 2 April 2016, after the commencement of the Probate Action.  Her estate is currently represented by her son and executor, Mr Lau Tark Wing (“Tark Wing”).

8.  The Grandfather and Grandmother had 3 sons and 5 daughters.  One of the sons passed away during infancy.  The other 2 sons were the Father and Tark Wing:-

(1) The Father, born in 1938, was the eldest son.

(2) Tark Wing was born 15 years later in 1953.  

9.  The Father moved to England to work in restaurants in 1962 when he was about 24, and got married in 1967.  He had 2 children, namely, (i) Matthew, born in 1970, and (ii) Ms Lau Ting Ting Fanny (“Fanny”), born in 1972.  According to Matthew, the Father suffered at least 2 strokes in 2002, which left him severely disabled and requiring 24-hour care from his wife, Fanny and him.  The Father passed away on 12 November 2007.  Probate of the Father’s will dated 15 April 2004 was granted to Matthew, being the sole executor and trustee named in that will, on 18 April 2012.

10.  Tark Wing went to England in around 1973 to study accountancy, first in London and then Birmingham.  During his stay in London, he lived with the Father and his family for a period of time (about 1.5 years according to Tark Wing).  He finished his study in accountancy in about June 1976.  He obtained a trainee chartered accountant contract with the Glasgow office of Messrs Deloitte, and later qualified as a chartered accountant in the United Kingdom.  He returned to Hong Kong in around 1980, started his own accounting firm in about 1983, and continued to practise as an accountant in Hong Kong until around 2012 when he retired and closed down his firm.

11.  The Father brought Matthew and Fanny back to Hong Kong in or about 1973, and they were under the care of the Grandparents until they returned to England in about 1981 and 1982 respectively.  Both Matthew and Fanny are qualified lawyers.  Matthew once worked as a trainee solicitor with Allen & Overy and then as an assistance solicitor of Johnson Stokes & Master in Hong Kong before returning to the United Kingdom in about 2000.

12.  Wing Hing Resources Limited (“Wing Hing”) and Caba Resources Limited (“Caba”) were incorporated in Hong Kong on 5 February 1988 and 7 August 1987 respectively.  They were at all material times, and are, controlled by Tark Wing.

(ii)   Sale of Lot 2785 and Lot 3825

13.  As evidenced by a Division of Property dated 20 May 1966, the Grandfather inherited various properties in the New Territories, including:-

(1) Lot No1219A in DD No 130 (“Lot 1219A”);

(2) Shun Fung Wai House Lot No 3 (“SFWH 3”); and

(3) Lots No 3763, 3825 and 2785 in DD No 124 (“Lot 3763”, “Lot 3825” and “Lot 2785” respectively).

14.  By assignments dated 16 August 1980, 19 August 1980 and 4 September 1980 respectively, the Grandfather transferred to each of the Father, Tark Wing and the Grandmother a 1/4^th undivided share in Lot 2785 and Lot 3825 by way of gift.  Hence, Lot 2785 and Lot 3825 became vested in the Grandfather, the Grandmother, the Father and Tark Wing as tenants in common, each holding a 1/4^th undivided share in those properties.

15.  On 20 February 1991, the Father executed a general power of attorney in favour of Tark Wing pursuant to Section 7 of the Powers of Attorney Ordinance, Cap 31.

16.  On 21 September 1992, the Grandfather, the Grandmother, the Father and Tark Wing assigned Lot 2785 and Lot 3825 by way of sale to a third party for the consideration of HK$4,338,468.  That assignment was executed by (inter alia) Tark Wing as lawful attorney on behalf of the Father.

17.  The Father, as a co-owner of Lot 2785 and Lot 3825 holding a 1/4^th undivided share in those properties, was, prima facie, entitled to a quarter of the sale proceeds in the gross sum of HK$1,084,617.  Matthew’s complaint is that the Father never received his share of the sale proceeds of those properties.

(iii)   Resumption of Lot 1219A

18.  As earlier mentioned, the Grandfather inherited Lot 1219A in around May 1966.  On 4 December 1973, the Grandfather assigned Lot 1219A to the Father and Tark Wing (with the Grandfather as trustee for him) in equal shares by way of gift.   By a vesting assignment dated 8 November 1980, the Grandfather assigned the half share in Lot 1219A held by him on trust to Tark Wing.

19.  On 24 August 1990, Lot 1219A was resumed by the Government.  In relation to this resumption, compensation in the sum of HK$1,910,000 was paid by the Government which, according to Tark Wing, was paid into a bank account held in the joint names of the Father and Tark Wing.  Matthew’s complaint is that the Father never received his half share of the compensation, in the amount of HK$955,000.

(iv)   Resumption of Lot 3757 and the Lau House

20.  On 25 May 1967, the Grandfather acquired Lot No 3757 in DD No 124 (“Lot 3757”) and two other lots in Tuen Mun, New Territories, at the price of HK$5,500.  A family house (“the Lau House”) was subsequently constructed upon Lot 3757 in around 1967/1968. Since that time, the Grandparents had been staying in the Lau House until around July 1994 when the Government resumed Lot 3757 and the Lau House.  Tark Wing and his siblings also stayed in the Lau House until they got married.  On 4 December 1973, the Grandfather assigned Lot 3757 together with the Lau House to the Father for “nil” consideration.

21.  In relation to the resumption of Lot 3757 and the Lau House, the Government paid cash compensation and other allowances to the Father in the total sum of HK$1,811,094 (including an ex-gratia compensation in the sum of HK$1,210,194), and granted to him Lot No 884 in DD 379 (“Lot 884”) pursuant to Conditions of Grant dated 21 February 1995.  A 3-storey house has been erected upon Lot 884 since around 1997.

