LAM KA WAI REBECCA AND ANOTHER v. LAM JENNY, THE ADMINISTRATOR OF THE ESTATE OF LAM KAM WAI AND OTHERS

HCMP 1014/2021

[2025] HKCFI 5849

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1014 OF 2021

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BETWEEN

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COSTS RULING

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1.  This is the application of the 2^nd defendant, Chui Pak Ming Norman (“D2”) pursuant to leave granted to D2 by an order by consent dated 13 August 2025 (the “Production Order”) to apply for costs in respect of the Summons dated 16 May 2024 (the “Production Summons”) described in §19 below.

Factual background

2.  As noted in my Decision dated 5 December 2022 (the “Decision”), Lam Kam Wai (the “Deceased”) died intestate on 8 September 2006, leaving an estate with an estimated value of $557 million (the “Estate”).

3.  By an order dated 5 December 2022 (the “Appointment Order”), this Court appointed Norman Guy Donald and Lai Kar Yan Derek (the “Administrators”) administrators of the estate of the Deceased in place of the 1^st defendant Lam Jenny (“D1”) and D2, the former administrators. Paragraph 4 of the Appointment Order vested all the assets and monies of the Deceased then registered in the name of D1 and D2 in the Administrators forthwith.

4.  Reference should be made to the Decision for the background leading to the appointment of the Administrators to replace the former administrators. The nomenclature used in the Decision will be adopted for this Costs Ruling.

5.  As at 5 December 2022, the undistributed assets of the Deceased’s estate include 2 substantial assets (the “Subject Assets”) being the Deceased’s majority shareholdings in Golden Time Enterprises Ltd (“GTE”) and Rainbow Rich Industrial Limited (“Rainbow Rich”) which are of substantial value. Reference should be made to the Decision that considered the Subject Assets at length[1].

6.  This Court concluded that there were reasonable grounds for investigation into the Subject Assets, namely,

(i)  an “amount due to ex-director” and “shareholders’ loan” in the amount of $193.7 million recorded in the books and records of GTE (the “GTE Sum”), specifically that portion of US $23.5 million which (according to D1) allegedly comprised round-robin funds between GTE and its PRC subsidiary and was not due to the Estate; and

(ii)  a shareholders’ loan of $48.8 million due from Rainbow Rich (the “Rainbow Rich Loan”) to the Estate.

7.  Following their appointment, the Administrators requested information regarding, inter alia, the GTE Sum and Rainbow Rich Loan from the former administrators (ie D1 and D2). They sent the former administrators a letter on 7 March 2023 enclosing an information request list[2] and indicating their intention to meet with the former administrators jointly or separately to understand the work performed for the administration of the Estate.

8.  D2’s email reply of 10 March 2023 stated that D1 was in a better position to provide the various documents as “she keeps of the accounts, documents, invoice, et cetera.” D2 did not suggest that he did not have copies of the relevant documents in his possession, power or custody save for one item (i.e. the audited financial statements of GTE).

9.  Letters of Administration were granted to the Administrators on 21 July 2023.

10.  Correspondence ensued between the Administrators and D2 between August 2023 and May 2024.

11.  On 22 August 2023, the Administrators requested a handover meeting with D2, noting his response that all the documents were kept by the other former administrator (D1) and requesting D2 to pass to the Administrators immediately any books, records or information (whether in physical or electronic form) in relation to the Estate.

12.  In response to the request for a meeting, D2, while prepared to convey what happened when he was the joint administrator, expressed two concerns. First, his concern over his fees which he may not recover. Second, what D2 may give the Administrators may be used as evidence against D2 by the solicitors for the Plaintiffs who had reserved the right to sue D2 as the joint administrator.

13.  Further exchanges occurred in October 2023, with the Administrators agreeing[3] that costs to be incurred by D2 in his capacity as former administrator of the Estate shall be payable out of the Estate on the basis that such costs are reasonable and subject to taxation. D2 sought and obtained confirmation[4] that, subject to taxation, the Estate will pay his costs at $5200 per hour.

14.  Regarding his second concern, D2 suggested that whatever he gives to the Administrators may not be used as evidence against him in any civil action save for (a) fraud; (b) unlawful misappropriation of the estate assets; or (c) any crime committed by him. The Administrators counter proposed to add to the list of exceptions “(d) negligence and (e) breach of fiduciary duties” to which there was no reply.

15.  As regards the proposed handover meeting D2 demurred on the basis that he may be subject to cross examination and, instead, requested a list of information which he would respond to in writing.

16.  On 11 November 2023, the Administrators sent D2 a Question List that included questions relating to Estate Administration including information regarding the operation of GTE, Rainbow Rich, Golden Time Chemical (Jiangsu) Co Ltd (“GTC”) and DB Link Property Ltd (“DB Link”) (collectively, the “Companies”).

