Leung Chung Ching Edwin and Another v. The Estate of Leung on Mei Amy, Deceased
Read the full judgment text of CACV 181/2014 on BabelCite. This Court of Appeal judgment.
1. I agree with the reasons for judgment and the decision on costs of Chu JA.
Cited by 4 cases · Cites 8 cases
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CACV 181/2014 [2018] HKCA 910 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 18 OF 2014 (ON APPEAL FROM HCMP NO. 2033 OF 2012) __________________
__________________ Before: Hon Kwan, Chu & Barma JJA in Court Date of Hearing and Judgment: 9 September 2015 Date of Reasons for Judgment and Decision on Costs: 29 November 2018 __________________________ REASONS FOR JUDGMENT ___________________________ Hon Kwan JA: 1.I agree with the reasons for judgment and the decision on costs of Chu JA. Hon Chu JA: A. Introduction 2.The 1st and 2nd plaintiffs (respectively “Mr Leung” and “Mrs Leung”) have two daughters, Amy and Violet. Amy passed away on 1 August 2010 from a suicidal act. She was then aged 39. She died intestate survived by her husband (“Henry”) and their young daughter, Angel. No grant of letter of administration of Amy’s estate (“Estate”) has been made. Henry’ application for grant of the Letters of Administration of the Estate is opposed by Mr Leung, who has entered Caveats in the application. 3.On 20 September 2012, the plaintiffs commenced proceedings against the Estate claiming (i) a declaration that Amy held the property known as 17th Floor, Thyrse House, No.16 Pottinger Street, Hong Kong (“17th Floor Property”) on trust for the joint benefit of the plaintiffs; (ii) an order under section 45 of the Trustees Ordinance, Cap.29 vesting all the legal rights and interests in the property in the plaintiffs; and (3) an order transferring the interests in the property to the plaintiffs as joint tenants. 4.With the plaintiffs’ agreement, Henry had represented the Estate in the conduct and defence of the proceedings brought by the plaintiffs. Henry also has the conduct of this appeal on behalf of the Estate. Pursuant to an order by consent, he had paid into Court $630,000 as security for the plaintiffs’ costs in this appeal. There is, however, no application and no order under Order 15 rule 6A(4) of the Rules of the High Court, Cap. 4A appointing Henry as the personal representative of the Estate for the purpose of the proceedings. This point bears some relevance to the plaintiffs’ application in this appeal for a non-party costs order against Henry. 5.After a trial that lasted seven days, Zervos J (“the Judge”) gave judgment for the plaintiffs, granting the declaration, the vesting order and the order of transfer of interests as claimed. He also made an order nisi that each party bear his own costs. The plaintiffs had made an application to vary the costs order nisi, which the parties agreed to adjourn sine die pending the outcome of this appeal. 6.This is the Estate’s appeal against the Judgment. The plaintiffs had filed a Respondent’s Notice seeking to support the Judgment on additional grounds, which are directed at the issue of illegality raised by the Estate for the first time in the Notice of Appeal. 7.At the hearing of the appeal, we dismissed the appeal and reserved our decision on costs of the appeal. We now give our reasons for judgment and decision on costs. B. The facts 8.Mr Leung is an architect and a property investor. Mrs Leung previously worked as a nurse. Amy was a dentist in private practice. Violet is a medical doctor. Henry is also a dentist, previously employed by the government and later in private practice. 9.In 1985, Mr and Mrs Leung together with their daughters migrated to Australia. Between 1987 and 1990, Mr and Mrs Leung acquired three adjoining properties in Sydney, one of which was used as their family home. The other two were held in the name of Amy and Violet respectively and were let out. These two properties were acquired at different times, when Amy and Violet were students with no source of income. The funds for the purchase of the properties and repayment of the mortgage loans were met by Mr and Mrs Leung. It is Mr and Mrs Leung’s case, which the Judge accepted, that Amy and Violet held the properties on trust for them. It is Mr Leung’s evidence that they had obtained tax advice and the properties were registered in Amy’s and Violet’s names in order to obtain a tax benefit. The properties were sold in May 2003 and February 2004 and the proceeds of sale all went to Mr and Mrs Leung. 10.The Leung family later moved back to Hong Kong. Mr and Mrs Leung carried out property investment through a company called Jonnex International Limited (“Jonnex”), the shares of which were held by them equally. Through Jonnex, Mr and Mrs Leung purchased four properties in Hong Kong, namely, (i) a property in Lai Chi Kok bought in May 1996 and sold in December 2003, (ii) the 17th Floor Property bought in June 1996, (iii) the 12th Floor of Thyrse House (“the 12th Floor Property”) also bought in June 1996, and (iv) a property in Leighton Road bought in 2002 and sold in November 2005. 