Choy Po Chun and Another v. Au Wing Lun

CACV 177/2017

[2018] HKCA 402

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 177 OF 2017

(ON APPEAL FROM HCAP NO 7 OF 2010)

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JUDGMENT ON COSTS

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The Court:

The application to vary the costs order nisi

1.On 20 April 2018, this court handed down its judgment in a contested probate action.  We allowed the plaintiffs’ appeal, set aside the judgment of Chow J that the 2008 Will be pronounced in solemn form and the costs order below, ordered the defendant’s counterclaim (in which he sought to propound the 2008 Will) be dismissed, and pronounced in solemn form the 2002 Will.  We made a costs order nisi in these terms: (1) the defendant do pay the plaintiffs 50% of the costs of the appeal, with a certificate for two counsel; and (2) the defendant do pay the plaintiffs two‑thirds of the costs of the action, including the counterclaim.

2.The defendant issued a summons on 3 May 2018 to vary the costs order nisi as follows:

(1) (a) as to the costs of the action, an order that (i) the plaintiffs do receive 50% or such other proportion as the court sees fit of their costs of the action with certificate for two counsel from the estate of the deceased; and (ii) the defendant do receive his costs of the action with certificate for two counsel from the estate of the deceased;

(b) as to the costs of the appeal and the costs of and occasioned by this application, an order that (i) the plaintiffs do receive 50% or such other proportion as the court sees fit of their costs of the action with certificate for two counsel from the estate of the deceased; and (ii) the defendant do receive his costs with certificate for two counsel from the estate of the deceased;

(2) in the alternative to (1), and without prejudice to the defendant’s application for leave to appeal to the Court of Final Appeal, the costs order nisi be varied to an order there be no order as to costs, including the costs of and occasioned by this application.

3.In other words, the defendant seeks a departure from the general rule that costs should follow the event.  This application is opposed by the plaintiffs.

The applicable principles

4.The award of costs as between the parties in a contested probate action is in the discretion of the court.

5.The applicable legal principles are discussed in Nina Kung v Wang Din Shin (No 2) (2006) 9 HKCFAR 800.  As stated by Ribeiro PJ in §11, the guiding principles were as stated by Sir Gorell Barnes P in Spiers v English [1907] 4 P 122 at 123:

“In deciding questions of costs one has to go back to the principles which govern cases of this kind. One of those principles is that if a person who makes a will or persons who are interested in the residue have been really the cause of the litigation a case is made out for costs to come out of the estate. Another principle is that, if the circumstances lead reasonably to an investigation of the matter, then the costs may be left to be borne by those who have incurred them. If it were not for the application of those principles, which, if not exhaustive, are the two great principles upon which the Court acts, costs would now, according to the rule, follow the event as a matter of course. Those principles allow good cause to be shown why costs should not follow the event.”

6.These proceedings took the form of hostile litigation.  In September 2009, the defendant applied for probate of the 2008 Will as an executor, to which the 1^st plaintiff entered a caveat and disputed the validity of the 2008 Will.  The plaintiffs brought this probate action in March 2010 to propound the 2002 Will and to seek an order that the 2008 Will be pronounced against and a declaration that the defendant is liable for intermeddling with the deceased’s estate.  The defendant admits the validity of the 2002 Will, subject to it having been revoked by the 2008 Will.  By his counterclaim, the defendant sought to propound the 2008 Will.

7.As held by this court, the plaintiff has succeeded in the probate action.  To warrant a departure from the general rule that costs should follow the event in this hostile litigation, special circumstances must be shown.

The first exception

8.The defendant submitted that the two exceptions mentioned in the authorities for departing from general rule apply in this instance.  His primary position is that the costs of both parties in the court below and on appeal should come out of the deceased’s estate (i.e. the first exception), for the following reasons.

9.Firstly, he sought to propound the 2008 Will as an executor.  He had “no practical choice” but to defend the probate action and seek the court’s adjudication.  His claim to propound the 2008 Will was in response to the plaintiff’s action to propound the 2002 Will.