17.  D2 provided some answers and repeated his suggestion that the Administrators request documents from D1 on the basis that she was responsible for keeping records without stating that he did not have copies in his possession. His replies led to two follow up lists of questions: a follow-up list 1 on 8 February 2024 and a second follow-up List 2 on 6 May 2024.

18.  Some of D2’s responses suggested that he had some documents in his possession. For example, his responses that “upon the request of the solicitors for [the Plaintiffs], [D1] would provide the financial statements [of GTE, Rainbow Rich and DB Link] to me for onward transmission to them[5]” and “I stress bank statements in my possession might not be complete[6]” suggested that he had documents in his possession.

19.  On 16 May 2024, the Administrators took out the Production Summons against, inter alia, D2. They sought an order, inter alia, that

(a)  the Administrators be authorised to pursue such lines of enquiry as they consider to be appropriate and to investigate whether there exist claims which ought to be pursued in the interest of the estate of the Deceased; and

(b)  D1 and D2 do provide the documents set out in the list attached to the Production Summons (the “Requested Documents”) to the Administrators within 14 days from the date of the Order.

20.  The Deceased was a shareholder of the Companies. The Requested Documents included basic financial records in respect of GTE, Rainbow Rich and DB Link such as the financial statements and management accounts.

21.  D2, being a former administrator of the Estate, which was a shareholder of those companies, should have had those documents in his possession, power and custody.

Costs of the Production Summons

22.  The Production Summons was dealt with by consent as between the Administrators and D2. Although the Administrators were prepared not to seek costs of the Production Summons as against D2[7], the parties were unable to agree on costs. They agreed directions for the issue of costs to be dealt with on paper as part of the Production Order. Hence, this Costs Ruling.

23.  On 7 June 2024, D2 filed his affidavit (“D2 1^st”) to the effect that (i) he was not a director of each of the Companies referred to in the list attached to the Summons; (ii) he did not have access to the Requested Documents; (iii) he was not in possession of the Requested Documents; and (iv) D1 kept the Requested Documents and D2 did not have possession of them.

24.  D2’s position is that because he was not in possession of the Requested Documents and not being a director of any of the Companies must mean that he did not possess the Requested Documents and hence could not provide them. He considered that he had no power to require provision of such documents because only a director could do so and he was not.

25.  However, he was one of the former administrators and in that capacity he clearly had power and authority to obtain corporate documents of companies whose shares form part of the Estate. As earlier noted[8], the Requested Documents were documents which could reasonably be expected to be in the possession, power and custody of an administrator of an estate which held (or had held) shares in GTE, Rainbow Rich and DB Link.

26.  Mr Jonathan Fung, counsel for the Administrators, highlighted the fact that D2 only deposed as to whether he was in possession of the Requested Documents and not whether he had possession, power or custody of them (that being the standard formulation[9]). D2’s answers were at best equivocal, suggesting at every turn that D1 was better placed to respond. There was no express statement that D2 did not have the Requested Documents in his possession.

27.  That D2 did in fact have possession, power or custody of at least some of the Requested Documents is supported by various passages of D2 1^st. §12, in pertinent part, reads as follows:

“12. From time to time, [D1] would send me copies of the bank statements of the estate account maintained with HSBC … Upon receipt of the same, I would circulate it to the Plaintiff’s then solicitors. Ever since we made distribution of substantial cash, all shares, funds and bonds etc. in the account, [D1] would not send me copies bank statements as frequently as before … To [D1’s] credit, she would let me have copies of the bank statements upon my request.”

28.  In §13, D2 stated that whenever the Plaintiff’s solicitors asked for documents relating to the Estate from him, he would request D1 for the same.

29.  D2 also referred to the occasion in May 2015[10] when the Plaintiffs (who were in the course of negotiation for a sale and purchase of shares in Rainbow Rich) asked for audit reports for the years 2013 and 2014. He was provided with the same after making requests to D1.

30.  Having regard to those matters, D2’s contention that the Production Summons should never have been issued because he had made his position clear in pre-Production Summons correspondence that he did not have possession of the Requested Documents and was not a director of the Companies must be rejected.

31.  Moreover, even assuming D2 stated in his pre-Production Summons correspondence that he did not have the Requested Documents in his possession, power and custody, the Administrators would nevertheless be justified in requiring D2’s confirmation on oath.

32.  By clause 1 of the Production Order, D2 agreed, inter alia, to file and serve an affirmation stating whether the Requested Documents were in his possession, custody and power and provide copies of such documents which are within his possession, custody and power to the Administrators within 14 days thereafter.

33.  D2 filed his 2^nd affidavit on 26 August 2025 (“D2 2^nd”)[11].

34.  D2’s alternative position is that the Production Summons could have been disposed of soon after 7 June 2024 (the date of D2 1^st) and considerable costs would have been saved.

