Miscellaneous Proceedings2015

LI LIM CHI DOROTHY, THE SOLE ADMINISTRATRIX OF THE ESTATE OF LI WAN LUNG, DECEASED v. LIN FUNG INDUSTRIAL CO AND ANOTHER

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CACV219/2016LI LIM CHI DOROTHY, THE SOLE ADMINISTRATRIX OF THE ESTATE OF LI WAN LUNG, DECEASED v. LIN FUNG INDUSTRIAL CO AND ANOTHER

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106837-EN-2016-11-16

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HCMP 1695/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1695 OF 2015

____________

	IN THE MATTER of Lin Fung Industrial Company (“Lin Fung”)
	and
	IN THE MATTER of the Estate (“the Estate”) of Li Wan Lung, Deceased (“the Deceased”)
	IN THE MATTER of Order 85 of the Rules of the High Court, Cap. 4A

____________

BETWEEN
	LI LIM CHI DOROTHY, the sole administratrix of the Estate of Li Wan Lung, deceased	Applicant
	and
	LIN FUNG INDUSTRIAL COMPANY	1^st Respondent
	LI KIN YAN	2^nd Respondent

____________

Before: Hon Lok J in Chambers

Date of Hearing: 14 November 2016

Date of Decision: 14 November 2016

Date of Reasons for Decision: 16 November 2016

_______________________

REASONS FOR DECISION

_______________________

1. This is an application for stay of execution of the order (“the Order”) made by DHCJ Le Pichon (“the Judge”) on 12 October 2016 pending appeal. In the hearing on 14 November 2016, I dismissed the application. I now give my reasons.

2. In this Reasons for Decision, I adopt the same abbreviations that the Judge used in her Reasons for Judgment dated 17 October 2016 (“the Judgment”).

3. This is an O85 action, and the Order requires the 2^nd Respondent to: (i) forthwith take all necessary steps to procure the Applicant be registered as the sole proprietor of New Lin Fung; and (ii) provide the Applicant with all documents relating to the 1^st Respondent within 28 days.

4. The background of this case has been fully set out in the Judgment and I do not want to repeat the same here.

5. The principles applicable to an application for stay of execution pending appeal are set out in the landmark decision of Star Play v Bess Fashion Management Co Ltd[1]. The court has a discretion whether to grant a stay of execution. The essential question is whether there is good reason to stay the execution, which commonly requires a consideration of:

(i) the merits of the appeal; and
(ii) whether the absence or existence of a stay would render an appeal nugatory.

6. Apart from the merits of the appeal, the main reasons given by the 2^nd Respondent to support the stay application are that: (i) minimal prejudice would be caused to the Applicant if a stay is granted; and (ii) there is a risk of him held accountable in the Mainland for having used the business chops of the Old Lin Fung after setting up the New Lin Fung.

7. I reject these arguments. The 2^nd Respondent’s argument on no prejudice is based on the assumption that there are no assets of the estate in the Mainland except the machinery which the 2^nd Respondent says are of scrap value only and can be transferred without the Order being executed. However, there is no basis to suppose that there are no assets other than the machinery.

8. In the Judgment, the Judge held that:

(i) the business of the deceased forms an asset of the estate;[2]
(ii) Old Lin Fung (the business of the deceased) had assets in the Mainland that are now registered in the name of New Lin Fung, and the question whether the machinery will ultimately be found to be the property of Old Lin Fung is not the relevant question;[3]
(iii) the possibility of there being assets other than the machinery was expressly adverted to in the Judgment, but the court was not required to determine the existence of ownership of any such assets;[4]
(iv) it was only necessary to show a prima facie case that the estate (through Old Lin Fung) owned some assets in the Mainland, and for this purpose the focus was solely on the machinery, as to which a prima facie case was shown;[5] and
(v) it is essential that the Applicant be registered as sole proprietor of New Lin Fung so that she can collect or assert the estate’s right to any assets of the deceased in the Mainland acquired or held in the name of New Lin Fung.[6]

9. I do not accept that there would be no prejudice to the Applicant if the court were to grant a stay. It is clear that there would be delay in ascertaining, collecting or preserving the assets of the estate in the Mainland unless and until the Order has been executed. Any such delay in the administration of the estate should be avoided in the absence of good reasons which there are none in the present case.

