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BCI & BIMC Ascertainment Cases ▍The Determination of the Heirs and the Heirs' Liability for the Debts of the Deceased in Hong Kong Law

Come from:BCI&BIMC    Date:2019.06.26 Hits:41 

I. Facts

According to the statement of the plaintiff Zhuang Cheng, Zhuang Cheng and the defendant Wen Huotai have been business partners for many years. Wen Huotai operates a number of companies in Shenzhen and Hong Kong. In 2008, Wen Huotai borrowed 1 million(RMB) from Xie Lang for the need of business turnover. Zhuang Cheng provided guarantees for the loan contract. The loan contract stipulated a one-month loan period at 3% interest rate. From 16 August 2008 to 16 September 2008, due to the failure of Wen Huotai to repay on time, Zhuang Cheng fulfilled his guarantee responsibility. Wen Huotai instructed Zhuang Cheng to repay and stated that the repayment was his loan to Zhuang Cheng. After the agreement between Zhuang Cheng and Xie Lang, the repayment of principal and interest totaled 1.5 million(RMB) and this payment was made on 15 September 2010 after the consent of Wen Huotai. Zhuang Cheng and Wen Huotai made an agreement that Wen Huotai can repay the loan at his convenience. In August 2013, Zhuang Cheng negotiated with Wen Huotai about the settlement of funds and Wen Huotai orally agreed. Unexpectedly, Wen Huotai was injured and unconscious accidentally in the same month. He was later declared dead in July 2014. Wen Jishou and Wen Jiguang are the sons of Wen Huotai, the legal heirs of Wen Huotai. After Wen Jishou became the legal representative of some companies under Wen Huotai's name, Zhuang Cheng came to contact Wen Jishou many times, but he were rejected or not able to reach Wen Jishou all the time. As the debts above mentioned were not paid off, Zhuang Cheng sued Wen Jishou and Wen Jiguang to the court, requesting them to pay 1.5 million(RMB) in arrears and requesting them to pay the interest from the due date to the date of debt settlement.

During the trial, Zhuang Cheng applied for the addition of Wen Huotai's wife Mai Yingmei, his daughter Wen Jifeng, and Wen Jishun as the defendants on 13 September 2016. On 1 August 2017, Zhuang Cheng filed an application to the court for withdrawing the action on the grounds of seeking other legal channels to resolve related disputes.

In this case, there are two legal relations. First, the most fundamental basis of Zhuang Cheng's lawsuit against Wen Jiguang and Wen Jishou for their repayment obligations was the loan agreement signed by Zhuang Cheng, Wen Huotai and Xie Lang and guarantee clause signed by Zhuang Cheng—After Zhuang Cheng fulfilled his guarantee responsibility based on the terms of loan contract, he claimed recourse against Wen Huotai. This guarantee relationship is the basic legal relationship in this case. Then, since Wen Jiguang and Wen Jishou are not parties to the loan agreement mentioned above, both their relevance to this case lies in the fact that they are the legal heirs of Wen Huotai. Therefore, this case also relates to the legal relationship of inheritance.

01 Guarantee Relationship

According to Art.41 of Law of the People's Republic of China on Choice of Law for Foreign-related Civil Relationships: "The parties concerned may choose the laws applicable to contracts by agreement. If the parties do not choose, the laws at the habitual residence of the party whose fulfillment of obligations can best reflect the characteristics of this contract or other laws which have the closest relation with this contract shall apply." According to Art.551 of Interpretation of the Supreme People's Court on the Application of the Civil Procedure Law of the People's Republic of China: "A people's court may hear civil litigation cases involving the Hong Kong and Macao Special Administrative Regions and Taiwan with reference to the special provisions on the foreign-related civil procedures." For the dispute over the guarantee contract in this case, the parties did not agree on the applicable law. Since the place where the loan contract (including the guarantee content) was signed and performed, the residence of the lender Xie Lang and the guarantor Zhuang Cheng and the place where Zhuang Cheng fulfilled his responsibility for guarantee are all in the Mainland of the People's Republic of China. In accordance with the principle of the closest connection, the laws of the Mainland of the People's Republic of China shall apply.