35.  However, as appears from §§27-29 above, that is not quite the case. D2 never addressed the question whether as one of the administrators of the Estate he had power or custody over the Requested Documents.

36.  Despite D2’s submission that there is no utility in asking for an order in terms of the Consent Summons, D2 nevertheless entered into the Consent Summons and continues to argue that the agreement to provide D2 2^nd should not be taken that the Administrators were justified to take out the Production Summons against D2.

37.  D2 agreed to the Consent Summons because it was “a sensible step”. Otherwise the scheduled hearing would have had to go ahead, incurring further costs.

38.  While I do not consider that D2 can have it both ways, it makes no practical difference since as explained above, the Administrators had good reason to take out the Production Summons.

Ruling

39.  As I am of the view that the Administrators were justified in taking out the Production Summons and obtained the relief sought by way of the Consent Order, there is no reason to award costs of the Production Summons to D2. His application for costs falls to be dismissed.

40.  Accordingly, I order that there be no order as to costs of the Production Summons as between the Administrators and D2.

Costs of this application

41.  The Administrators who have successfully resisted D2’s application for costs in respect of the Production Summons seek the costs of their submissions and have lodged their statement of costs (“SOC”) for summary assessment.

42.  D2’s submissions did not address this issue. As a matter of principle, I see no reason why the Administrators (being the successful party) cannot seek those costs against D2.

43.  I direct that

(a)  D2 do have leave within 14 days of this Ruling, if so advised

(i)  to submit written submissions (limited to 2 pages) in opposition to the Administrators’ application; and

(ii)  to lodge his list of objections (limited to one page) to the SOC.

(b)  The Administrators to have leave to file reply submissions (limited to one page) within 7 days thereafter.

Mr Jonathan Fung, instructed by Messrs. Deacons, for the Administrators

The 2^nd Defendant, acting in person

HCMP 1014/2021

[2023] HKCFI 530

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1014 OF 2021

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D E C I S I O N

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1.  The Plaintiffs (who are 2 of 6 beneficiaries in the estate of the Deceased) were granted substantive relief in administration proceedings pursuant to section 33 of the Probate and Administration Ordinance, Cap 10. The parties were directed to lodge their respective submissions for paper disposal with regard to the Plaintiffs’ application that costs be awarded on an indemnity basis: see the Decision dated 5 December 2022 (“the Decision”).

2.  Reference should be made to the Decision for the relevant background, the nature of the Plaintiffs’ application and its disposition. I do not propose to repeat those matters in this Decision on Costs which adopts the nomenclature used in the Decision.

3.  The Plaintiffs’ application to replace the current administrators D1 and D2 (Jenny and Norman) by Derek Lai and Guy Norman of Deloitte was opposed by Jenny, D3, D4 and D5 (the 3 siblings) (collectively “the Defendants”) who are the remaining 4 beneficiaries of the Deceased’s estate.

4.  Where an application is made by a beneficiary but is in substance an adverse claim made in hostile litigation, the rule applicable to hostile litigation should be applied and the unsuccessful party should be ordered to pay the costs: see Re Estate of Leung Lit[2021] HKCFI 630 at §§92-96.

5.  The dispute as to who should be appointed as the personal representative falls within this class of administration proceedings: see Re Estate of Leung Lit at §94.

6.  It follows that the Plaintiffs are entitled to have the costs of their application and the Defendants’ submissions[1] that their costs should come out of the estate must be rejected.

7.  That the court has power to order indemnity costs is not disputed. The question is whether the circumstances justify such an award.

8.  It is the Plaintiffs’ case that indemnity costs are warranted.

(a)  Jenny

9.  As noted in §17 of the Decision, the Deceased’s shareholdings in GTE and Rainbow Rich (the Subject Assets) are of substantial value. While the Plaintiffs maintained that there are reasonable grounds for an investigation in relation to the Subject Assets, Jenny (a director of GTE since 2007 and believed to be managing GTE) did not agree.

10.  Jenny’s stance (shared by the 3 siblings) that there was nothing to investigate was based on her assertion that the Deceased was not the source of the GTE Sum Part 2 as there was a round robin fund arrangement[2] and that the Rainbow Rich loan ceased to be owing to the estate because of a ‘unique’ practice of Rainbow Rich and of GTE described in §51 of the Decision.

11.  The evidence (or lack thereof) in support of Jenny’s case has been found to be woefully inadequate: see §§21, 29-46, 51and 55-57 of the Decision.

12.  Given the evidence Jenny was able to adduce, there was no rational basis for Jenny to have opposed the Plaintiffs’ application. If anything, it made the need for investigation more glaring. In my view Jenny’s conduct in that regard was unreasonable and seriously obstructed and delayed the proper administration of the estate.