10. As to the risk of the 2^nd Respondent being held accountable in the Mainland for having used the business chops of Old Lin Fung, I also do not find it to be a valid argument to oppose the stay application.

11. First, it was no part of the 2^nd Respondent’s case at the hearing before the Judge that the court ought to exercise its discretion against making the Order because it might lead to the possibility of the 2^nd Respondent being held liable for the past misdeeds in the Mainland. Even in his 3^rd Affirmation in support of the stay application, the 2^nd Respondent merely says that he had a long standing desire to cease trading New Lin Fung, and he does not say this was tied to any perception of a risk that the 2^nd Respondent might be exposed to proceedings in the Mainland. In the absence of such complaint in the original hearing, the 2^nd Respondent cannot now rely on the same reason to ask the court to grant a stay.

12. Second, insofar as the 2^nd Respondent suggests that he would suffer prejudice without a stay, the risk of proceedings being brought against him in the Mainland arises not from the making or execution of the Order, but from the fact of his own past conduct. It lies ill in his mouth to say that the Order should not be executed merely because it might increase any risk of being investigated for his own past misconduct. In any event, there is no evidence before the court to suggest that execution of the Order would have that effect, or that a stay would remove the risk of which he now claims.

13. For the above reasons, I do not find that the refusal of a stay would render the appeal nugatory. On the contrary, the 2^nd Respondent has clearly indicated that he has no intention to continue operating the business under the name of New Lin Fung. The making of the Order would entitle the Applicant to investigate and ascertain which of the assets in the factory in the Mainland belong to the estate. If the Judgment is reversed on appeal, there should be no prejudice to the 2^nd Respondent as he has no intention to run the business in any event.

14. The court also has to consider the merits of the appeal.

15. In this regard, I must confess that I have some concern when I first read the Judgment. The Judge seemed to accept that some of the assets under the business of New Lin Fung may not belong to the estate. In such case, the ordering of the transfer of the business registration of New Lin Fung may entitle the Applicant to claim ownership over assets which may not belong to the estate. That part of the Order, i.e. the order requiring the transfer of business registration, may simply be too wide.

16. However, it is clear from the Judgment that the Judge accepted that the business of the deceased forms an asset of the estate, a conclusion which in my judgment must be right. The 2^nd Respondent used the business chops of Old Lin Fung to apply for the business registration of New Lin Fung, with a view to continue the deceased’s business using the new business registration of New Lin Fung. It is certainly arguable that the 2^nd Respondent operated the business under New Lin Fung as a representative of the estate. At the very least, the estate has an interest in the assets of the deceased used by the 2^nd Respondent in operating the business under New Lin Fung after the death of the deceased. The Judge, having considered all the evidence in the present case and in particular the legal opinion on Mainland law, found that the only way to enable the Applicant to investigate and to collect the assets of the deceased in the Mainland is for him to be registered as the proprietor of New Lin Fung. Based on these circumstances, there is some basis for the Judge to make the Order, in particular the 2^nd Respondent has indicated clear intention not to run the business any further.

17. In Star Play[7], Ma J (as he then was) has stated clearly that the court should not go deeply into the merits and strengths of an appeal in a stay application. The existence of merely an arguable appeal cannot by itself amount to sufficient reason to justify a stay.

18. Having considered the arguments before me, I am satisfied that the 2^nd Respondent only has an arguable appeal and its merits is not strong enough to amount to a good reason to justify a stay.

19. For the above reasons, I dismissed the application at the hearing.

20. I ordered that the costs of the stay application be the Applicant’s costs in the cause of the appeal. If the Applicant succeeds in the appeal, there is no question that she should get the costs of the stay application. On the other hand, even if the 2^nd Respondent succeeds in the appeal, I take the view that he should not get the costs of the stay application as he fails to convince the court to order a stay.