02 Inheritance Relationship

As for the legal relationship of inheritance, the death of the debtor Wen Huotai involved the issue of debt inheritance. The questions of which principle should be applied to determine the identity of the heir and how the heir inherits the debts of the deceased are matters of inheritance. The relevant provisions about inheritance of Law of the People's Republic of China on Choice of Law for Foreign-related Civil Relationships shall apply. Art.31 of Law of the People's Republic of China on Choice of Law for Foreign-related Civil Relationships stipulates: "The laws at the habitual residence at the time of death of the deceased shall apply to legal inheritance, but the laws at the locality of the real estate shall apply to the legal inheritance of a real estate." Art.32 stipulates: "A testament shall be confirmed as valid if its form conforms to the laws at the habitual residence, of the state of nationality or at the locality of the testamentary acts when the testament is made or at the time of death of the testator." Art.33 stipulates: "The laws at the habitual residence or of the state of nationality when the testament is made or at the time of death of the testator shall apply to the validity of a testament." In this case, since neither did Zhuang Cheng submit relevant evidences to prove that Wen Huotai had made a will nor did Wen Jiguang and Wen Jishou appear in court, the court could not determine whether Wen Huotai had made a will. Concerning the fact that Zhuang Cheng determined the defendants by using the standard of statutory succession in this case, so the court also determined the applicable law according to the method of statutory succession. Therefore, the applicable law of the relevant inheritance relationship should be determined by the place of habitual residence before the death of Wen Huotai. Art.15 of Interpretations of the Supreme People's Court on Several Issues Concerning Application of the Law of the People's Republic of China on Choice of Law for Foreign-Related Civil Relationships (I) stipulates: "For a place where the natural person has continuously lived for a period of not less than one year as his or her life center at the time of the occurrence, change or termination of any foreign-related civil relationship, the people's court may determine such place as the habitual residence as prescribed in the Law on Choice of Law for Foreign-Related Civil Relationships, except medical treatment, labor dispatch, official duty and other similar circumstances." Wen Huotai, the deceased, is a resident of the Hong Kong Special Administrative Region. Since Zhuang Cheng did not provide evidences to prove that before Wen Huotai's death Wen Huotai had any habitual residence in the Mainland of the People's Republic of China that met the conditions stipulated in the above mentioned laws—so the place of habitual residence at the time of Wen Huotai's death is determined to be Hong Kong Special Administrative Region. Therefore, the applicable law governing the inheritance relationship in this case is the law of the Hong Kong Special Administrative Region.

Since the trial of this case requires the application of the laws of the Hong Kong Special Administrative Region (HKSAR), it is necessary to fully understand the laws of HKSAR with regard to the determination of the heirs of the deceased and under which circumstance the heirs are liable to pay off the debts of the deceased when the latter was alive.


II. Law Ascertainment

On 25 November 2016, Shenzhen Qianhai Cooperation Zone People's Court entrusted Shenzhen Benchmark Chambers International & Benchmark International Mediation Center (BCI & BIMC) to find out the relevant Hong Kong laws. The Legal Ascertainment expert of BCI & BIMC issued the Opinion on Legal Ascertainment of Relevant Hong Kong Laws on 16 February 2017 (hereinafter referred to as the Legal Opinion).

The main content of the Legal Opinion:

01 How to determine the heirs of the deceased according to the law of HKSAR?

In HKSAR, whether the deceased has made a valid will should be considered first to determine the estate of the deceased and the distribution of the estate. If a valid will is made, the determination of the heirs and the distribution of the estate to which the heirs are entitled shall be handled in accordance with the will made by the deceased.

For a complete and valid will, the followings are required: a clear appointment of the will executor, the beneficiaries (the heirs) of each estate gift, and the share of the estate that the beneficiaries (if more than one person) are entitled to.