10.He invoked Order 62 rule 6(2) which provides as follows:

“Where a person is or has been a party to any proceedings in the capacity of trustee, personal representative or mortgagee, he shall, unless the Court otherwise orders, be entitled to the costs of these proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by the trustee or personal representative or the mortgaged property, as the case may be; and the Court may otherwise order only on the ground that the trustee, personal representative or mortgagee has acted unreasonably or, in the case of a trustee or personal representative, has in substance acted for his own benefit rather than for the benefit of the fund.”

11.The defendant contended that as an executor who had good reason to suppose that the testator was of sound mind and capable of managing his affairs, he would be allowed his costs out of the estate, even though the will be pronounced against on the ground of the testator’s incapacity, citing Boughton v Knight (1873) LR 3 P & D 64 at 77 and 79.

12.He submitted he had reasonable grounds to believe that the deceased had testamentary capacity and had succeeded at the trial on all three main issues (due execution of the will, testamentary capacity, knowledge and approval of the contents of the will at time of execution).  On appeal, this court affirmed the judge’s holding on due execution, and the finding that the deceased was capable of understanding the nature of the act of making the will and its effects.  This court set aside the holding that testamentary capacity was established because the judge has failed to consider and omitted to find whether the other two criteria for testamentary capacity in Banks v Goodfellow (1870) LR 5 QB 549 at 565 are satisfied (the deceased was capable of understanding the extent of the property of which he was disposing, and able to comprehend and appreciate the claims to which he ought to give effect).  Thus, he had acted reasonably in his conduct of the defence for the benefit of the four beneficiaries under the 2008 Will with equal shares (he being one of them).  He did not “in substance acted for his own benefit rather than for the benefit of the fund.”

13.Secondly, he argued that the probate action was caused by the conduct of the testator in that the problem relates to the capacity of the deceased to make the 2008 Will, citing Kostic v Chaplin [2008] WTLR 655 at §9 for the proposition that where it was the testator’s own conduct which led to his will “being surrounded with confusion or uncertainty in law or fact”, it should not matter “whether the problem is one relating to the state in which the deceased has left his testamentary papers … or whether the problem relates to the capacity of the deceased to make a will.”  The defendant contended the deceased led him reasonably to believe by his words and conduct that he had good reason and capacity to make a new will.  And as the plaintiffs did not plead in their pleadings that the other two criteria for testamentary capacity are not satisfied, the defendant did not have fair notice of the same.

14.Thirdly, he criticised the litigation conduct of the plaintiffs.  This action was commenced in March 2010 but the trial only took place in March 2017, largely due to numerous misconceived interlocutory applications brought by the plaintiffs. He mentioned three instances.

15.One was the plaintiffs’ application for summary judgment which led to conditional leave being granted at first instance but set aside by the Court of Appeal ([2012] 2 HKLRD 148).  The appeal court ordered the defendant’s costs to be paid from the estate, and the costs below were in the cause, stating at §48 whether costs should come from the estate should be decided after trial.

16.The second instance was the plaintiffs’ appeal against a master’s decision granting an extension of time to the defendant to comply with Order 76 rule 5 and the plaintiffs’ application to strike out the amended defence and counterclaim.  Both were dismissed by a judge ([2014] 4 HKLRD 730).

17.The third instance was the interrogatories served by the plaintiffs on the attesting solicitors who were potential witnesses and the plaintiffs’ application to expunge the expert report of Dr Singer obtained by the defendant, which led to the defendant’s successful application to strike out the interrogatories and the dismissal of the application to expunge Dr Singer’s report ([2015] 4 HKLRD 471), and the application of the plaintiffs for leave to appeal was dismissed by the Court of Appeal (HCMP 2440/2015, 13 November 2015).

18.Fourthly, the defendant submitted that the costs of the action on appeal and below should be discounted by at least 50%. In the order nisi, it was ordered that the costs awarded to the plaintiffs be reduced, by 50% on appeal and by one‑third for the proceedings below.  The defendant’s submission is based on the following: (i) all the plaintiffs’ arguments were rejected by the court, at first instance and on appeal (the plaintiffs succeeded on a ground not raised in the notice of appeal); (ii) they displayed prolixity, and spent disproportionate and excessive time on irrelevant and peripheral issues, without regard to the underlying objectives in Order 1A rule 1; (iii) they made numerous misconceived interlocutory applications as mentioned; and (iv) they were criticised by the judge in the manner they instructed their psychiatric expert Dr F K Tsang (§82 of Chow J’s judgment).