21. These are the reasons for the decision I made in the hearing.

	(David Lok)
	Judge of the Court of First Instance
	High Court

Mr Clifford Smith, SC and Mr Edward Tang, instructed by Waller Ma Huang & Yeung, for the Applicant

Mr Robert Chan, instructed by Ho & Partners, for the 1^st and 2^nd Respondents

[1] [2007] 5 HKC 84

[2] §§17-19 of the Judgment

[3] §§27-28 of the Judgment

[4] §12 of the Judgment

[5] §11 of the Judgment

[6] §33 of the Judgment

[7]supra

106378-EN-2016-10-17

LI LIM CHI DOROTHY, the Sole Administratix of the Estate of LI WAN LUNG, Deceased v. LIN FUNG INDUSTRIAL COMPANY AND ANOTHER

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HCMP 1695/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1695 OF 2015

____________________

	IN THE MATTER of LIN FUNG INDUSTRIAL COMPANY
	and
	IN THE MATTER of the Estate of LI WAN LUNG, Deceased
	and
	IN THE MATTER of Order 85 of the Rules of the High Court, Cap 4A

____________________

BETWEEN
	LI LIM CHI DOROTHY, the Sole Administratix of the Estate of LI WAN LUNG, Deceased	Applicant
	and
	LIN FUNG INDUSTRIAL COMPANY	1^st Respondent
	LI KIN YAN	2^nd Respondent

____________________

Before: Deputy High Court Judge Le Pichon in Court

Date of Hearing: 12 October 2016

Date of Judgment: 12 October 2016

Date of Reasons for Judgment: 17 October 2016

__________________________________________

REASONS FOR JUDGMENT

__________________________________________

1. This was an application by the sole administratrix (“the applicant”) of the estate of Li Wan Lung (“the deceased”) by originating summons (amended on 3 October 2016) for an order pursuant to Order 85, rule 2(2)(a) of the Rules of the High Court (“RHC”) that Li Kin Yan (the former administrator of the estate) (“the 2^nd respondent”) takes all necessary steps to procure that the applicant be registered as sole proprietor of Lin Fung Industrial Company (“New Lin Fung”) with business registration number 50434564‒000‒01 (“the new BR”) and all documents relating to New Lin Fung. At the conclusion of the hearing, the court granted the relief sought and made an order in terms of §§2 and 3 of the amended originating summons. The reasons appear below.

Background facts

2. The applicant and the 2^nd respondent are siblings and two of three children of the deceased who died intestate on 27 January 2009.

3. During his lifetime the deceased was mainly engaged in manufacturing plastic hardware with Lai Fung Plastic Factory Company Ltd (“Lai Fung”), a company incorporated in Hong Kong as the retail arm of the business and a sole proprietorship business he established on 4 September 1987, carried on under the name of Lin Fung Industrial Co (“Old Lin Fung”) with business registration number 11268978 (“the old BR”) as the manufacturing arm. The products were manufactured in a factory in the PRC.

4. The three siblings agreed that the 2^nd respondent as the eldest son should be appointed administrator of the estate. ‌Letters of administration were granted to the 2^nd respondent on 3 July 2009.

5. Differences arose and on 19 May 2014, the applicant obtained a court order for the removal of the 2^nd respondent as administrator and her appointment as administratrix in his place.

6. The following facts are not disputed and supported by relevant documentation:

(a)  The deceased’s assets included (i) Old Lin Fung and (ii) an 85% shareholding in Lai Fung.
(b)  The 2^nd respondent held the remaining 15% of issued shares in Lai Fung.
(c)  On or about 3 November 1987, Old Lin Fung established Lin Fung Plastics Factory as a processing and assembly factory (“the PRC factory”).
(d)  Annual inspection reports of the PRC factory for the years from 2002 to 2007 as well as that filed on 14 May 2009 (shortly after the deceased’s death) for the year 2008 contained the business registration certificate of Old Lin Fung showing its stamp or chop on the certificate.
(e)  On the advice of Old Lin Fung’s then accountant, on 9 March2009, the 2^nd respondent made an application for the business registration of New Lin Fung with the 2^nd respondent named as sole proprietor for the period commencing 28 January 2009 (the day following the deceased’s death).
(f)  The establishment of New Lin Fung was a device to enable the business of Lai Fung and the PRC factory to continue, so that orders could be fulfilled.
(g)  After 14 May 2009, annual inspection reports of the PRC factory contained the business registration certificate of New Lin Fung but showing the stamp/seal of Old Lin Fung on the new BR.
(h)  A year or so later, on or about 6 July 2010, the PRC factory applied for a change of registration details the effect of which was to replace the deceased with the 2^nd respondent as its foreign contracting party. For this purpose, the PRC factory submitted, inter alia, a Supplemental Agreement signed by the 2^nd respondent using the stamp/seal of Old Lin Fung.
(i)  Several months later, on 27 October 2010, New Lin Fung established Lin Fung Plastics Factory (“Dongguan Lin Fung”) as a wholly foreign‑owned enterprise. Dongguan Lin Fung was described as being “transformed locally” or “transitioned in situ” from the PRC factory.
(j)  The PRC factory was de‑registered on 12 March 2012 due to its change from a processing assembly factory into a wholly foreign‑owned enterprise, the relevant authorities having decided to phase out processing assembly factories.