22.  Matthew’s complaint is that Tark Wing and/or the Grandmother failed to account to the Father the cash compensation and allowances paid by the Government in relation to the resumption of Lot 3757 and the Lau House.  He accepts, however, that the proceeds of the resumption contributed to the construction costs of the house erected on Lot 884 (see paragraphs 11.2 and 18 of the Reply filed in the Probate Action).

(v)   The Renunciation of Probate and Deed of Family Arrangement

23.  The Father was the sole executor named in the Grandfather’s will dated 4 May 1996 (“the Grandfather’s Will).  Under that will:-

(1) the Grandfather gave, devised and bequeathed -

(a) all his cash to the Grandmother absolutely;

(b) SFWH 3 to the Father absolutely;

(c) Lot No 2539 in DD No 130 to Tark Wing absolutely; and

(2) subject to the aforesaid specific gifts, the Grandfather gave his residuary estate (after payment of debts and funeral and testamentary expenses) to the Father to hold the same as trustee for the Father and Tark Wing in equal shares.

24.  The Grandfather passed away on 15 July 1997.  On 14 November 1997, the Father executed a Renunciation of Probate (“the Renunciation”) to renounce all his right and title to probate and execution of the Grandfather’s Will.  On 19 November 1997, the Grandmother, the Father and Tark Wing executed a Deed of Family Arrangement (“the DFA”), under which the Father agreed to waive, release and disclaim all his rights, benefits, shares and interests in the estate of the Grandfather, and agreed and declared that those rights, benefits, shares and interests were to be succeeded by Tark Wing solely and absolutely. 

25.  Matthew’s complaint is that the Father was induced to execute the Renunciation and the DFA by the following representation and promise made by Tark Wing shortly after the passing away of the Grandfather in July 1997, namely:-

(1) “since the [Father] resided outside Hong Kong, it would not be possible for the [Father] to administer the Grandfather’s estate unless he signed documents to disclaim all his rights and benefits and renounce his entitlement to the grant of Probate under the Grandfather’s Will” (“the Representation”): see paragraph 46 of the Statement of Claim filed in the Probate Action (“the HCAP 23 SoC”); and

(2) “[Tark Wing] would distribute the Grandfather’s estate in accordance with the terms of the Grandfather’s Will to the [Father]; he further promised that he would divide the Grandfather’s residual estate equally and that he would distribute half of what he receives from the Grandfather’s residual estate to the [Father]” (“the Collateral Promise”): see paragraph 48 of the HCAP 23 SoC.

26.  In passing, I should mention that Matthew previously alleged that he had been shown a different version of the DFA by Mr Peter Hon (Tark Wing’s legal advisor) at a meeting in the office of Messrs Hon & Co on 16 November 2011.  However, as confirmed by Mr Eugene Fung SC at the trial, this allegation is no longer pursued by Matthew.

(vi)   The rental proceeds generated from Lot 3763C, Lot 3763D and Lot 3763RP

27.  As earlier mentioned, the Grandfather inherited Lot 3763 in around May 1966.  For the purpose of this judgment, it is not necessary to trace the history of how Lot 3763 was subsequently sub-divided and how the sub-divided lots became vested in various parties, because it is either agreed or clear on the evidence that -

(1) the Father has been the sole owner of Section C of Lot 3763 (“Lot 3763C”) since no later than 13 September 1994;

(2) Matthew has been the sole owner of Section D of Lot 3763 (“Lot 3763D”) since no later than 13 September 1994;

(3) Tark Wing has been the sole owner of Section E of Lot 3763 (“Lot 3763E”) since no later than 13 September 1994;

(4) the Father and Tark Wong have been tenants in common in equal shares of the Remaining Portion of Lot 3763 (“Lot 3763RP) since no later than 13 September 1994;

(5) a 3-storey house has been constructed upon each of Lot 3763C, Lot 3763D and Lot 3763E since around 1997;

(6) a 2-storey temporary house has been constructed upon Lot 3763RP since around 1997;

(7) Tark Wing and his staff were responsible for, or involved in, collecting the rents from the tenants of Lot 3763C, Lot 3763D and Lot 3763RP;

(8) since late 2010, Matthew had repeatedly requested Tark Wing to give him vacant possession of Lot 3763C and Lot 3763D; and

(9) Tark Wing did not comply with Matthew’s requests until around December 2011 when Matthew obtained vacant possession of Lot 3763C and Lot 3763D.

28.  Matthew’s complaint is that Tark Wing failed to render a proper account in respect of the rental proceeds generated from Lot 3763C, Lot 3763D and half of the rental proceeds generated from Lot 3763RP (hereinafter collectively referred to as “the Rental Proceeds” and “the Rental Properties”) collected by Tark Wing and his companies since around 1997, or paid the Rental Proceeds to the Father or to him, despite repeated requests and demands, including a demand letter dated 16 April 2012. It is not in dispute that Tark Wing’s staff did provide a “Schedule of Rental Proceeds” to Matthew in 2010, but that schedule was not complete (covering only part of 2009 and 2010), and its contents are not agreed.

29.  There are three other matters that may be noted at this stage:-

(1) In the High Court Actions, there were originally claims by Matthew against Tark Wing for damages for breach of duties in failing to maintain the relevant properties.  However, those claims were abandoned by Matthew at the trial and do not therefore have to be further considered in this judgment.

(2) In the statement of claim filed in HCA 2305/2012, Matthew also raised a claim in respect of Section F of Lot No 3763 in DD No 124.  However, as is evident from Mr Fung’s opening and closing submissions on behalf of Matthew, such claim is no longer pursued.

(3) In the Probate Action, a defence dated 24 April 2014 was filed on behalf of Tark Wing (“the HCAP 23 Defence”).  On 3 October 2014, a separate defence was filed by the guardian ad litem of the Grandmother on her behalf.  The contents of that defence are materially the same as the HCAP 23 Defence.  In this judgment, I shall omit references to the defence filed on behalf of the Grandmother unless it is necessary to do so.