19.We do not accept the defendant’s submissions.

20.In judging whether unsuccessful parties would come within the first or second exceptions, the court must “look at the facts and view them as they were presented to the unsuccessful parties.” (Twist & Ors v Tye [1902] P 92 at 94)  “However, it must be understood that this does not justify an ill‑considered and precipitous decision to litigate in opposition to a will.” (Nina Kung v Wang Din Shin (No 2) at §19)  The courts have emphasised that “the opponents must have taken all proper steps to inform themselves as to the facts of the case.” (Davies v Gregory (1872‑75) LR 3 P & D 28 at 33)  In relation to an executor propounding a will, “it is his duty to make proper and adequate inquiries before acting.” (Page & Anr v Williamson (1902) 87 LT 146 at 147).

21.An executor is not bound to propound a will unless he chooses (Rennie v Massie (1866) LR 1 P & D 118 at 119; Re Barlow’s Estate, Haydon v Pring [1919] P 131 at 132 to 133).  If an executor who is also a beneficiary elects to propound a will, he does so at risk as to costs (Tristram and Coote’s Probate Practice (31^st ed) §40.09 and the cases cited at footnote 6). Gorell Barnes J held in Twist & Ors v Tye that persons claiming to be executors in a probate action, who are also residuary legatees, are in the same position as to costs as any other party who unsuccessfully propounds a will.

22.It was not suggested in Twist & Ors v Tye that the executors were guilty of any impropriety of conduct.  The contention put forward against them was that “they really were in a position to know, or practically ought to have known, the true position of affairs as disclosed in the course of this inquiry”, namely, the litigation.  They “practically backed their own opinion about [the testatrix], and were found, upon a full investigation of the matter, to be mistaken” (at 96).  It could not be said that the testatrix was the cause of the litigation, because the executors “were as much parties or privy to the making of the documents as she was herself”.  They were “thoroughly able to judge of the state of things” and were “as much concerned in the making of the wills they set up as [the testatrix] was.” (at 97)

23.Gorell Barnes J distinguished Boughton v Knight.  The executor in that case was “honestly led into this litigation by the fact that the testator seemed to all outward appearance to be capable of managing his affairs” and in the absence of evidence to the contrary was justified in bringing the case before the court (Boughton v Knight at 79 to 80).  In contrast, the executors in Twist & Ors v Tye could not be said to have been led into the belief that the testatrix was capable of managing her own affairs and of making the wills.  Gorell Barnes J summed up the matter in this way at 98:

“The truth is, as I said before, [the executors] took a view and acted upon it; and when it came to a fight between themselves, on the one side, and the persons interested under an intestacy, on the other side, they stood to win one way and to lose the other. I see, therefore, nothing to warrant a departure from the ordinary rule.”

24.In the present case, the defendant was, like the executors in Twist & Ors v Tye, as much a party or privy to the making of the 2008 Will as the deceased himself.  He was not a beneficiary under the 2002 Will but was one of the four beneficiaries under the 2008 Will.  The defendant relayed to the solicitors, orally and in writing, all the instructions for the preparation of the 2008 Will.  The solicitors only confirmed the instructions as contained in that will when it was read and explained to the deceased just prior to execution.  The defendant paid the fees charged by the solicitors.  No other family member was involved.  He had a very large part to play in the making of the new will, in which he was one of the residual beneficiaries.  It was held by the judge that the circumstances here would bring into operation the second rule in Barry v Butlin (1838) 2 Moo PC 480.

25.The defendant was privy to the full circumstances that led to the making of the 2008 Will.  The deceased was 92 years old and was living in a home for the elderly at the time.  It is clear from the medical history and records that the deceased had shown signs of infirmity for quite some time.  Although many of the medical records were brief, a number of them mentioned that the deceased was suffering from dementia, one stated that he was “suffering from dementia which would affect his ability in judgment”, and two assessment forms stated that he was “mentally unfit for making a statement”.  According to the defendant, he had visited the deceased regularly. He would have ample opportunity to observe the deceased.  In light of the visible signs of infirmity of the deceased, and the defendant’s own knowledge and training as a qualified solicitor, he should have made proper and adequate inquiries to ascertain if the deceased did have the requisite testamentary capacity before he arranged for a new will to be made for the deceased.  There is no evidence he had made any proper inquiries.  He certainly did not obtain any medical advice for the purpose of establishing whether the deceased had the requisite capacity before he engaged and instructed solicitors to prepare a new will for the deceased.