11.The 12th Floor Property was leased to Mr Leung’s architectural firm after acquisition. Since January 1998, the 17th Floor Property was leased to Amy for use as a dental clinic. 12.By two assignments both dated 31 March 2004, the 17th Floor Property and the 12th Floor Property were transferred from Jonnex to Amy and Violet respectively at the respective consideration of HK$1,880,000 and HK$1,800,000. The purchase price and the conveyance expenses for both transfers were paid for by Mr and Mrs Leung. 13.After the transfer, Amy stopped paying rent for the 17th Floor Property. It is Mr and Mrs Leung’s case that because Amy was financially strained, they had not pressed for the rent. As for the rent of the 12th Floor Property, it was collected by Violet and paid over to Mr and Mrs Leung, but at times she was allowed to keep the rent as her pocket money. C. The dispute 14.The core issue in the action is whether Amy held the 17th Floor Property on trust for her parents or whether the property was a gift to Amy by her parents. 15.On Mr and Mrs Leung’s case, similar to the arrangement for the Australian properties, Amy and Violet respectively held the 17th Floor Property and the 12th Floor Property on trust for them. They explained that the properties were transferred from Jonnex to Amy and Violet in 2004 because they intended to close down the company. They said that Jonnex became dormant for a few months after the two properties were transferred to Amy and Violet and the Leighton Road property was sold, but it was subsequently reactivated when a business opportunity arose for them to invest in some properties in Sai Ying Poon. 16.Both Mr and Mrs Leung said that they had no intention to transfer the beneficial ownership of the two properties to Amy and Violet. They held the title deeds of the two properties, and exercised full control and rights of a true owner over the properties. At the same time, they had assumed the responsibility of paying for the maintenance and upkeep of the properties. 17.The case of the Estate is that the transfer of the 17th Floor Property from Jonnex to Amy was a gift from Mr and Mrs Leung to Amy to celebrate the birth of Angel. Henry’s evidence, which the Judge did not accept, was that the Australian properties were acquired in Amy’s and Violet’s name because they were intended to be used as their matrimonial homes, while the Thyrse House properties were purchased by Mr and Mrs Leung initially with a view to Amy and Violet using them as their clinics when they commenced dental and medical practice. D. The Judgment 18.Mr and Mrs Leung, Violet, Henry and also a Ms. Lam, who was the nurse of Amy’s dental clinic, gave evidence at the trial. The Judge found Mr and Mrs Leung and Violet to be honest witnesses and accepted their evidence. In the case of Henry, the Judge found he tended to exaggerate or embellish his evidence, and did not accept his evidence. The Judge also did not find Ms Lam’s evidence credible. 19.For the analysis and reasons given in [146] to [153] of the Judgment, the Judge made the following finding of facts at [154] of the Judgment:
20.On the basis of his findings, the Judge gave judgment for Mr and Mrs Leung as claimed. E. Grounds of appeal 21.The defendant advanced three grounds of appeal as follows:
F. Reasons for judgment F.1 Ground (1): The Assignment Issue 22.On the Assignment Issue, the defendant’s argument is that: (i) the assignment from Jonnex to Amy on the face of it was not limited to a transfer of just the legal interest in the 17th Floor Property and it was also not a gratuitous transfer; and (ii) the assignment taken together with two parts of Mrs Leung’s evidence in cross-examination should lead to a finding that the transfer was a gift to Amy by her parents. 23.I set out firstly the two parts of Mrs Leung’s evidence relied on by the defendant for the Assignment Issue, which also underpin the defendant’s arguments under the other grounds of appeal (Transcript at p.142, lines M-U and p.146, lines M-U):
24.The Judge had summarised Mrs Leung’s evidence on the intention underlying the transfer of the 17th Floor Property in the following terms (at [83] and [84] of the Judgment):
25.On this issue, apart from the evidence of Mrs Leung, there is also the evidence of Mr Leung and Violet, whom the Judge found to be honest and truthful and whose evidence was accepted by him. Mr Leung’s evidence on the transfer, as summarised by the Judge (at [52] and [53]), is that:
26.As for Violet, she testified that her parents had told her and Amy that the properties were transferred to them to hold on trust, which she understood to mean she and her sister were to hold the properties for their parents, that the properties were owned by her parents but they would be held in their names (see [86] of the Judgement). It is also her evidence that she had asked her parents why they were making the transfer, and was told it was because they wanted to close down Jonnex and had been told it was better for the properties to be held in the daughters’ names. 27.The Judge found it was understandable that Mr and Mrs Leung caused the Thyrse House properties to be transferred to their daughters to be held on trust for them, noting that this was similar to what was done in relation to the Australian properties and also because they were elderly and eventually upon their death the properties would go to their daughters. The Judge also found as a fact that Mr and Mrs Leung had discussed the matter with, and explained to their daughters, that they were to hold the properties for them just as was previously done in relation to the Australian properties. In conclusion, the Judge held that “Mr and Mrs Leung transferred the two properties into their daughters’ names also because they were elderly and in the event of their death the properties would go directly to them while in the meantime retaining the beneficial ownership in them.” (emphasis added, at [150], see also [154(4)]) 28.These are findings of fact that the Judge was entitled to make, after considering all the evidence before him. Mr Ismail, who appeared for the defendant, accepted this when he indicated that the defendant did not seek to challenge the Judge’s findings. What he sought to argue was that Mrs Leung’s reference to estate duty and her evidence that the property would have been given to Amy eventually constituted a powerful factor that tipped the balance in favour of a gift, rather than a trust, such that the Judge should have inferred or found that Mr and Mrs Leung intended to make an absolute gift of the 17th Floor Property to Amy. I am unable to accept this submission, which effectively called into question the weight that the Judge placed on the evidence. 29.While Mrs Leung had referred to estate duty and mentioned that she and her husband were elderly and the property would have gone to Amy when they passed away, it is also her repeated evidence that they wanted to retain the beneficial interest and the control of the property during their joint lifetime. Significantly, too, it is her evidence that in the event of her husband’s death, the property would still be owned by her. There is further the evidence of Mr Leung and Violet that it had been discussed and made clear that the Thyrse House properties were transferred to Amy and Violet only for them to hold for their parents. The weight to be placed on the evidence and the drawing of inferences from the evidence were matters for the trial judge. In the light of the clear evidence given by Mr Leung and Violet and the Judge’s findings of fact (see [27] above), it must be open to the Judge to conclude that Mr and Mrs Leung did not intend to make a gift to Amy and that they intended to retain the beneficial interest in the 17th Floor Property and to have the property held by Amy on trust for them. There is no room to disturb the Judge’s conclusion. 30.Returning to the assignment, Mr Ismail submitted that the document, on the face of it, was not qualified in any way and appeared to be a transfer of both the legal and beneficial interest in the property. It was also said that under the assignment, the transfer was for a stated consideration of $1.88 million and was therefore not a gratuitous transfer. It was further pointed out that no declaration of trust had been executed by Amy, even though their parents, especially Mr Leung, were experienced in property investment. 31.It is correct that the assignment was silent on the transfer of beneficial interest and no declaration of trust was made. This, however, will not prevent a resulting trust from arising. As observed in Ip Man Shan Henry v. Ching Hing Construction Co Ltd [2003] 1 HKC 256, at [140], where the document did not contain a declaration of trust concerning the beneficial interest, “the way is open for persons claiming a beneficial interest to rely on resulting, implied or constructive trusts” (see also Lewin on Trusts (19th edition) at p.290. 32.In this connection, it should be noted that the assignment was between Jonnex and Amy, and the purchase price and conveyancing expenses were all paid by Mr and Mrs Leung. Mr Coleman SC, who appeared with Miss Chan for the plaintiffs, argued, and I agree, that the effect of Mr and Mrs Leung providing for the whole of the purchase price was to enable them to acquire immediate beneficial interest in the property. Prior to the execution of the assignment, even though Mr and Mrs Leung were the shareholders of Jonnex, they did not have beneficial interest in the property. The Judge’s finding is that the assignment was executed with the understanding between Mr and Mrs Leung and Amy that the beneficial interest was to be retained by Mr and Mrs Leung (at [150] of the Judgment). 