30.  I should also mention that, in my consideration of various issues below, unless otherwise expressly indicated, I generally place no weight on hearsay evidence, including what Matthew or Fanny might have been told by their father or mother, or what Tark Wing might have been told by the Grandfather or Grandmother, previously, because such hearsay evidence as given by Matthew, Fanny or Tark Wing is generally of poor quality and lacking in particulars.

DISCUSSION

(i)   The Arrangement

31.  As will be seen below, a major plank of the defences of the Grandmother/her estate, Tark Wing and his companies in the three actions is based on an alleged oral arrangement (“the Arrangement”) agreed to amongst the Grandfather, the Grandmother, the Father (for himself and on behalf of Matthew) and Tark Wing.

32.  According to Tark Wing, Lot 3763, which the Grandfather inherited in 1966, was transferred to the Father and him in the 1980s as gift.  Lot 3763 was agricultural land, and there was restriction on its use and development.  In view of the Government’s proposed resumption of the Lau House, the Grandfather was worried about losing the family home and wished to get planning permission to build three replacement houses on Lot 3763, which was situated about 500 metres from the Lau House.  The Grandfather’s logic for building 3 small houses was that, at that time, he had two sons and one grandson over the age of 18 who would each be qualified to apply to build a small house (the Grandfather himself being unable to do so since he had already built one on Lot 3757).

33.  It was against the aforesaid background that the following Arrangement was reached after discussion amongst the Grandfather, the Grandmother, the Father (for himself and on behalf of Matthew) and Tark Wing:-

(1) A village house with 3 floors would be built on Lot 3763C using the Father’s name to apply for permission to build the same.

(2) A village house with 3 floors would be built on Lot 3763D using Matthew’s name to apply for permission to build the same.

(3) A village house with 3 floors would be built on Lot 3763E using Tark Wing’s name to apply for permission to build the same.

(4) Another village house would be built on Lot 884 (a building lot) under the name of the Father.

(5) The construction costs would come from the Grandfather and/or the Grandmother as well as from the compensation monies received in the Father’s name arising from the resumption of Lot 3757.  The Father and Tark Wing would also make some contributions.  In essence, the whole family would pool together their resources to fund the construction of the houses and related expenses.

(6) The net rental income (after deducting property tax, rent and rates as well as repairs and maintenance) generated from the village house developed on Lot 3763C registered under the name of the Father would be used to maintain the Grandfather and the Grandmother for life.  The Father would be entitled to Lot 3763C, the village house erected thereon and all income generated therefrom absolutely after both the Grandfather and the Grandmother had passed away.

(7) In respect of the village house built on Lot 3763D registered under Matthew’s name, the ground floor thereof would be reserved for the Father and/or his family members so that they would have a place to live in whenever they returned to Hong Kong. The net rental income (after deducting tax, rent and rates as well as repairs and maintenance) generated from the other 2 floors of this village house would be used to maintain the Grandfather and the Grandmother for life including paying health care and medical bills for them, and to pay the expenses for ancestral worships and maintenance of the general area of Lot 3763.  The Father and/or Matthew would be entitled to Lot 3763D, the village house erected thereon and all income generated therefrom absolutely after both the Grandfather and the Grandmother had passed away.

(8) In respect of the small house built on Lot 3763E registered under the name of Tark Wing, the Grandfather and the Grandmother would take up the Ground Floor thereof whilst Tark Wing would take up the 1^st floor.  The 2^nd floor was reserved for occupation by Tark Wing’s sisters who might be in need and/or return to Hong Kong from abroad.

(9) In respect of the house erected on Lot 884, all interests including income (after deducting property tax, rent and rates as well as repairs and maintenance) and capital would belong absolutely to the Father who had by 1994 indicated to the Grandfather that he was considering to return to Hong Kong permanently for retirement and he would like to have some steady income after his retirement.

34.  Tark Wing said that, in pursuance of the Arrangement, Lot 3763D was transferred to Matthew (in 1994) without consideration prior to the application to the District Lands Office for the construction of a small house on that lot in Matthew’s name. Since Lot 3763 was situated outside the “village zone”, it was necessary to obtain planning permission before small houses could be built on Lot 3763.  It was through his hard work that planning permission was eventually obtained to develop three small houses on Lot 3763.  Further, the rental proceeds generated from Lot 3763C and Lot 3763D were given to the Grandmother, while the rental proceeds from Lot 884 were given to the Father.  During the Father’s lifetime, in particular during his visits to Hong Kong in 1997, 2002 and between 2004 and 2006, he never raised any complaint regarding the Arrangement, nor made the complaints now raised by Matthew.

35.  The Arrangement is denied by Matthew.  He says that Tark Wing never mentioned the Arrangement during the London Meeting in 2002 or the Yuen Long Meetings in 2003 (see below), or during the time when he was seeking information from Tark Wing in relation to the receipt and application of the Rental Proceeds.  Matthew also relies on the fact that Tark Wing eventually gave him vacant possession of Lot 3763C and Lot 3763D in around December 2011 without insisting upon the Arrangement as evidence that the Arrangement did not exist.  Tark Wing’s answer is that although Matthew’s demand for vacant possession was unreasonable and contrary to the Arrangement, the Grandmother and he reluctantly gave in to Matthew’s demand because the Grandmother was getting old.

36.  I do not accept Tark Wing’s evidence regarding the Arrangement for the following reasons.  First, his evidence on the making of the Arrangement is vague and unsatisfactory.  The date or approximate date on which the Arrangement was made has never been stated in the defences, or made clear in Tark Wing’s evidence (including his witness statements filed in the three actions).  When Tark Wing was asked in cross examination as to when it was that the Arrangement was made, he said that it was made in various stages, during various periods, and different agreements were made at different times.

