The Hong Kong courts have considered a complex case dealing with probate, liquidation and contempt of court

The defendants ("Koo" and "Ling") were the third wife and daughter of a Mr Lim Por Yen. They were directors of Highfit Development Co Ltd, a company in liquidation. The liquidator ("Mr Arboit") brought contempt proceedings against Koo and Ling for allegedly breaching court orders made in the liquidation proceedings. On the first day of trial, Koo and Ling sought to adduce a fifth affirmation by Ling. The court dismissed the summons, and this judgment contains its reasons for so doing.

At the same time but in a different action, Koo and Ling disputed the validity of Lim Por Yen's will, claiming that he had lacked testamentary capacity and been under the undue influence of rival beneficiaries. They also complained that the executor of the estate had failed to discharge his duties fairly and independently.

The Summons

Koo and Ling sought to adduce the fifth affidavit claiming that:

• Mr Arboit had been funded by the rival beneficiaries in bringing the contempt proceedings and was continuing them for the private benefit of those rival beneficiaries and in order to pressurise Koo and Ling into settling the probate proceedings; and
• Mr Arboit had failed to inform the court that he had recently commenced a new claim against Koo and Ling for breaches of fiduciary duty and breach of trust.

Mr Arboit opposed the application.

Findings

Timing

As a preliminary point, the court found that the summons was made very late in the proceedings. Lateness, in and of itself, would have justified dismissal without an exceptional reason. The court was only prepared to consider the merits of the application because of the serious consequences that committal proceedings can entail.

Involvement of the rival beneficiaries

The court found that there was nothing unusual in interested parties funding a liquidator. The estate was a significant creditor of Highfit Development, with a proof of debt of around HKD242 million. In earlier hearings the court had already dismissed the allegation that Mr Arboit was acting for the private interest of his funders.

In substantiating their claim that the contempt proceedings were an attempt to force them to settle, Koo and Ling pointed to two settlement offers and alleged threats from the rival beneficiaries. One of these involved the rival beneficiaries offering to "procure" the cessation of various actions against Koo and Ling. It was claimed that this included the contempt proceedings. The court found that this letter was without prejudice, and it was therefore not open to Koo and Ling to rely on it. The other settlement offer upon which they sought to rely was made orally and the court found not only that it would also be without prejudice, but also that the allegation was based solely on the word of Ling. Moreover, Mr Arboit was not a party to this conversation and there was no evidence to show that he had authorized or approved it.

Breach of fiduciary duty action

There was no suggestion that Mr Arboit did not have a valid claim. The complaint was the timing of the writ, funding by the rival beneficiaries and the manner of serving the writ on Ling.

The court found that there was nothing unusual about Mr Arboit commencing the new action after having obtained further information, which showed that significant assets had been transferred for inadequate consideration and that Koo and Ling had been instrumental in this process. Funding by the rival beneficiaries was also not considered to be a relevant consideration.

Public interest

It was submitted for Koo and Ling that it was oppressive and disproportionate for Mr Arboit to pursue the contempt proceedings, because the commencement of the new action showed that he had sufficient information available, and did not therefore need the orders which had led to the commencement of the contempt proceedings. Counsel invited the court to consider whether it was in the public interest to make a finding of contempt and a punitive order.

The court found that there is a substantial public interest in court orders' being followed. The consequences of a finding of contempt were serious, and pointless or purely procedural applications would be struck out. In this case, however, it was found that there was a public interest in seeing that the orders were obeyed, and further that Mr Arboit had an interest in securing belated compliance with them. There was no abuse of process.

Take away points

Family disputes are often multi-faceted and are litigated in various forms.  The use of family companies in this regard is not unusual.  This case is an example of some of the approaches taken in such disputes.

There is nothing unusual in an interested party funding a liquidator, even if the funders have some degree of personal interest in damaging the interests of the directors of the company under liquidation.

A without prejudice offer to settle proceedings will not be admissible as evidence that another set of proceedings were brought oppressively or to coerce the defendants into settling the former action.

There will be a public interest in contempt proceedings as long as they are not purely procedural or fundamentally pointless.