The will is subject to the High Court's examination and the court will make the Grant of Probate to the applicant (the executor appointed by the will, if the will does not appoint any executor, the executor will be the applicant who is legally authorized to apply to become an executor) if the examination is passed. Then the identity of the executor is determined, and the estate is to be disposed and distributed in accordance with the will.

If the deceased does not make a will or the will is invalid or the will is not confirmed by the court, or some of the estate is not covered by the will, the heir of the deceased and the distribution of the estate will be determined in accordance with the Intestates' Estate ordinance (Cap. 73) (hereafter refers to the ordinance).

Section 4 of the ordinance sets out the methods to determine the heirs. Please refer to the brief description of Section 4(3) below: If the intestate leaves a husband or wife and issue, his heirs and the succession to estate: The surviving husband or wife can take the personal chattels, a sum of HK $ 500,000 and half of the residuary estate (other than the personal chattels); the issue of the intestate can hold the other half of the residuary estate (other than the personal chattels). According to CAP 10A NON-CONTENTIOUS PROBATE RULES, eligible applicant can apply to the High Court to administer the estate of the deceased. After successful application, the applicant will be granted the Letters of Administration for the estate by the court, and then administer and distribute the estate of the deceased in accordance with the law.

02 In which kind of situation will the heirs be liable to pay off the debts of the deceased?

In general, a natural person's debts are his personal liabilities. After the debtor's death, his estate included his debts, and the creditor can dun for the money from the estate. However, neither the debtor's administrator nor the heirs have the personal liabilities to bear the debts of the deceased. If the creditor files a lawsuit against the debt of the deceased, the defendant should be the administrator of the deceased's estate, not the heirs to the estate. Besides, the administrator is only personal representative of the deceased in terms of the administrator's identity and responsibilities, but the administrator does not have any personal liabilities to the debts of the deceased. (According to CAP 4A order 15 Rule .6A of THE RULES OF THE HIGH COURT)

According to Section 61 of CAP 10 PROBATE AND ADMINISTRATION orDINANCE, the estate must first be used to pay off his debts, and the residuary estate is distributed to the heirs. If the estate of the deceased can pay off all the debts, the heirs will succeed the residuary estate. (That is, estate after payment of all such funeral and administration expenses, debts and other liabilities—Section 2(1) of Intestates' Estates ordinance) If the estate of the deceased can only pay off some of the debts, the heir will succeed nothing. On the other hand, the creditor may not recover part of the debt because in the principle of contract law, the creditor only has the contractual relation with the deceased and all lawsuit actions will only be brought against the estate of the deceased. (Chitty on Contracts, 31sted.Volume1[20-001])

If the deceased and the heirs have joint liability to relevant debts, the heirs will take the responsibility to pay off the debts after the death of the deceased (Chitty on Contracts, 31sted.Volume1[17-012]). However, it should be noted that, if the deceased and the heirs have joint and personal liability to relevant debts, both the estate and the heirs will have the responsibility to pay off the debts after the death of the deceased (Chitty on Contracts, 31sted.Volume1[17-013]).


III. Conclusion

It can be seen through the process of the trail, after the issue of the Legal Opinion and the assessment report made by a third party, Zhuang Cheng realized that it will not only lengthen the litigation and waste litigation resources but also burden himself with extra time and economic costs if he continues the lawsuit with the evidences in hand. Zhuang Cheng's application for withdrawal was made after a comprehensive assessment of the differences between the Mainland and HKSAR laws concerned in the case and the extra litigation costs and risks that may arise from continuing the litigation. This decision, based on the principles of rational and economical litigation, is Zhuang Cheng's free exercise of his own litigation rights. The application for withdrawal is voluntary and legitimate. In accordance with the provisions of Article 145, paragraph 1, and Article 154, sub paragraph 1 (vi) of The Civil Procedure Law of the People's Republic of China, the court ruled as follows: The plaintiff Zhuang Cheng was allowed to withdraw his lawsuit.


Read the original: 藍海查明案例 ▍香港特別行政區繼承人身份的確定,繼承人對被繼承人生前債務的清償義務


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