37.  Second, not only was the Arrangement never reduced into writing, there was no contemporaneous document which evidenced the existence or terms of the Arrangement.  While it is understandable that the parties might not have reduced the oral Arrangement into a written agreement in view of the relationship of the parties and the nature of the Arrangement, it is significant that the Arrangement was not mentioned in the numerous letters exchanged between the parties from 1966 to the Grandfather’s death (July 1997).  Neither Tark Wing, nor his counsel, has referred the court to any letter which evidenced the existence or the terms of the Arrangement.

38.  Third, if the Arrangement existed, it was likely that the Father would have mentioned it to Matthew and/or Fanny.  It seems to be clear from their evidence, which I accept, that the Father never told them about the Arrangement.

39.  Fourth, it is not in dispute that some time in or after 2010, Tark Wing (through his staff) gave to Matthew various schedules of the rental proceeds generated from Lot 3763C and Lot 3763D for part of 2009 and 2010.  Further, Tark Wing said that he was at one stage prepared to pay Matthew the net rental proceeds (less HK$5,000 per month as the Grandmother’s living expenses) for each financial year starting on 1 April 2009, and had set aside the sum of HK$100,000 to be paid to Matthew. If the Arrangement did exist, there was no reason for Tark Wing to pay Matthew or the Father’s estate the rental proceeds generated from Lot 3763C and Lot 3763D during the lifetime of the Grandmother.

40.  On the whole, while I believe that there was probably some general discussion amongst the Grandfather, the Grandmother, the Father and Tark Wing on how the construction of the new houses on Lot 3763 and Lot 884 was to be funded, I do not accept that the parties had reach any definite, legally binding, Arrangement as alleged by Tark Wing.

(ii)   Proceeds of sale of Lot 2785 and Lot 3825

41.  Matthew complains that the Father never received his share of the sale proceeds of Lot 2785 and Lot 3825 in the gross sum of HK$1,084,617.  Tark Wing accepts that he received the sale proceeds of Lots 2785 and 3825, which he first deposited into his bank account and later paid over to the Grandmother.  His defence to Matthew’s claim is as follows:-

(1) the Father “specifically indicated that he did not want any of the sale proceeds to be remitted to him in London and the same could be contributed and/or applied to the construction costs of the village houses on Lot 3763 as the same was the Grandfather’s gift anyway”; and

(2) the Father “had never demanded for the said sum of HK$1,084,617 during his lifetime as he had agreed that the same be applied towards the construction costs of the village houses on Lot 3763 and had agreed to various terms under the Arrangement.”

See paragraphs 28 and 30 of the HCAP 23 Defence, and paragraph 19 of his witness statement filed in the Probate Action. 

42.  According to Tark Wing, the sale proceeds were indeed applied towards the construction costs of the village houses on Lot 3763, a fact which the Father was aware of all along.

43.  It is clear that Tark Wing’s defence to this claim of Matthew is based on the Arrangement. That this is so is confirmed in paragraph 39 of Mr Richard Leung’s opening submissions dated 2 June 2017.  As earlier mentioned, I reject Tark Wing’s case in respect of the Arrangement.  I also do not accept Tark Wing’s allegation that the Father indicated to him (Tark Wing) that he (the Father) did not want any of the sale proceeds to be remitted to him (the Father) in London and the same could be contributed and/or applied towards the construction costs of the village houses on Lot 3763 as the same was the Grandfather’s gift anyway.  Such allegation is based entirely on Tark Wing’s bare assertion and is not supported by any contemporaneous documents.

44.  There is no dispute that Tark Wing acted as the Father’s attorney in relation to the sale of Lots 2785 and 3825.  It follows that Tark Wing held the Father’s share of the proceeds of sale as his agent and was under a fiduciary duty to properly account to him in respect of the sale proceeds.  Tark Wing’s payment of the same to the Grandmother, in the absence of proof of consent or approval by the Father, constituted a breach of his fiduciary duty owed to the Father.

45.  In all, subject to the defence of limitation (which I shall consider below), I consider that Matthew is entitled to an account of the Father’s share of the sale proceeds of Lots 2785 and 3825 received by Tark Wing and the Grandmother.

(iii)   Proceeds of resumption of Lot 1219A

46.  As in relation to the proceeds of sale of Lot 2785 and Lot 3825, Matthew’s complaint, in relation to the proceeds of resumption of Lot 1219A, is that Father never received his half share of the compensation, in the amount of HK$955,000.

47.  According to Tark Wing, the compensation was paid into a bank account held in the joint names of the Father and himself.  His pleaded defence to this claim of Matthew is as follows:-

(1) the Father and Tark Wing each drew a sum of HK$50,000 from the compensation for personal spending; and

(2) the balance was paid to the Grandfather as “Lot 1219A was a gift from the Grandfather as well as applied towards the costs for the construction of the various village houses [on Lot 3763]”.

See paragraph 44 of the HCAP 23 Defence, and paragraph 28 of Tark Wing’s witness statement filed in the Probate Action.

48.  In his oral evidence, Tark Wing said that the Father and he each drew a sum of HK$50,000 for their respective own use, and that around a month after receiving the compensation from the Government, he transferred the balance of his (Tark Wing’s) share of the compensation (ie HK$905,000) to the Grandfather, and then told the Father that he had placed his share with the Grandfather to build his [Tark Wing’s] house on Lot 3763A.  Tark Wing further said that he understood from conversations with the Father and the Grandfather that the Father also transferred his share of the compensation to the Grandfather (for the purpose of building the Father’s house on Lot 3763C), but he was not present when the Father transferred the money to, or discussed this matter with, the Grandfather.