13.  In the Decision, I had singled out (at §38) an instance of Jenny’s conduct that merits disapproval. To that, one should add her evolving stances on various issues without providing good reason: see, for example, §§21, 23, 29-30 of the Decision.

14.  Jenny adopted a similar approach in relation to potential candidates for appointment as administrator[3].

15.  Suffice it to say that such flip-flopping was singularly unhelpful, confusing, and wasteful of time and resources. No responsible administrator or beneficiary should engage in such conduct, absent good reason.

16.  In so far as it was argued that Jenny should be given credit for conceding that she should step down as administrator, I accept the Plaintiffs’ submission that the “concession” was meaningless.

17.  The issue was whether a professional administrator should be appointed to investigate the Subject Assets. As a result of the Defendants’ opposition, the Plaintiffs had to prove that there were reasonable grounds for such an appointment: the “concession” make no difference and did not save time and resources. Moreover, I agree that such concession appears to have been made to pave the way for advancing unreasonable proposals for the new administrators.

18.  Mr KM Chong submitted on Jenny’s behalf that as the appointment of an investigator is not a resolution of the ultimate issues between the parties (thereby rendering the proceedings interlocutory in nature), it would be wrong in principle to order Jenny to bear the costs when she may be correct at the end of the day in the way how she administers the estate.

19.  With respect, that submission is misconceived. The issue before the court was not the ultimate resolution of the disputes between the parties but whether a case has been made out for the appointment of an investigator as professional administrator.

(b)  The 3 siblings

20.  Mr Alvin Chong submitted on behalf of 3 siblings that the cases cited by the Plaintiffs where indemnity costs have been ordered all bear some “special or unique features” warranting indemnity costs. It was said that there were no such “special or unique features” as regards the 3 siblings in that it could hardly be said that they were uncooperative since they did not object to the application for the removal of Jenny and Norman as administrators of the estate and the only question was who should be appointed as the new administrators.

21.  But the crux of the Plaintiffs’ application is that a professional administrator should be appointed to investigate the Subject Assets to which the 3 siblings did not agree. Their stance was that there was nothing worth investigating, that Annie should be the new administrator or that there should be one administrator from each camp.

22.  The 3 siblings now advance 2 seemingly inconsistent submissions: (i) they should not have been joined in these proceedings, citing O 85 r 3 (2) of the PAO; and (ii) while the court considered that reasonable grounds been shown for investigation and appointed a professional administrator, the 3 siblings should not be penalised for expressing their views.

23.  Those submissions appear to be a case of the 3 siblings having their cake and eating it. If the 3 siblings genuinely thought they should not have been joined and their participation unwarranted, they should have indicated that they would not contest the proceedings as was the case with Norman. In reality, they adopted Jenny’s position and resisted the Plaintiffs’ application.

24.  In substance, their position is distinguishable from that of Jenny’s.

Conclusion

25.  For all the reasons set out above, I consider that the Defendants’ conduct in this matter deserves serious deprecation.

26.  Accordingly, I have no hesitation in concluding that costs should be awarded to the Plaintiffs on an indemnity basis.

Mr Danny Tang, instructed by Karas So LLP, for the 1^st to 2^nd Plaintiffs

Mr K. M. Chong and Ms Vivian Li, instructed by Yuen & Partners, for the 1^st Defendant

Mr Alvin Chong, instructed by Mike So, Joseph Lau & Co., for the 3^rd to 5^th Defendants

HCMP 1014/2021

[2022] HKCFI 3653

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1014 OF 2021

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BETWEEN

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DECISION

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1.  This Originating Summons dated 20 July 2021 (as amended on 19 October 2021) (“AOS”) is for (a) the removal of the existing administrators of the Estate; and (b) the appointment of a professional administrator in substitution. At the conclusion of the hearing, this Decision was reserved which I now give.

The parties

2.  The plaintiffs are Lam Ka Wai Rebecca (“Rebecca”) and her brother Lam Kai Cheung (“Kenneth”) (collectively, “the Plaintiffs”), two of six children of the late Lam Kam Wai (“the Deceased”) and born by Madam Chan who died intestate on 19 May 2012.

3.  The remaining 4 children of the Deceased are the 1^st defendant Lam Jenny (“Jenny”) one of two administrators of the Deceased’s estate, the 3^rd defendant Lam Calina Ka Ling (“Calina”), the 4^th defendant Lam Ka Kei Annie (“Annie”) and the 5^th defendant Lam Philip Kai Tak (“Philip”) and born by Madam Cheung. The 3^rd, 4^th and 5^th defendants will hereafter be referred to collectively as “the 3 siblings” who, collectively with the 1^st defendant, will be referred to as “the Defendants”.