33.In the circumstances, the assignment on its own was not capable of contradicting Mr and Mrs Leung’s and Violet’s evidence that the beneficial interest in the 17th Floor Property has always been vested with Mr and Mrs Leung. Further, it cannot be said that taking the assignment together with the part of Mrs Leung’s evidence cited in [23] above, the Judge should have inferred that Mr and Mrs Leung intended to make an absolute gift of the property to Amy. 34.This ground therefore fails. F.2 Ground (2): The Illegality Issue 35.The defendant’s argument on the Illegality Issue is that if the transfer of the 17th Floor Property from Jonnex to Amy was not a gift, then it was made for the purpose of avoiding estate duty and deceiving the Commissioner for Estate Duty, and was as such against public policy to declare that Amy held the property on trust for her parents. 36.The plaintiff’s Respondent Notice raised the following grounds in answer to the Illegality Issue:
37.The argument on illegality faced a number of difficulties, including the objections taken in the Respondent’s Notice. Foremost is the lack of proper evidential basis. The argument was premised upon the two answers Mrs Leung gave under cross-examination (Transcript p.142 lines M-T and p. 146 lines M-T, see the underlined parts in [23] above). It is, however, far from clear from these answers that Mrs Leung was giving estate duty avoidance as a reason or consideration for registering the Thyrse House properties in Amy’s and Violet’s name. Indeed, this was not how the Judge understood or read the answers. It is significant that there was no finding that estate duty avoidance was a reason for Mr and/or Mrs Leung to transfer the 17th Floor Property from Jonnex to Amy. 38.Mr Ismail relied on paragraph 84 of the Judgment (see [24] above), but that was only a recounting of the gist of Mrs Leung’s evidence; it was not the finding of the Judge. What the Judge held was that (at [149]): “It is perfectly understandable that [Mr and Mrs Leung] would transfer the two properties to their daughters given that they had entered into a similar arrangement with respect to the properties in Australia and that they were elderly and eventually upon their death the properties would go to their daughters. … As explained by Mr Leung he had previously entered into this arrangement with his daughters and there was no need to put it in “black and white” as it was within the family.” 39.Mr Ismail also argued that the Judge mentioned estate planning when he interrupted defendant’s trial counsel’s questions (see [23] above), and also referred to estate duty avoidance in the Judgment when recounting Mrs Leung’s evidence. It was submitted that as the Judge had accepted Mrs Leung’s evidence without expressly rejecting this part of her evidence, he must have accepted avoidance of estate duty as a reason for the transfer to Amy. I am unable to accept these arguments. It is important not to read too much into what the Judge said in the course of the trial. When the Judge interrupted counsel and mentioned “estate planning”, he was, in the context, just repeating the term used by the defendant’s trial counsel; he was not adopting or agreeing with counsel’s suggestion that there had been estate planning. Likewise, paragraph 84 of the Judgment must be read in its proper context. There the Judge was only paraphrasing Mrs Leung’s evidence. His findings on the reason and purpose of the transfer were set out in another part of the Judgment. 40.What is of significance is that Mr Leung, who was actively involved in property investment and in making the transfer arrangement, had said nothing about estate duty consideration despite being questioned at length on the reasons for registering the Thyrse House properties in the daughters’ names. He gave clear answers on the reason for transferring them to Amy and Violet. There is also the unequivocal evidence of Violet on what she was told and given to understand by her parents about the arrangement and the underlying reason. Like her father, she made no reference to estate duty avoidance. There is also no evidence of Mr and Mrs Leung having taken advice on estate duty. 41.On the Judge’s findings, estate duty was not a reason or consideration for the transfer of the 17th Floor Property from Jonnex to Amy. This Court is bound by the findings of the Judge. As such, the illegality argument simply could not get off the ground. 42.Secondly, illegality or estate duty avoidance was not a pleaded issue. It was never explored with Mr Leung. While it is true that he gave evidence before Mrs Leung did, he should have been recalled and cross-examined on the estate duty issue if the illegality point was to be properly run. Neither was Violet, who gave evidence after Mrs Leung, cross-examined on it. Again, if the point of illegality was to be pursued, it should have been put to Violet. Furthermore, the issue of estate duty avoidance and its effect had not been addressed in the closing speeches. The illegality issue is thus a new point raised for the first time on appeal. 