7. In relation to §6(g) above, the 2^nd respondent’s PRC lawyers have opined that the 2^nd respondent may have made abnormal representations to the relevant government departments in the PRC and that he faces a risk of being held legally accountable.

8. The ‘representations’ relate to the concealment of the fact of the deceased’s death. Under PRC law, the foreign investor of the PRC factory was Old Lin Fung and not the deceased personally such that Old Lin Fung was a ‘civil subject’ with civil rights and obligations but its legal status/personality came to an end upon the deceased’s death. The PRC law firm opined that acts undertaken to continue or extend the operation ofthe PRC factory and changing the contract signatory of the foreign investor could have legal repercussions.

9. In any event, the PRC law firms instructed by the applicant and the 2^nd respondent respectively are agreed that a third party such as the applicant cannot collect or assert any rights over assets registered in the name of Old Lin Fung or New Lin Fung by registering a new sole proprietorship in Hong Kong. That is the case even if the name of the new sole proprietorship were to be identical.

The issues arising

10. Mr Smith submitted that the applicant’s entitlement to the order she seeks depends on whether it can be shown that:

(1) it is necessary for the applicant to be registered as the sole proprietor of New Lin Fung in order for her to collect or assert the estate’s rights to any assets of the deceased in the PRC acquired or held in the name of New Lin Fung; and
(2) it is possible upon being so registered for the applicant to collect or assert the estate’s rights to the assets of the deceased in the PRC acquired or held in the name of New Lin Fung.

11. In so far as assets of the estate in the PRC are concerned, Mr Smith confined them to machinery purchased and transported into the PRC factory by Old Lin Fung when the PRC factory was established. It would appear from renewal agreements made in 1997, 2002 and 2007 that additional machinery was subsequently supplied.

12. In the submissions and evidence filed in support, the applicant also asserted that Old Lin Fung owned two plots of land in the PRC where the PRC factory is situated as well as the factory building itself. That is controversial as appears from the evidence filed by the 2^nd respondent in that regard. ‌However, for present purposes, the court need not be concerned with those other assets and their ownership, the issue being confined to machinery only.

13. The 2^nd respondent contended that:

(a)  New Lin Fung does not form part of the estate because a sole proprietorship is no more than the name a person trades underand has no separate identity: the 2^nd respondent is New Lin Fung;
(b)  there is evidence to show that the machinery in question does not belong to Old Lin Fung or New Lin Fung for that matter but to PRC entities; and
(c)  in any event, given HCA 2531/2015, the appropriate course for the applicant to take is to litigate the estate’s claim through those proceedings.

14. The issues that emerge are considered under the headings below.

(A) Whether, on death of a sole proprietor, the business he carried on is an asset of his estate

15. Mr Remedios, counsel for the 2^nd respondent, advanced the following propositions:

(i)    as a matter of law, the deceased’s sole proprietorship ceased to exist upon his death;
(ii)   Old Lin Fung and New Lin Fung are separate legal entities/‌businesses;
(iii)  it follows from (ii) that it is legally and conceptually impossible for New Lin Fung to be an asset of the deceased’s business.

16. The statements of principle in (i) and (ii) above are unexceptionable. But underlying and implicit in (iii) is the notion that upon death of the sole proprietor, the business he had carried on during his lifetime ceases to exist and is not and cannot be an asset that could pass to his estate. As formulated, (iii) sidesteps the relevant question, namely, whether the business carried on by the deceased during his lifetime forms part of his estate.