26.Two months after the deceased’s demise, in September 2009, the defendant applied for probate of the 2008 Will.  In January 2010, he represented to tenants of certain properties in the deceased’s estate he was the executor of that will to collect rental income from the tenants.  The plaintiffs brought this probate action in March 2010 to propound the 2002 Will. From the start of this litigation, the defendant took the stance that the earlier will was revoked by the 2008 Will.  He had more than adequate opportunity to consider his position in this protracted litigation, and to decide whether or not he should persist in the stance he took.

27.We do not accept that the probate action was caused by the conduct of the deceased when his testamentary capacity was found not to be established.  As mentioned above, the defendant was as much a party or privy to the making of the 2008 Will as the deceased himself.  Nor do we accept that the defendant was led reasonably to believe by the deceased that he had the requisite capacity to make a new will.  The defendant should have made proper inquiries concerning the deceased’s testamentary capacity but did not do so.  We reject his assertion he had good reason to suppose that the deceased was of sound mind and capable of managing his affairs.  He took a view on the validity of the 2008 Will, acted on it, and failed to establish his case in litigation.  He does not come within the first exception.

28.We note the trend of the more recent English authorities, as stated by Henderson J in Kostic v Chaplin at §21, that the courts have conducted “a very careful scrutiny of any case in which the first exception is said to apply, and to narrow rather than extend the circumstances in which it will be held to be engaged.”  Henderson J mentioned two factors which may have contributed to this change of emphasis: “First, less importance is attached today than it was in Victorian times to the independent duty of the Court to investigate the circumstances in which a will was executed and to satisfy itself as to its validity.  Secondly, the courts are increasingly alert to the dangers of encouraging litigation, and discouraging settlement of doubtful claims at an early stage, if costs are allowed out of the estate to the unsuccessful party.”

29.As long ago as 1863, Sir J P Wilde (later Lord Penzance) explained the underlying objectives for the exceptions to the general rule in Mitchell v Gard (1863) 3 SW & TR 275 at 279:

“It is of high public importance that doubtful wills should not pass easily into proof by reason of the cost of opposing them. It is of equal importance that parties should not be tempted into a fruitless litigation by the knowledge that their costs will be defrayed by others.”

30.And this warning was given by Scrutton LJ in Re Plant’s Estate, Wild v Plant [1926] P 139 at 152:

“I should be reluctant to do anything to create the idea that unsuccessful litigants might get their costs out of the estate, without making a very strong case on [the] facts. The lure of “costs out of the estate” is responsible for much unnecessary litigation.”

31.We think our courts should adopt a similar approach of narrowing rather than extending the circumstances in which the first exception will be held to be engaged by subjecting the circumstances to careful scrutiny and requiring a very strong case to be made out on the facts.

32.As for Order 62 rule 6(2), we do not think this provision would avail the defendant.  For the reasons mentioned above, the defendant must be regarded to have “acted unreasonably”.  In any event, it has been held that persons claiming to be executors, who are also beneficiaries named in a will, are in the same position as to costs as any other party who unsuccessfully propounds a will.  A person claiming to be executor in a probate action is in a different position from an established executor applying to the court in administration proceedings.  In the former case, his title as executor is itself generally in doubt (Williams, Mortimer & Sunnocks on Executors, Administrators and Probate (2018 ed) at §33-11).  We do not find it necessary to deal with the plaintiffs’ contention whether, by virtue of section 42 of the Probate and Administration Ordinance, Cap 10, the defendant would not have power to “bring any action, or otherwise to act as executor of the deceased”, as an administrator pendente lite was appointed in May 2010 and the grant has not been recalled or revoked.

33.We have taken on board the degree of success and the issues the plaintiffs have failed to establish in the order nisi when we reduced the costs awarded to the plaintiffs.  We are not inclined to further reduce the costs awarded on appeal so this would remain at 50%.  As for further reduction of the costs of the action including the counterclaim, the plaintiffs submitted it cannot be said that the issues on which they failed to establish were unjustifiably raised.  That may be so, but the plaintiffs went much further than putting the defendant to proof on the issues they raised in contesting the 2008 Will.  They even alleged a case of forgery.  On further reflection, we think it appropriate that the costs awarded to the plaintiffs for the action and counterclaim should be reduced by more than one‑third.  A 50% reduction would be more appropriate in all the circumstances.