4.  The Deceased’s 6 children each have a 1/6 share in the residuary estate of the Deceased who died intestate on 8 September 2006, leaving an estate with an estimated value of $557 million[1]. While a large part of the estate has been distributed, the undistributed assets include two substantial assets (“the Subject Assets”).

5.  The 2^nd defendant Chiu Pak Ming Norman (“Norman”) is an independent solicitor and the other administrator. The Letters of Administration were issued on 18 November 2009.

6.  The Deceased and Madam Cheung divorced in 1993. But since 1988, the Deceased has lived with Madam Chan who gave birth to the Plaintiffs thereafter.

7.  It is common ground that Norman and Jenny should be removed as administrators and the only issue that remains unresolved is who should be appointed administrator in their place.

8.  It is the Plaintiffs’ case that the current administrators have failed to collect and distribute the Subject Assets. There are fundamental differences between the Plaintiffs and the Defendants. The Plaintiffs consider that the investigation into the Subject Assets requires forensic accounting and recovery by way of legal action which would warrant the appointment of a single professional administrator.

9.  They have proposed 3 potential candidates, namely: (i) Cosimo Borrelli of Kroll; (ii) alternatively, Derek Lai and Guy Norman of Deloitte Touche Tohmatsu (“Deloitte”); and in the alternative, Mat Ng of Grant Thornton.

10.  Jenny’s position has been evolving: having initially stated that it is unnecessary to have an investigator, she now recognises a conflict of interest, and is willing to step down in favour of Annie as sole administrator.

11.  As matters now stand, Jenny no longer opposes a professional administrator to be nominated if the Plaintiffs were to bear the costs involved. The 3 siblings adopt the same position.

12.  The parties have agreed on the following list of issues:

1. Given the common ground that [Jenny and Norman] shall be removed as administrators of the estate, who shall be appointed as the new administrator(s) of the estate?

1.1. Whether there are circumstances justifying the appointment of independent professionals as administrators?

1.2. Whether there should be one independent professional or two independent professionals (one to be appointed by [Rebecca and Kenneth], whilst the other one to be appointed by [Jenny, Calina, Annie and Philip]?

1.3. Which independent professional(s) should be appointed?

2. What ancillary directions (if any) for the administration of the estate should be given, including whether the orders in paragraphs 3 to 5 of the [AOS] should be granted?

3. What should be the proper costs order?

13.  The key issue in the present case is whether there are reasonable grounds for investigation in relation to the Subject Assets.

Legal principles

14.  The court’s powers in relation to the removal and substitution of administrators stem from sections 33 (3) and 36 of the Probate and Administration Ordinance, Cap 10 (“PAO”). It is the welfare of the beneficiaries that is the overriding consideration when deciding whether the discretion should be exercised: see Re Estate of Chan Chuk Kan[2021] HKCFI 3649 at §26.

15.  As to the appointment of independent professionals as administrators, in general:

(a) they are appointed where there may be serious disputes or animosity among the competing groups of beneficiaries: Re Estate of Chen Pang Ping Eugene [2016] 2 HKLRD 813 at §38;

(b) in deciding whether or not to appoint independent professionals, the court does not delve into disputed facts: see Re Estate of Ho Hung Sun Stanley [2022] 4 HKC 321 at §32;

(c) the court must be satisfied that there are reasonable grounds for investigation: see Re Estate of MadamChan Lam Yat Wah[2020] HKCFI 388 at §§106-107; and

(d) even where there are different beneficiaries, normally only one professional administrator would be appointed because the appointment of an independent professional would of itself address the need for each to have their representation: see Re Estate of Ho Hung Sun Stanley [2022] 4 HKC 321 at §39.

16.  It is relevant to note that when one of the big four audit firms is engaged to act as the administrator, their common practice is to put forward two persons who will act as joint administrators who will be considered as one professional administrator.

The Subject Assets

17.  At the date of his death, the Deceased was the majority shareholder of Golden Time Enterprises Ltd (“GTE”) and Rainbow Rich Industrial Limited (“Rainbow Rich”). The shareholdings are of substantial value.

(I) The GTE Sum

18.  GTE’s shares were held as to 89.9% by the Deceased, 10% by Jenny, 0.05% by Madam Chan and 0.05% by Madam To Chung Lee (an employee of GTE’s subsidiary in the Mainland (“GTC”)).

19.  After the Deceased’s death, and since 2007, its directors were Jenny, Madam Chan (replaced by Annie after Madam Chan’s death in 2012) and Madam To. It is the Plaintiffs’ understanding that it is now managed by Jenny.

20.  In January 2021, the Plaintiffs received the 1^st account of the Estate (the 2018 Estate Account dated 23 December 2020) (“2018 Estate Account”). Item VII shows GTE’s indebtedness to the Deceased as an “[a]mount due to an ex-director” in round terms of $5.2 million and as a “[s]hareholders’ loan” of $188.5 million, totalling approximately $193.7 million (“the GTE Sum”).