43.Mr Ismail argued that the Judge should, and was bound to, take the point, relying on Yim Bo Ying v. Ching Iu Warm [1985] HKLR 354, Keng Soon Finance Berhad v. M K Retnam Holdings Sdn Bhd & Anor [1989] 1 MLJ 457 (Privy Council) and Les Laboratoires Servier & Anor v. Apotex Inc & Ors [2014] UKSC 55, [2014] 3 WLR 1257. 44.In Yim Bo Ling, the defendant, who counterclaimed for a declaration of resulting trust of a property registered in the plaintiff’s name, disclosed in his pleading and evidence that the sole purpose of placing the property in the plaintiff’s name was to avoid stamp duty (at 356G-1 and 363F-H). On appeal against the order granting the declaration of resulting trust in favour of the defendant, the plaintiff was given leave to argue a new point that it was against public policy to allow the presumption of resulting trust to arise. In allowing the appeal on this new point, Fuad JA (as he then was) referred to the defendant’s explanation that the transfer was to deceive the Collector of Stamp Revenue, and following what was held by Lord Denning in Chettiar v. Chettiar [1962] AC 294, at 302, said (at 364B): “Once this disclosure was made … the courts were bound to take notice of it, even though [the plaintiff] had not pleaded it.” 45.Keng Soon Finance Berhad was an appeal by a chargee against the refusal of an order for the sale of the land charged. The intervener, who had purchased the land from the charger, sought to raise, for the first time, a question of illegality in respect of the charge. While pointing out that very exceptional circumstances must be shown before a new point is permitted to be raised on appeal, the Privy Council gave leave to the intervener to raise the illegality point, principally because “the point is a substantial one which raises directly the question of the legality of the charge” and “there is clearly a substantial issue of fact which may have a material bearing upon the matter”. 46.Les Laboratoires Servier concerns the defence of illegality in an inquiry into damages on a cross-undertaking given for an interlocutory injunction that was discharged following the dismissal of the claim. In discussing the question of what constitutes turpitude for the purpose of the defence, Lord Sumption said (at [23]) that: “The illegality defence, where it arises, arises in the public interest, irrespective of the interests or rights of the parties. It is because the public has its own interest in conduct giving rise to the illegality defence that the judge may be bound to take the point of his own motion, contrary to the ordinary principle in adversarial litigation.” 47.These authorities do not assist the defendant. On the Judge’s findings, estate duty avoidance was not a purpose for the transfer of the 17th Floor Property to Amy. The illegality asserted by the defendant does not of necessity form part of the plaintiffs’ case. Moreover, unlike Yim Bo Ling, the facts do not give rise to the contention that the Court is bound to take the point of illegality of its own motion. In the absence of solid supporting evidence and considering the overall circumstances of this case, it cannot be said that the point is a substantial one such that the defendant should be permitted to raise it for the first time on appeal. One may rhetorically ask: why was the illegality point overlooked at the trial if it was a substantial point? In short, the principle in Flywin Co Ltd v. Strong & Associate Ltd (2002) 5 HKCFAR 356, at 369B-D applies and the defendant is precluded from raising the illegality point on appeal. 48.Thirdly, even if there was a finding that the intention of Mrs Leung was to avoid estate duty, this purpose was not carried into effect since Amy pre-deceased her parents, and estate duty was abolished for deaths on or after 11 February 2006. There is thus no prospect of the illegal purpose of avoiding estate duty being achieved. In fact, the purpose could not have been achieved since, in law, by retaining the beneficial interest in the Thryse House properties, the estates of Mr and Mrs Leung would still be liable to estate duty: Commissioner of Estate Duty v. Tse Hong Hung [1991] 2 HKLR 30 at 33. 49.The authorities have established that a transferor could recover property under the doctrine of resulting trust if he could do so without reliance on the illegal purpose, such as where the illegal purpose had not been carried out or where the authority is not deceived: Tribe v. Tribe [1996] Ch 107, at 121 and 124EF-G; Tinsley v. Milligan [1994] 1 AC 340, 366C-G and 370C-D; and Cheerbond Development Ltd v. Tung Kwok Yu [2010] 2 HKLRD 546 at [9]. 