49.  The fact that Lot 1219A was originally a gift from the Grandfather to (inter alia) the Father was not a legal justification for paying the Father’s share of the proceeds of resumption to the Grandfather.  In so far as it is suggested that the resumption proceeds were used for the construction of the village houses on Lot 3763, it should be noted that it is no part of the Arrangement as pleaded in paragraph 16 of the HCAP 23 Defence that the proceeds of resumption of Lot 1219A should be used for the construction of the village houses on Lot 3763.  In any event, as earlier mentioned, I reject Tark Wing’s case in respect of the Arrangement.

50.  These having been said, the burden is on Matthew to prove that Tark Wing paid the Father’s share of the resumption proceeds to the Grandfather or otherwise used it without the Father’s consent or approval.  If, as alleged by Tark Wing, the resumption proceeds were first paid into a bank account held in the joint names of the Father and Tark Wing, and the Father subsequently took HK$50,000 for his own use and paid the balance of his share of the resumption proceeds to the Grandfather, plainly there could not any valid claim against Tark Wing.  On the other hand, if one rejects the evidence of Tark Wing, there is still no proof that it was Tark Wing who took the Father’s share of the resumption proceeds from the joint bank account and paid it to the Grandfather or otherwise used it without the Father’s consent or approval.  In my view, Matthew has failed to prove his claim against Tark Wing in relation to the Father’s share of the proceeds of resumption of Lot 1219A.  There is also no evidence that the Grandmother (or her estate) ever received the Father’s share of the resumption proceeds.

(iv)   Proceeds of resumption of Lot 3757 and the Lau House

51.  Before I consider Matthew’s claim in respect of the proceeds of resumption of Lot 3757 and the Lau House, I should briefly deal with an allegation raised by Matthew on which quite some time was spent at the trial, namely, that part of the monies that the Father remitted from England to the Grandparents in Hong Kong was intended to be kept as his savings and for investment on his behalf in Hong Kong such that the assets acquired by the Grandparents from such monies became “trust assets”.

52.  According to Matthew, the Father remitted at least £5,218 to the Grandparents in Hong Kong between 1962 to 1967 “for keeping his savings in Hong Kong and assisting his parents to support the family in Hong Kong”, and at least £29,890 from 1962 to 1989 (see paragraphs 7b and 20 of the HCAP 23 SoC, and paragraph 8 of Matthew’s witness statement filed in the Probate Action).  It is his case that the purchase consideration of Lot 3757, which the Grandfather acquired in 1966, was paid out of funds provided by the Father (see paragraphs 21 and 22 of the HCAP 23 SoC).

53.  Tark Wing accepts that the Father did, from time to time, remit monies back to Hong Kong while he was in England, including around £5,230 from 1966 to 1968 (see paragraph 31(1) of the HCAP 23 Defence).  He said, however, that Lot 3737 was paid by the Grandfather out of his personal savings and earnings.

54.  The contemporaneous correspondence passing between the Grandfather, the Father and other members/relatives of the Lau family suggests that the Father sent monies to his parents primarily for the purpose of supporting their living expenses (including the living expenses of Matthew and Fanny when they were in Hong Kong under the care of the Grandparents), although some of the monies received by the Grandparents were kept on his behalf.  The evidence before the court is not sufficient to enable me to determine what portion of the monies sent by the Father was intended to be used for the living expenses of the Grandparents, and what portion was intended to be kept for him.  It is also unclear on the evidence as to what had become of the monies kept by the Grandparents on behalf of the Father, and whether the Grandparents had already properly accounted to the Father in respect of such monies.  The arrangement between the Grandparents and the Father regarding the monies remitted by him was, understandably, a loose one.  I do not consider that the evidence before the court is sufficient for me to find a trust of any particular assets (including Lot 3757) held by the Grandparents for the Father.  There is also insufficient evidence to prove that Lot 3757 was purchased out of funds remitted by the Father.

55.  On the other hand, Tark Wing said that the transfer of Lot 3757 and the Lau House by the Grandfather to the Father was on the understanding that the Father would be the registered owner in name only and all family members could continue to enjoy the benefits of the same which would remain as the home of the Lau family (see paragraph 11 of his first witness statement filed in the High Court Actions, and paragraph 7 of the HCAP 23 Defence).  However, in paragraph 35 of the HCAP 23 Defence, he admitted that the assignment of Lot 3757 and the Lau House was a gift by the Grandfather to the Father.  I do not accept Tark Wing’s evidence that the transfer of Lot 3757 and the Lau House by the Grandfather to the Father was subject to any legally enforceable mutual understanding or condition as alleged by him.  I believe that the assignment was an outright gift of Lot 3757 and the Lau House by the Grandfather to the Father.

56.  As earlier mentioned, in relation to the resumption of Lot 3757 and the Lau House, the Government paid cash compensation and other allowances to the Father in the total sum of HK$1,811,094 (including an ex-gratia compensation in the sum of HK$1,210,194). Matthew’s complaint is that Tark Wing and/or the Grandmother failed to account to the Farther the cash compensation and allowances paid by the Government.

57.  It is not in dispute that the bulk of the compensation and allowances, in the total sum of HK$1,800,094, was paid into the Father’s bank account at HSBC, numbered 034-8-142258 (“the HSBC Account”), including:-

(1) HK$1,210,194 (representing ex-gratia compensation) on 1 October 1994;

(2) HK$31,700 on 19 October 1994; and

(3) HK$558,200 on 18 March 1995.

58.  It is also not in dispute that the Grandmother held a power of attorney in respect of the HSBC Account which allowed her to withdraw monies from that account.

59.  The following can be seen from the passbook of the HSBC Account:-

(1) The account was opened on 1 October 1994 with an initial opening balance of HK$10.

(2) Between March 1995 and January 1996, there were a number of substantial withdrawals, totalling HK$1,673,500. 

(3) As at 5 January 1996, the balance was only HK$1,612.23.

60.  Tark Wing said in evidence that he did not know who made the various withdrawals from the HSBC Account between March 1995 and January 1996.