17. It is to be noted that the Schedule of Assets attached to the Letters of Administration filed by the 2^nd respondent lists Old Lin Fung as an item under the HCMP1695/2015 LI LIM CHI DOROTHY, the Sole Administratix of the Estate of LI WAN LUNG, Deceased v. LIN FUNG INDUSTRIAL COMPANY AND ANOTHER

HCMP 1695/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1695 OF 2015

____________________

	IN THE MATTER of LIN FUNG INDUSTRIAL COMPANY
	and
	IN THE MATTER of the Estate of LI WAN LUNG, Deceased
	and
	IN THE MATTER of Order 85 of the Rules of the High Court, Cap 4A

____________________

BETWEEN
	LI LIM CHI DOROTHY, the Sole Administratix of the Estate of LI WAN LUNG, Deceased	Applicant
	and
	LIN FUNG INDUSTRIAL COMPANY	1^st Respondent
	LI KIN YAN	2^nd Respondent

____________________

Before: Deputy High Court Judge Le Pichon in Court

Date of Hearing: 12 October 2016

Date of Judgment: 12 October 2016

Date of Reasons for Judgment: 17 October 2016

__________________________________________

REASONS FOR JUDGMENT

__________________________________________

Background facts

2. The applicant and the 2^nd respondent are siblings and two of three children of the deceased who died intestate on 27 January 2009.

5. Differences arose and on 19 May 2014, the applicant obtained a court order for the removal of the 2^nd respondent as administrator and her appointment as administratrix in his place.

6. The following facts are not disputed and supported by relevant documentation:

(a)  The deceased’s assets included (i) Old Lin Fung and (ii) an 85% shareholding in Lai Fung.
(b)  The 2^nd respondent held the remaining 15% of issued shares in Lai Fung.
(c)  On or about 3 November 1987, Old Lin Fung established Lin Fung Plastics Factory as a processing and assembly factory (“the PRC factory”).
(d)  Annual inspection reports of the PRC factory for the years from 2002 to 2007 as well as that filed on 14 May 2009 (shortly after the deceased’s death) for the year 2008 contained the business registration certificate of Old Lin Fung showing its stamp or chop on the certificate.
(e)  On the advice of Old Lin Fung’s then accountant, on 9 March2009, the 2^nd respondent made an application for the business registration of New Lin Fung with the 2^nd respondent named as sole proprietor for the period commencing 28 January 2009 (the day following the deceased’s death).
(f)  The establishment of New Lin Fung was a device to enable the business of Lai Fung and the PRC factory to continue, so that orders could be fulfilled.
(g)  After 14 May 2009, annual inspection reports of the PRC factory contained the business registration certificate of New Lin Fung but showing the stamp/seal of Old Lin Fung on the new BR.
(h)  A year or so later, on or about 6 July 2010, the PRC factory applied for a change of registration details the effect of which was to replace the deceased with the 2^nd respondent as its foreign contracting party. For this purpose, the PRC factory submitted, inter alia, a Supplemental Agreement signed by the 2^nd respondent using the stamp/seal of Old Lin Fung.
(i)  Several months later, on 27 October 2010, New Lin Fung established Lin Fung Plastics Factory (“Dongguan Lin Fung”) as a wholly foreign‑owned enterprise. Dongguan Lin Fung was described as being “transformed locally” or “transitioned in situ” from the PRC factory.
(j)  The PRC factory was de‑registered on 12 March 2012 due to its change from a processing assembly factory into a wholly foreign‑owned enterprise, the relevant authorities having decided to phase out processing assembly factories.

The issues arising

10. Mr Smith submitted that the applicant’s entitlement to the order she seeks depends on whether it can be shown that:

(1) it is necessary for the applicant to be registered as the sole proprietor of New Lin Fung in order for her to collect or assert the estate’s rights to any assets of the deceased in the PRC acquired or held in the name of New Lin Fung; and
(2) it is possible upon being so registered for the applicant to collect or assert the estate’s rights to the assets of the deceased in the PRC acquired or held in the name of New Lin Fung.

13. The 2^nd respondent contended that:

(a)  New Lin Fung does not form part of the estate because a sole proprietorship is no more than the name a person trades underand has no separate identity: the 2^nd respondent is New Lin Fung;
(b)  there is evidence to show that the machinery in question does not belong to Old Lin Fung or New Lin Fung for that matter but to PRC entities; and
(c)  in any event, given HCA 2531/2015, the appropriate course for the applicant to take is to litigate the estate’s claim through those proceedings.