21.  When the administrators’ solicitors made an enquiry, Jenny initially agreed[2] that the GTE Sum was owed to the Deceased. A week later, in response to an inquiry from the Plaintiffs’ representative, Jenny suggested that the bulk of the GTE Sum was from Madam To, Madam Chan and herself. An unverified breakdown covering the period from 7 December 2006 to 19 August 2009 (“the Loan Schedule”) said to have been prepared by GTE’s auditors was attached showing Madam To as the most significant contributor.

22.  The Plaintiffs have difficulty in accepting this explanation since Madam To was only an employee of GTE’s subsidiary in China and held no more than 0.05% of GTE’s shares. Moreover, she has never made a claim to the GTE Sum.

23.  In view of those reservations, as appears from her affirmation dated 23 May 2022 (“Jenny I”), Jenny’s current position (supported and endorsed by Annie) is that the GTE Sum should be divided into 2 parts: (a) GTE Sum Part 1 comprising loans made by the Deceased for the acquisition of the GTE flat and GTE duplex; and (b) GTE Sum Part 2 comprising largely circular round-robin funds from GTC to GTE for investing in GTC’s factory in the Mainland.

24.  GTE Sum Part 2 is said to be US$23.5 million equivalent to $183.3 million. Subtracting that amount from the $193.7 million (being the sum total of 2 loans mentioned in §20 above, the GTE Sum Part 1 has a value of approximately $10.4 million.

25.  The GTE flat was sold for $19.5 million in June 2017. Instead of applying the net proceeds to discharge GTE Sum Part 1 which Jenny considered “circular”, “artificial”, “cumbersome” and “unnecessary”, her proposal was to directly distribute the sale proceeds to the beneficiaries and for that purpose a discussion was held to consider, inter alia, Norman’s advice[3] which was to the contrary.

26.  Although Jenny claims that all the beneficiaries agreed with her proposal the Plaintiffs deny giving their consent. The sale proceeds have not been distributed as the consent requested by Jenny’s former solicitors on 24 September 2020 to the Plaintiffs’ solicitors was not forthcoming.

27.  As regards GTE Sum Part 2 ($183.3 million), it is common ground that (i) GTC entered into investment agreements on 14 December 2004 and 18 August 2005 with Nanjing Chemistry Industrial Park Limited (“the Nanjing Company”) with GTC agreeing to invest US$299.8 million under each agreement in an industrial land development project in Jiangsu; and (ii) between 27 June 2005 and the 21 August 2009, GTE remitted a total of approximately US$23.5 million (HK$183.3 million) to GTC for discharging GTC’s contractual obligations under the investment agreements.

28.  It is the source of the GTE Sum Part 2 (i.e. the $183.3 million) that is controversial.

29.  In her email of 21 January 2021, Jenny provided the Loan Schedule to the Plaintiffs. It was said to have been prepared by the auditor recording loans made by Madam To, Jenny and Madam Chan to GTE[4]. After Rebecca made known her reservations (see §22 above), Jenny appeared to change her stance by saying that they were fake records produced for accounting purposes only.

30.  Jenny’s current contention is that GTE Sum Part 2 was not paid by the Deceased at all: it was made up of 2 parts, namely, (i) a sum of US$640,000 (equivalent to HK$4,992,000) that came from Rainbow Rich; and (ii) the balance of US$22,860,000 (equivalent to HK $178,308,000) that came from GTC. Her explanation[5] is that as the Deceased was a substantial shareholder of both GTE and Rainbow Rich,

“the book keeper of GTE, without understanding the concept of corporate personality, just treated these 2 sums (like other sums investment in the name of GTE into GTE China) as ‘loans from shareholders’ for accounting purposes”

31.  Jenny further explained that a foreigner or foreign corporation making an investment in China is required to have his investment verified through the process of verification of investment involving proof of remittances from outside China to the Chinese company. She then gave a description of the common practice amongst foreign investors between the 1980s and 2010s of using underground Chinese currency exchange agencies which practice has since 2018 been outlawed in China.

32.  Mr Danny Tang, counsel for the Plaintiffs, submitted the explanation given is not credible given that the 2018 Estate Account records an “amount due to an ex-director” of approximately $5.2 million, and a “shareholders’ loan” in the amount of approximately $188.5 million, totalling $193.7 million. They reflect the amount of $5.2 million owed to an ex-director and a shareholders’ loan of $188.5 million under non-current liabilities recorded in the audited accounts of GTE from 2006 to 2019. The notes to the 2018 Estate Account record the relevant “director” and “shareholder” to be the Deceased “unless … evidence in the contrary” was produced.