61.  The pleaded defence of Tark Wing and the Grandmother in respect of this claim is that “[t]he said compensation was paid to the [Father] from the Hong Kong Government by way of cheque in his personal name and [was] subsequently used and/or applied towards the construction of the various village houses pursuant to the Arrangement …” (see paragraph 39 of the HCAP 23 Defence).

62.  It follows from my earlier conclusion in respect of the Arrangement that this defence cannot stand.  Nevertheless, as in relation to Matthew’s claim in respect of the resumption proceeds of Lot 1219A, the burden is on Matthew to prove that the resumption proceeds of Lot 3757 and the Lau House were taken or improperly used by the Grandmother without the consent or approval of the Father.  On behalf of Matthew, Mr Fung refers to a particular instance on 28 November 2002 when the Grandmother withdrew the sum of HK$36,420 from the HSBC Account which was converted into £3,000 and, apparently, was given to the Father when Tark Wing visited him in England in late 2002.  However, the fact that the Grandmother held the aforesaid power of attorney in respect of the HSBC Account, or used it to withdraw some money from the HSBC Account in November 2002, cannot lead to the conclusion that it was also the Grandmother who made the various withdrawals from the HSBC Account between March 1995 and January 1996.  There is also no evidence that Tark Wing took or improperly used the resumption proceeds of Lot 3757 and the Lau House without the consent or approval of the Father.

63.  In all, I find that Matthew has failed to prove his claim against the Grandmother or Tark Wing in relation to the resumption proceeds of Lot 3757 and the Lau House.

(v)   The validity of the Renunciation of Probate and Deed of Family Arrangement

64.  It is Matthew’s case that the Father was induced to execute the Renunciation and the DFA by the Representation and Collateral Promise made by Tark Wing shortly after the passing away of the Grandfather in July 1997.

65.  Tark Wing denies Matthew’s allegations in respect of the Representation and Collateral Promise. His case is that:-

(1) The Father was motivated to execute the Renunciation and the DFA in 1997 because:-

(a) the estate of the Grandfather was not of substantial value (at that time); and

(b) the Father was very concerned with the practical financial advantage that might accrue to him as a beneficiary under the Grandfather’s Will vis-à-vis the time, costs and trouble to administer the Grandfather’s estate given that he was residing in the United Kingdom.

(2) Having decided that the benefits accrued to him under the Grandfather’s Will would not justify the costs and time for him to fly back to Hong Kong regularly to administer the Grandfather’s estate, the Father asked Tark Wing to take over all of his entitlements under the Grandfather’s Will with the mutual understanding that Tark Wing and his descendants would also take over and assume the obligations of worshipping the ancestors as well as administering the Grandfather’s estate.

See paragraphs 48 to 50 of the HCAP 23 Defence.

66.  Tark Wing said that the Father executed the Renunciation and the DFA after he had been explained the legal effect of those documents by lawyers at the office of Messrs Fong & Ng.  Further, the Father never questioned the validity of the DFA during his lifetime.

67.  Since Matthew and Fanny were not present at the time when Tark Wing allegedly made the Representation and Collateral Promise to the Father, they are not in a position to give direct evidence on those matters.  Matthew seeks to make good his allegations, however, by reference to (i) subsequent events, namely, what transpired during and after the “London Meeting” and the “Yuen Long Meeting”, and (ii) the inherent improbabilities of the defence (see paragraph 69 of Mr Fung’s closing submissions).

68.  The London Meeting: it is not in dispute that Tark Wing visited the Father at his home in London in around November 2002 (“the London Meeting”).  There is, however, a substantial dispute between Matthew/Fanny on the one side and Tark Wing on the other as to what transpired during that meeting.  According to Matthew:-

(1) Matthew and Fanny were both present at the London Meeting.

(2) At that meeting, Tark Wing spoke most of the time, updating the Father on the status of the Rental Properties.  While doing so, Tark Wing made certain notes in respect of the Rental Properties (“the Rental Properties Notes”) on a notebook (“the Notebook”) which he had brought with him to the meeting (see page 389 of Bundle B1).

(3) Tark Wing further reassured the Father, in writing, that he would look after the Rental Properties and the surrounding grounds and walls.  During the meeting, Tark Wing wrote the following words, in large Chinese characters over 4 pages, in the Notebook (see pages 410 to 413 of Bundle B1): “嘉和里將來續約事我會處理。永興閣事情不用掛心。圍牆已開工。萬事健康為重。餘事勿念。”.  The words “嘉和里” referred to the house on Lot 884, “永興閣” referred to the development on Lot 3763, and “圍牆” referred to the boundary wall of Lot 3763.

(4) Matthew asked Tark Wing for information about the Grandfather’s estate and how it would be distributed, and Tark Wing gave him a brief summary with some written explanation on the Notebook (“the Summary”) (see pages 408-409 of Bundle B1).  I pause to observe that these 2 pages were written in English and appeared to tally with how the Grandfather’s estate was supposed to be distributed to the Grandmother, the Father and Tark Wing under the Grandfather’s Will.

(5) At no point during the meeting did Tark Wing indicate to the Father or Matthew that the Father did not have any interest in the Grandfather’s estate.  Neither did Tark Wing mention the Arrangement at the meeting.

(6) As a result, the Father and Matthew came away from the meeting in the understanding or belief that nothing had changed, ie the Father remained entitled to his share in the Grandfather’s estate and the entire Rental Proceeds still belonged to him.

(7) Tark Wing left behind the Notebook in the Father’s home which was kept by Matthew.

69.  According to Fanny, she was present at the London Meeting.  She said that during the meeting, Tark Wing did not mention the Arrangement.  She further said that whilst she was generally nearby to ensure that the Father would be looked after, she did not fully participate in the Father’s discussion with Tark Wing in relation to the Rental Properties, although she recalled that Tark Wing assured the Father that the Rental Properties were in safe hands.  Significantly, Fanny said, in her evidence in chief, that when Tark Wing was describing the Grandfather’s estate and scribbling some notes on the Notebook (a reference to the Summary), Tark Wing was speaking to the Father (who was sitting quite close to him), instead of to Matthew (who was standing by a fireplace).