14. The issues that emerge are considered under the headings below.

(A) Whether, on death of a sole proprietor, the business he carried on is an asset of his estate

15. Mr Remedios, counsel for the 2^nd respondent, advanced the following propositions:

(i)    as a matter of law, the deceased’s sole proprietorship ceased to exist upon his death;
(ii)   Old Lin Fung and New Lin Fung are separate legal entities/‌businesses;
(iii)  it follows from (ii) that it is legally and conceptually impossible for New Lin Fung to be an asset of the deceased’s business.

17. It is to be noted that the Schedule of Assets attached to the Letters of Administration filed by the 2^nd respondent lists Old Lin Fung as an item under the group of assets headed “BUSINESS”. As such, it is recognition of Old Lin Fung as an asset of the estate.

18. In any event, the short answer to the question is to be found in §57‒85 of Williams, Mortimer & Sunnucks on Executors, Administrators and Probate(2013 Edition):

“When a person engaged in trade or business dies, his trade or business descends to his representatives as part of his assets.”

19. Accordingly, in so far as it is suggested that the business of the deceased in Old Lin Fung is not or cannot be an asset of the estate, it is plainly wrong.

(B) Whether prima facie case shown that the estate (through Old Lin Fung) owns assets in the PRC

20. As regards the existence of machinery in the PRC to which the estate is entitled, the applicant relied on the following:

(a) The statement (on p 5) in a Legal Opinion (“the Junmu Opinion”) the 2^nd respondent and his brother obtained from Guangdong Junmu Law Firm on 8 September 2015 to the effect that:
“...[m]achinery and equipment were purchased and transported into the PRC Factory by [Old Lin Fung] from Hong Kong”
to show that Old Lin Fung was the purchaser of the machinery that was transported to the PRC factory.
(b) The statement in Section V §2 of a document entitled “Contract for the Termed and Non‑gratuitous Lease of Factory and Premises” between The People’s Government of Qingxi Town, Dongguan City, Guangdong Province and Old Lin Fung dated 25 November 1995 (“the Factory Contract”) (exhibited as Appendix 1 to a Legal Opinion dated 13 May 2014 obtained by the 2^nd respondent from Anderson & Anderson LLP):
“... [m]achinery and equipment, tools and utensils imported or purchased domestically by [Old Lin Fung] shall be owned permanently by [Old Lin Fung]” (emphasis added)
and the statement in the Junmu Opinion on the Enterprise Nature and Vesting of Interests of Old Lin Fung, stating as its conclusion of Part I that Old Lin Fung was:
“a foreign‑funded enterprise without legal person status, of which interests (after payment of all taxes on wages of workers according to the investment agreement signed with the Mainland government) had to be vested in its foreign investor — Old Lin Fung”
to establish Old Lin Fung’s ownership of and entitlement to the machinery.
(c) The 2^nd respondent’s evidence in §32 of his first affirmation dated 30 September 2015 to the effect that upon the official termination of the PRC factory on 30 March 2012, its remaining assets which were mostly machineries were left in the PRC factory to show that the machinery existed as at that date which was well after the de-registration of the PRC factory.

21. While the 2^nd respondent did not challenge the evidence the applicant relied on, the court was referred to another document relating to ownership of the machinery, being an Agreement registered on 3 November 1987 made between Dongguan External Processing and Assembling Services Company–cum–Qingxi Lin Fung Products Factory (“the Dongguan Company”) as Party A and Old Lin Fung as Party B. That agreement was renewed on three occasions and the renewal agreements were registered on 4 September 1992, 3 September 1997, and 18 June 2007 respectively (collectively “the Processing Agreements”). The last renewal provided for 29 October 2007 to be the expiration date of the term under the Processing Agreements.

22. In summary the Processing Agreements provided that Old Lin Fung was to be responsible for providing equipment of an unknown value (the amount stated being illegible) for processing production to the PRC factory to be repaid by the PRC factory through processing fees of an unknown (illegible) amount and further provided that “the equipment shall be owned by Party A’s [the Dongguan Company’s] factory” but “title of [sic] the equipment borrowed shall belong to Party B [Old Lin Fung]”.