33.  Mr KM Chong, counsel for D1, sought to demonstrate the source of the $183.3 million[6]. The Court was referred to the schedule of assets of the Deceased’s estate filed for the grant which is said to show that at the date of his death his cash assets had a value of $15.29 million but his total cash liability was $19.8 million resulting in a deficit of $4.5 million.

34.  Although all his bank accounts would have been frozen from the date of his death, between 7 December 2006 and 19 August 2009, money was continuously being remitted into China. Jenny’s explanation is that Madam To, Madam Chan and herself caused $152.8 million as shown in the Loan Schedule to be transferred to GTE, entered into its books and then remitted to China. All that took place prior to 18 November 2009, the date of the grant.

35.  Mr KM Chong submitted that the Plaintiffs’ case justifying an investigation is that the $152 million came from the Deceased’s money but that is shown to be an impossibility for the reasons set out in the preceding paragraph. Hence there is nothing to be investigated. He further submitted that documents showing all the remittances from GTE to GTC on those dates have been exhibited.

36.  At the hearing, Jenny and Annie relied on a table[7] which was unverified, without supporting documentation and explanation of its source. Then, at the end of the hearing, Mr KM Chong requested that Jenny be allowed to submit a table (“Summary Table”) merely summarising the fund flow from GTE to GTC as shown in the internal accounting documents of GTE.

37.  A table entitled “Remittance records between GTE and GTC” was lodged on 23 November 2022. Despite assurances at the time the request for lodging this document was made that it would only summarise in tabular form the documents exhibited in the hearing bundles to show the fund flow from GTE to GTC, that was not case.

38.  The 4^th column of the Summary Table bears the heading “Amount Paid by GTC to GTE (equivalent in HKD)” suggesting that it is a summary of the fund flow from GTC to GTE. Plainly, that exceeds the avowed purpose of the Summary Table and, as will become apparent, squarely contradicts the concession made in Court during the hearing. It is conduct that merits disapproval.

39.  The round robin fund arrangement on which the Defendants rely involves transfers by GTC to GTE through underground currency exchange agencies, after which GTE would remit the received amounts back to GTC. In response to the court’s inquiry, Mr A Chong, counsel for 3 siblings, conceded that there is no documentation showing remittances from China to Hong Kong. In other words, one leg of the round robin arrangement is without documentary support. Mr KM Chong did not demur.

40.  If, as is the Defendants’ case that underground currency exchange agencies were used, it does not mean that no documentary evidence would exist. Mr Tang submitted that there should at least be 3 sets of documentary proof: (i) the receipt from the underground bank agent; (ii) the payment record showing that GTC paid the PRC receiving agent; and (iii) documents showing payment has been made by the Hong Kong paying agent to GTE. The documents within (ii) and (iii) above are company documents and there is no reason for those documents not to be produced even if those within (i) being the Deceased’s documents may have been destroyed.

41.  Mr Tang further submitted that the assertion that the statement that there is no documentation showing remittances from GTC to GTE is ambiguous: it could mean they exist but have not been produced or they do not exist at all. In either case, the matter should be investigated.

42.  Further, the Defendants’ explanations cannot explain why the $183.3 million is shown as a “shareholder’s loan” in the audited accounts. If the money had come from GTE, it should be booked as an amount due to a related company rather than as a shareholder’s loan.

43.  Nor has Jenny given any explanation for the earlier conflicting explanations despite the fact that it is her evidence that the round robin arrangement was a fact known to Madam Chan, Madam To and herself.

44.  As regards the balance of US$640,000 making up the GTE Sum Part 2, Mr KM Chong referred to a bank payment voucher showing a TT payment of US$640,000 (HK$4,992,000) to GTC described as “Investment loan from shareholder”. GTE’s accounting records[8] show 2 transfers (of US$370,000 and US$270,000) totalling US$640,000 to GTC on 29 December 2005. He submitted that on that evidence, the US$640,000 was an investment or loan from Rainbow Rich (and not the Deceased) to GTC.

45.  Mr Tang invited attention to the absence of the payment record from Rainbow Rich which, according to Mr KM Chong could easily be extracted from its records. Despite the fact that both Jenny and Annie are directors of Rainbow Rich, no such record has been produced.

46.  Further, upon the court inquiring whether the hearing bundles contained Rainbow Rich’s audited financial statements, it transpired that they do not.

47.  It is evident from the various unknown matters referred to above that an investigation is required in relation to the GTE Sum.

(2) The Rainbow Rich loan

48.  The Rainbow Rich loan is a shareholder’s loan of $48.8 million recorded in the valuation report to the administrators dated 17 November 2014 of Joseph WP Fan & Co of the shares in Rainbow Rich and GTE.