34.As for the defendant’s complaints on the litigation conduct of the plaintiffs, the protracted nature of this litigation cannot be laid solely at the plaintiffs’ door.  The defendant had sought leave to appeal on a case management decision, which was dismissed on 26 August 2010, and made an unsuccessful application for various directions in relation to the preparation of expert handwriting report, which was dismissed on 26 November 2015.  The delay in bringing this action for trial was due to a combination of factors, see for instance the judgment of Deputy Judge B Chu (as she then was) in [2014] 4 HKLRD 730 at §§103, 104, 112, 118, 122 to 126.  As for Chow J’s criticism of the way the plaintiffs had instructed their psychiatric expert, we do not think this should warrant a further reduction in costs.

35.Regarding the interlocutory applications of the plaintiffs which were dismissed, save for the costs in respect of the application for summary judgment (the Court of Appeal made an order awarding the costs of the appeal to the defendant to be paid from the estate and reserved the question to the trial judge whether the costs below, which were ordered to be in the cause, should come out of the estate), there is no indication in the other judgments to suggest that any aspect of the costs of those applications had not been dealt with.  We see no reason to revisit the costs for those other applications.

36.For the costs of the application for summary judgment in the court below, which the Court of Appeal ordered to be in the cause, and would now be awarded to the plaintiffs as they are eventually successful, we decline to order that such costs should come out of the estate.  It was held by the Court of Appeal that the determination of the issue of testamentary capacity in this instance is not suitable in a summary judgment proceeding, and the case of the defendant cannot be regarded as shadowy.  We order those costs now awarded to the plaintiffs are to be paid by the defendant, as with the other costs awarded to them.

37.To recap, there is no reason to justify a departure from the general rule that the defendant should pay the plaintiffs’ costs as the losing party.  The only respect in which the costs order nisi is varied is that the defendant is to pay 50% of the plaintiffs’ costs of the action including the counterclaim and there will be a certificate for two counsel.

The second exception

38.We turn to the defendant’s secondary position, being that there should be no order as to costs for the appeal and below.

39.The defendant contended that he comes within the second exception to justify a departure from the general rule for these reasons.  The 2008 Will was prima facie valid.  Hence, there were reasonable grounds to call for an investigation whether the 2002 Will was revoked by the subsequent will.  The plaintiffs might also have grounds to investigate the validity of the 2008 Will.  And he had a reasonable though ultimately mistaken belief in a state of affairs which, if not mistaken, would lead to the 2002 Will being pronounced against and this amounted to a reasonable ground for opposing the 2002 Will.  In support of this, he cited Wylde v Culver [2006] 1 WLR 2674 at §§35 and 36.

40.For much the same reasons as given earlier, we do not think this is a case within the second exception.  The defendant was as much privy to the making of the new will as the deceased.  He had ample opportunity to make proper enquiries as to the requisite capacity of the deceased before he instructed solicitors to prepare a new will for the deceased.  After the plaintiffs brought this action, he had ample time and opportunity to consider whether he should maintain his stance.  He decided to maintain his stance and mounted a positive case in this hostile litigation.  There is no reason to warrant a departure from the general rule that he should pay the plaintiffs’ costs.

Costs of this application

41.For the costs of this application, the defendant is successful to the limited extent that the costs of the action and counterclaim to be paid to the plaintiffs are reduced from two-thirds to 50%.

42.We apply the general rule that costs should follow the event and reduce the costs awarded to the plaintiffs by 20%.

43.Having considered the statement of costs submitted by the plaintiffs for summary assessment, we will not reduce the total costs claimed in the sum of $110,000.  So the amount of costs to be paid by the defendant is $88,000.

Written submissions by Mr Kevin Li, instructed by Y T Tong & Co, for the 1^st and 2^nd Plaintiffs (Appellants)

Written submissions by Mr Chua Guan Hock SC and Mr Kerby Lau, instructed by K B Chau & Co, for the Defendant (Respondent)