50.Mr Ismail argued that there was no need for the illegal purpose to be carried into effect or there being a prospect of the illegal purpose being achieved, and that it sufficed that the purpose was dishonest. He placed reliance on Lord Sumption’s judgment in Les Laboratoires Servier at [15], [25] and [28]. I cannot agree that those passages can be read in the way suggested. In [15], Lord Sumption was referring to the issue in Tinsley v. Milligan when His Lordship said “The question was whether the assertion of this interest in a court of law was debarred by the dishonesty of the parties’ purpose.” And in [25] and [28], the discussion was on what might constitute turpitude. It was pointed out that, other than criminal acts, there is an additional category of non-criminal or quasi-criminal acts that engages the public interest, which is the foundation of the illegality defence. It was said that cases of dishonesty or corruption would fall within this category whereas civil wrongs which offend against interests that are essentially private would not constitute turpitude. 51.I also do not accept the argument that the execution of the assignment amounted to partial implementation of the illegal purpose, and that Mr and Mrs Leung had relied on the illegality, such that it would not have been open to them to rely on the exception to the primary rule of the illegality doctrine. The argument is not supported by the authorities: see for instance, the discussion in Tribe v. Tribe at 120H to 121G. Even assuming estate duty avoidance was the purpose of the transfer to Amy, on the evidence before the Court, the Commissioner has not been deceived and the illegal purpose has not been carried into effect. There is nothing to prevent the application of the exception. 52.For the reasons set out above, the Illegality Issue also fails. F3. Ground (3): The Approach to Evidence Issue 53.The defendant’s complaints under this issue are twofold. First, it is said that the Judge should have found the plaintiff’s retention of the title deeds of the Thryse House properties to be insignificant since it is only one of the many factors to be considered. Second, it is said that the Judge should not have placed reliance on the fact that Amy and Violet held the Australian properties on trust for their parents because the arrangement were made under different circumstances when the sisters were then students and not married. 54.An important plank in the defendant’s arguments in respect of both of the complaints is paragraph 84 of the Judgment (see [24] above). It was argued that the Judge had failed to consider the retention of the title deed and the previous arrangement with the Australian properties in the light of Mrs Leung’s evidence that the Thyrse House properties were long term investments which would be passed to the daughters after she and her husband passed away, and that they were elderly and the arrangement would avoid estate duty. 55.I have, in discussing the first two grounds of appeal, pointed out that paragraph 84 of the Judgment was only a recounting of Mrs Leung’s evidence and not the Judge’s finding on the reason and purpose for registering the Thyrse House properties in the name of Amy and Violet. Much of the force of this ground of appeal thus falls away. It is therefore only necessary to briefly deal with the two pieces of evidence that the Judge was said to have approached incorrectly. 56.In respect of Mr and Mrs Leung’s retention of the title deeds of the Thyrse House properties, Mr Ismail did not dispute that the Judge was entitled to have regard to it when considering whether the 17th Floor Property was gifted to Amy or held by her on trust. Indeed, retention of the title deeds is a significant piece of evidence that can go to show that the keeper of the title deeds is the beneficial owner: see Ip Man Shan Henry v. Ching Hing Construction Co Ltd, supra. The defendant’s complaint on this point is effectively a challenge to the weight the Judge attached to the retention of title deeds by Mr and Mrs Leung. It is, however, trite that what weight to put on a piece of evidence is a matter for the Judge. Unless he is shown to be plainly wrong in his approach to the evidence, there is no room for the appellate court to interfere. 57.As to the fact that Amy and Violet held the Australian properties on trust for their parents, this was referred to for three reasons. First, it was to explain why Amy and Violet were not asked to make a formal declaration of trust ([149] of the Judgment). Second, it was part of Mr and Mrs Leung’s explanation to their daughters on why the two Thyrse House properties were registered in their names ([150] of the Judgment). Third, it was to counter Henry’s case that Mr Leung was showering Amy with gifts ([147] of the Judgment). That the arrangement of the Australian properties is a relevant piece of evidence to be taken into account by the Judge cannot be seriously doubted, given that Henry also used this as an example of gifts made by Mr and Mrs Leung to their daughters. The fact that Amy and Violet were students and unmarried when the Australian properties were registered in their names is but one of the many pieces of evidence to be considered by the Judge. Evaluation and weighing up of evidence are matters for the Judge. No valid basis has been put forward to support the argument that the Judge erred in placing reliance on the fact that the Australian properties were held by Amy and Violet on trust for their parents. 