70.  Tark Wing accepts that he visited the Father in England in late 2002.  According to Tark Wing:-

(1) The purpose of the visit was simply to express and extend his concerns and care to the Father, who had suffered a stroke earlier in around June 2002.  He went with his third son to England and stayed in the Father’s home for about 2 days. 

(2) During his stay in the Father’s home, he and the Father talked mostly about matters happening in their village in Hong Kong and how their cousins and uncles in the village were getting on.  There was no specific “meeting” as such.

(3) There was one conversation between them when the Father asked him generally about leasing matters in respect of Lot 884 and the progress of some minor works in relation to the boundary wall of 永興閣.  He answered the Father orally and, to put him at ease, wrote the Chinese characters mentioned in paragraph 68(3) above in the Notebook which he happened to have brought with him to England.

(4) Matthew did not ask him about the Grandfather’s estate and how it would be distributed, and he did not give any information to Matthew about the Grandfather’s estate.

(5) The Summary was in his handwriting, but it was his own notes which he had previously made for his own reference.

(6) He did not explain the status of the Rental Properties as alleged by Matthew, and the Rental Properties Notes were not written at the London Meeting but were his own notes that he had previous made (although he could not recall when they were written).

(7) He left behind the Notebook in the Father’s home, which he came to realize only after the commencement of the lawsuit by Matthew.

71.  There are other relatively minor discrepancies between the evidence of Matthew/Fanny on one side and Tark Wing on the other as to what transpired at the London Meeting (including whether the writings on various pages of the Notebook were made at the meeting) which I do not propose to set out in detail in this judgment.

72.  The Yuen Long Meeting: Matthew says that he met Tark Wing again at his office in Yuen Long in around March/April 2003 (“the Yuen Long Meeting”).   At that meeting, he asked Tark Wing about the Father’s properties and his property in Hong Kong (including Lot 884 and the Rental Properties), but did not get a full response.  Tark Wing briefly explained to him the Collateral Promise, indicating that 2 steps were required.  First, the Father had to execute a renunciation of his rights to be appointed as the executor under the Grandfather’s Will.  Second, once all the assets of the Grandfather’s estate had been vested in Tark Wing, he would distribute them in accordance with the provisions in the Grandfather’s Will.  In particular, he would distribute half of the Grandfather’s residuary estate to the Father. Tark Wing believed that such arrangement would be the easiest from an administration perspective, as it would be difficult for the Father to administer the Grandfather’s estate from London.  During that meeting, Tark Wing also made some written explanations and notes on the Notebook (including pages 391-392, 399 and 400-403 of Bundle B1) which Matthew had brought with him to the meeting.  Tark Wing did not mention (i) the Arrangement, (ii) the existence of the DFA, or (iii) that the Father had given up his inheritance in respect of the Grandfather’s estate, at the Yuen Long Meeting.  Matthew further said that when he returned to London after the Yuen Long Meeting, he told the Father of his understanding gained at that meeting, including his understanding of the Collateral Promise, and the Father confirmed to him that was also his understanding of the arrangement in relation to the Grandfather’s estate.

73.  On the other hand, Tark Wing’s evidence is that he did not have any meeting with Matthew, whether in Yuen Long or anywhere else, at all in the entire year of 2003.  He said that there was an outbreak of SARS in Hong Kong in around March 2003 and he took his children away from Hong Kong in April 2004.  Further, he had taken up a big tax investigation case at that time and he was busy with his work.   Tark Wing denied that he wrote anything in the Notebook in March 2003 as alleged by Matthew.  In particular, he said that pages 391, 399 and 400-403 of Bundle B1 were his own notes which he had previously written, but he could not recall when that was done.

74.  In support of his version of what transpired at the London Meeting, Matthew places strong reliance on the Summary in the Notebook which he alleges was written by Tark Wing during that meeting. However, as earlier mentioned, Fanny’s evidence is that the Summary was written by Tark Wing while he was describing the Grandfather’s estate to the Father. It is of note that the Summary was written in English and in relatively small characters, in stark contrast to the large Chinese words (of comfort) which it is not disputed were written by Tark Wing at the meeting (see pages 410 to 413 of Bundle B1), presumably in view of the poor physical condition of the Father after the stroke.  If, as alleged by Fanny, Tark Wing wrote the Summary while explaining or describing the Grandfather’s estate to the Father, it is, in my view, much more likely that the Summary would also be written in large Chinese characters. 

75.  On balance, I accept Tark Wing’s evidence that Matthew never asked him about the Grandfather’s estate and how it would be distributed, and Tark Wing did not give any information to Matthew about the Grandfather’s estate during his visit to London in November/December 2002.  I also accept Tark Wing’s evidence that he did not have any meeting with Matthew in Yuen Long in March 2003.  In coming to these conclusions, I have taken into account Mr Fung’s various criticisms about Tark Wing’s evidence, including that some of the matters said by Tark Wing were not set out in his witness statements or were not put by Mr Leung to Matthew or Fanny during cross examination.  I have given careful consideration to these matters, but do not consider that they should cause me to reject Tark Wing’s evidence in relation to the London Meeting and Yuen Long Meeting.

76.  I do not consider that Matthew has produced any or any satisfactory evidence of the alleged Representation or Collateral Promise, still less that the Father was induced to execute the Renunciation and the DFA by the Representation and Collateral Promise made by Tark Wing.  The alleged inherent improbabilities of Tark Wing’s explanation as to why the Father was prepared to give up his entitlement to the estate of the Grandfather cannot, in my view, be used as proof of the alleged Representation or Collateral Promise.   It follows that I do not consider that there is any valid basis to set aside or rescind the Renunciation and the DFA.