49.  On 11 June 2019, the Plaintiffs and the Defendants (as beneficiaries) and Jenny and Norman (as administrators) entered into a deed of family arrangement (“the DFA”) for the distribution of the Deceased’s shares in Rainbow Rich to the 6 beneficiaries equally.

50.  On the same day, Rebecca entered into a SPA with Calina and Annie selling all her shares in Rainbow Rich (those distributed to her under the SPA and what she had inherited from Madam Chan’s estate) at a price of $4,245,000. Kenneth entered into a similar SPA with Jenny and Philip. Thus the Plaintiffs received a total of $8.49 million for their Rainbow Rich shares.

51.  The Defendants’ case is that upon the execution of the DFA and SPAs, the Rainbow Rich loan ceased to be owing to the estate on the basis of an established practice of Rainbow Rich and of GTE that the right to recover the “shareholders’ loan” was attached to the shares while loans advanced to the companies in their personal capacity (i.e. as directors) the right would be attached to their persons. When a person ceases to be a shareholder, the right to recover the shareholder’s loan would be lost. As a result, the estate’s right to recover the Rainbow Rich rested with the Defendants.

52.  Alternatively, the Defendants contend that the price under the SPAs was reached was without taking the Rainbow Rich loan into account and is said to be evidenced by the “Pre-completion Accounts” up to the period of 31 May 2019 referred to in the SPAs[9].

53.  Another aspect of that submission is that had the Rainbow Rich loan been taken into account, the parties would have agreed a much lower price than $8.49 million for the Plaintiffs’ shares. The Defendants’ stance was that either the Rainbow Rich loan was transferred to the Defendants or extinguished in 2019.

54.  Although Mr KM Chong sought to explain his calculations regarding what is set out in the preceding paragraph, I found the whole exercise incomprehensible.

55.  On the question whether the Rainbow Rich loan passed on the sale of the shares, the Defendants initially maintained that it was a matter purely between the vendors and purchasers of the shares to be resolved in a construction summons. As the estate and Rainbow Rich are not parties to the SPAs, they would not be involved.

56.  But there is not a single reference to the Rainbow Rich loan in either the DFA or the SPAs. Rainbow Rich is not a party to the SPAs and unless it is joined as an interested party, it will not be bound by the outcome of any construction summons.

57.  The Defendants have also not adduced any evidence in support of the ‘unique’ practice put forward.

58.  In my view, the estate is clearly an interested party so far as concerns a construction summons and would be entitled to be heard. In any event, the Plaintiffs have shown an arguable case that the Rainbow Rich loan remains owing to the estate.

59.  It was said that although Annie is a shareholder of Rainbow Rich, there is no conflict as she is neither a shareholder nor director of GTE were she to be appointed sole administrator: Annie is entitled to her share of Rainbow Rich loan in any case, whether as a shareholder or as a beneficiary of the estate. But there is a real difference in the quantum of her interest in the Rainbow Rich loan: as one of 6 beneficiaries her 1/6^th share is $8.13 million but as shareholder, her interest being 1/4^th of the issued shares would be $12.2 million. Clearly, a conflict would arise.

Conclusion

60.  For the reasons set out above, I am satisfied that the Plaintiffs have shown reasonable grounds for investigation in respect of the Subject Assets.

Choice of administrator

61.  As the investigation involves forensic accounting, a professional administrator should be appointed.

62.  Mr KM Chong sought to draw a distinction between the costs of investigation and the costs of administration and that the former is very costly, submitting that the candidates offered by the Defendants would be the better choice.

63.  I have little doubt that what is required in the present case is the expertise of an accounting professional and the candidates proposed by the Plaintiffs have the requisite experience. Having regard to the proposed fees, Derek Lai and Guy Norman of Deloitte are appointed as the administrators of the Deceased’s estate in place of Jenny and Norman.

Order

64.  Having perused the draft order submitted by Mr Tang at the conclusion of the hearing pending the Court’s Decision, I make an order in terms of §§1-7 of the draft submitted.

65.  So far as costs are concerned, this will be dealt with by the Court by way of written submissions. It is directed that

(a) the Plaintiffs lodge their written submissions (not exceeding 5 pages) by Thursday, 15 December 2022;

(b) the Defendants lodge their response (not exceeding 5 pages) by Thursday, 5 January 2023; and

(c) the Plaintiffs lodge their reply (not exceeding 3 pages) by Monday, 16 January 2023.

Mr Danny Tang, instructed by Karas LLP, for the 1^st – 2^nd plaintiffs

Mr K M Chong and Ms Vivian Li, instructed by Yuen & Partners, for the 1^st defendant

The attendance of the 2^nd defendant, in person, be excused

Mr Alvin Chong, instructed by Mike So, Joseph Lau & Co, for the 3^rd - 5^th defendants