23. The renewal registered on 4 September 1992 provided for the addition of equipment and expansion of production. Repayment for the equipment was to be by an unspecified percentage of the processing fees and upon completion of the repayment, the equipment “shall be owned by [the Dongguan Company]”.

24. All that can be said about the Processing Agreements is that, at best, upon full repayment of the cost of the equipment, the Dongguan Company rather than Old Lin Fung would own the equipment. However,there is not a shred of evidence concerning the amount to be repaid and the amount actually repaid to Old Lin Fung. The key figures were illegible and there is nothing to substantiate repayment, much less full repayment. Nor do I not accept that the onus is on the applicant to show non‑payment.

25. It is important to note that while the Processing Agreements came to an end on 29 October 2007, the term of the Factory Contract was for 50 years expiring 30 December 2045. If that 50‑year term came to an end on the deceased’s death, it would not have occurred until 29 January 2009.

26. When the 2^nd respondent made his first affirmation in September 2015, he clearly believed that the machinery was left in the PRC factory and that the estate would be entitled to the same, having imported them into the PRC in the first place.

27. Whether Old Lin Fung will ultimately succeed in establishing its right to the machinery in the PRC is not the relevant question.

28. I am satisfied from the evidence adduced that there is reason to believe that Old Lin Fung had assets in the PRC that are now registered in the name of New Lin Fung. It is also clear from the 2^nd respondent’s own evidence that New Lin Fung was established to complete existing orders and to continue Lai Fung’s business and so its assets would form part of the deceased’s estate.

(C)Whether the relief sought in §(2) of the amended originating summons is appropriate

29. On 30 October 2015, the applicant as administratrix brought proceedings (HCA 2531/2015) against the 2^nd respondent (as the 1^st defendant) and Li Kin Wing her younger brother (as the 2^nd defendant)for, inter alia, breaches of fiduciary duty in relation to Old Lin Fung, diversion of the business of Old Lin Fung into New Lin Fung and the Dongguan Company and sought an account of profits. Pleadings have now closed.

30. The 2^nd respondent submitted that since there is already an action on foot, the proper course is for the applicant to add a claim to the existing action against the 2^nd respondent for the machinery and delivery up of the same to the estate.

31. However, what the applicant is seeking here is an order that would allow her as administratrix to collect in assets of the estate which should be done as soon as possible. That is wholly different in nature from bringing an action against the 2^nd respondent for wrongdoing (the intent of HCA 2531/2015) and, on any view, that action is not likely to be heard or determined for some time. For those reasons, I do not consider that to be an appropriate route.

32. I accept the applicant’s submission that it is clear from the PRC legal opinions obtained that it is not possible for the applicant in her capacity as administratrix per se to deal with the deceased’s assets in the PRC. While concerns have been expressed over the propriety of certain acts or steps taken by the 2^nd respondent to continue the business of Lai Fung and the PRC factory, it is a fact that New Lin Fung has been operating for over 7 years under the new BR albeit using the stamp of Old Lin Fung.

33. I am satisfied that unless the applicant is registered as sole proprietor of New Lin Fung, she will not be able to collect or assert the estates rights to any assets of the deceased in the PRC acquired or held in the name of New Lin Fung.

34. It should be mentioned that there is correspondence with the Inland Revenue Department regarding the procedure for the applicant to be registered as sole proprietor of New Lin Fung.

35. The 2^nd respondent has stated on affirmation that he has wanted to close down New Lin Fung for some time since he does not consider that it serves any practical purpose. The applicant takes issue with the 2^nd respondent’s view on that subject. But the relevant point here is that if that be the 2^nd respondent’s stance, he can have no objection to adopting the procedure outlined in the correspondence with the Inland Revenue Department to enable the applicant when registered as the sole proprietor of New Lin Fung to retain the same business registration number.

36. Accordingly, an order was made in terms of §§2 and 3 of the amended originating summons with an order of costs in favour of the applicant subject nevertheless to the costs provision contained in §6 of the order dated 20 January 2016, with certificate for two counsel.

	(Doreen Le Pichon)
	Deputy High Court Judge

Mr Clifford Smith SC, leading Mr Edward H M Tang, instructed by Waller Ma Huang & Yeung, for the applicant

Mr Leo Remedios and Mr Robert Chan, instructed by Ho & Partners, for the 1^st and 2^nd respondents