(vi)   The claim in respect of Rental Proceeds

77.  It is not in dispute that Tark Wing and/or his companies (Caba and Wing Hing) collected the Rental Proceeds generated from Lot 3763C, Lot 3763D and Lot 3763RP since around 1997. Matthew’s case is that Tark Wing, Caba and Wing Hing failed to render a proper account in respect of, or pay, the Rental Proceeds to the Father and to him. The defence put forward by Tark Wing, Caba and Wing Hing is based on the Arrangement: see paragraphs 2(14)(f) and (16) of the Defence filed in HCA 2305/2012, and paragraphs 2(14)(g) and (16) of the Defence filed in HCA 2306/2012.  Tark Wing further confirmed, in his evidence, that the net rental proceeds generated from Lot 3763C and Lot 3763D were given to the Grandmother.  In view of my earlier conclusion regarding the Arrangement, this defence cannot stand.

78.  It is clear, in my view, that Tark Wing, Caba and Wing Hing should be regarded as holding the Rental Proceeds as “trustees” for the Father and Matthew, and ought properly to account to the Father and Matthew for the Rental Proceeds, which they have failed to do.

(vii)   Limitation

79.  It can be seen from the above discussion that I accept Matthew’s claims in respect of (i) the Father’s share of the sale proceeds of Lot 2785 and Lot 3825, and (ii) the Rental Proceeds generated from Lot 3763C, Lot 3763D and Lot 3763RP.  I consider that the proper relief that should be granted would be to order the defendants in the various actions to render proper accounts in respect of the same.

80.  In the Probate Action, the defendants rely on Sections 7(2), 8(2) and 21 of the Limitation Ordinance, Cap 347 (“the Ordinance”), to contend that Matthew’s claim in respect of the Father’s share of the sale proceeds of Lot 2785 and Lot 3825 (amongst others) is time barred.  In my view:-

(1) Sections 7(2) and 8(2) are plainly not applicable because the claim is not an action to recover any land.

(2) Section 21 is also inapplicable because the claim is not an action “in respect of any claim to the personal estate of a deceased person or to any share or interest in such estate, whether under a will or in intestacy”.

81.  In the High Court Actions, the defendants rely on Section 4(2) and (7) of the Ordinance to contend that Matthew’s claim in respect of the Rental Proceeds (amongst others) is time barred:-

(1) Section 4(2) provides that an action for an account shall not be brought in respect of any matter which arose more than 6 years before the commencement of the action.

(2) Section 4(7) provides that the section shall not apply to any claim for specific performance of a contract or for an injunction or for other equitable relief, except in so far as any provision thereof may be applied by the court by analogy in like manner as the corresponding enactment contained in the Limitation Act 1980 is applied in the English Courts.

82.  I do not accept that Matthew’s claim in respect of the Rental Proceeds is time barred, for the following reasons:-

(1) Section 4(2) has no direct application because Matthew’s claim for an account in respect of the Rental Proceeds is a claim for equitable relief based on breaches of fiduciary duty on the part of Tark Wing and his companies (as agents): see Hollywood Shopping Centre Owners Committee Ltd v Incorporated Owners of Wing Wah Building Mongkok Kowloon, HCA 1582/2007 (23 April 2008), at paragraphs 36 to 37, per Mr Recorder Joseph Fok SC (as he then was).

(2) Matthew’s claim in respect of the Rental Proceeds is a claim to recover from a “trustee trust property or the proceeds thereof in the possession of the trustee, or previously received by the trustee and converted to his use” within the meaning of Section 20(1)(b) so that no period of limitation prescribed by the Ordinance would apply to such claim: see Paragon Finance plc v D B Thakerar & Co (a firm) [1999] 1 All ER 400, at 408-410 and 415-416 per Millet LJ (as he then was); Peconic Industrial Development Ltd v Lau Kwok Fai (2009) 12 HKCFAR 139, at paragraphs 19 and 20 per Lord Hoffmann NPJ; Williams v Central Bank of Nigeria [2014] AC 1189 at paragraphs 7-11 and 28, per Lord Sumption JSC.

(3) That being so, Section 4(2) cannot be applied to the claim by analogy under Section 4(7): see Gwembe Valley Development Co Ltd (in receivership) v Koshy (No 3) [2004] 1 BCLC 131, at paragraph 111 per Mummery LJ.

83.  In all, I reject the defence of limitation raised by the defendants in the three actions.

DISPOSITION

84.  In relation to the Probate Action, I accept Matthew’s claim in respect of the Father’s share of the proceeds of sale of Lot 2785 and 3825 but reject the rest of his claims. In relation to the High Court Actions, I accept Matthew’s claim in respect of the Rental Proceeds.  I order and direct that:-

(1) an account be taken of the Father’s share of the proceeds of sale of Lot 2785 and 3825 received by Tark Wing and the Grandmother;

(2) an account be taken of the Rental Proceeds received by Tark Wing, Caba and/or Wing Hing; and

(3) the questions of (i) the appropriate period and rate of interest, and (ii) what (if any) credit should be given for the construction costs of the houses on Lot 3763C, Lot 3763D, Lot 3763RP and Lot 884, be dealt with in the taking of the accounts.

85.  On the question of costs, I make the following orders nisi:-

(1) there be no order as to costs in relation to the Probate Action, in view of the fact that the Matthew has succeed in one claim but failed in the rest of his claims;

(2) the defendants shall pay the costs of the plaintiff in the High Court Actions, to be taxed if not agreed with certificate for two counsel; and

(3) to assist the Taxing Master, two-thirds of the trial costs shall be attributed to the Probate Action and one-third of the trial costs shall be attributed to the High Court Actions.

86.  Lastly, it remains for me to thank counsel for the assistance that they have rendered to the court.