58.In short, Ground (3) is not made out. 59.For the reasons set out above, I consider there are no merits in the appeal. G. Decision on costs of the appeal G1. Costs of the action 60.In the Judgment, the Judge made an order nisi that each party bear their own costs of the proceedings below. On 20 August 2014, the plaintiffs issued a summons applying to vary the costs order nisi so that costs would follow event and be paid personally by Henry. By a consent order dated 23 September 2014, the application was adjourned sine die with liberty to restore pending the outcome of this appeal. 61.After the dismissal of this appeal at the hearing, the plaintiffs’ solicitors applied to the Judge by letter dated 8 October 2015 to restore the variation application for hearing together with an intended application to join Henry to the action for the purpose of costs. The Judge granted the application on 13 October 2015. The summons for joining Henry in the action was eventually taken out on 10 November 2015, and was heard together with the variation application. 62.By his decision handed down on 26 February 2016, the Judge ordered that Henry be joined as a party in the action, and varied the costs order nisi to an order that Henry pays 20% of the plaintiffs’ costs of the action, to be taxed if not agreed. The Judge made no order as to the costs of the plaintiffs’ two summonses. G2. The plaintiffs’ costs application at the appeal hearing 63.In the hearing before us, after we dismissed the appeal, Mr Coleman asked for costs of the appeal to be taxed on a higher scale with certificate for two counsel. He also asked the court to order that the costs be paid by Henry personally, instead of against the Estate. Mr Ismail accepted that costs should follow event and did not oppose a certificate for two counsel. He, however, submitted that it was inappropriate to order costs against Henry personally. He also opposed costs being awarded on a higher basis. 64.Upon the Court’s enquiry as to whether it was within the Court’s power and discretion to order costs against Henry personally, counsel asked for time to consider. When the hearing resumed, Mr Coleman referred to Order 62 rule 6A of the Rules of the High Court, Cap. 4A, which requires that a non-party must first be joined to the proceedings for the purpose of costs only before the Court can make a costs order against him. Mr Coleman acknowledged that Henry was not a party in the proceedings and accepted that, as there was no application to join Henry in this appeal, he was “constrained simply to ask for the costs … in this appeal in the usual way”[1]. 65.It was in these circumstances that we reserved the decision on costs. The only issue that was outstanding was whether costs should be awarded on a higher basis. G3. The plaintiffs’ summons for a non-party costs order against Henry 66.However, after the Judge handed down the decision of 26 February 2016, the plaintiff’s solicitors wrote to the court on 11 March 2016. The letter began by stating:
It then referred to the Judge’s costs order given on 26 February 2016, and went on to say:
The letter concluded by seeking directions on (i) whether a separate summons should be issued for the argument on costs; (ii) the filing of submissions; and (iii) whether the submissions should cover additional points that parties wished to make regarding costs between the plaintiffs and the Estate. 67.Plainly, the letter was factually incorrect in two respects. First, this Court did not reserve the decision on costs to await the outcome of the joinder and variation applications in the action below. Second, the application for a personal costs order against Henry had been abandoned. The plaintiffs’ leading counsel did not, as the letter suggested, indicate that an application would be made to make Henry personally liable for the costs of the appeal. 68.In the reply dated 1 April 2016, the Court pointed out the correct position, and stated that, if in the light of what actually happened at the appeal hearing, the plaintiffs nevertheless wished to pursue costs against Henry, a summons should be taken out. 69.Nearly two months later on 30 May 2016, the plaintiffs issued a summons applying for orders that: (1) Henry be joined as the 2nd defendant to this appeal for the purpose of costs; and (2) Henry pays the plaintiffs their costs of the appeal with certificate for two counsel and all costs reserved and the costs of and incidental to the application on indemnity basis, to be taxed if not agreed. 70.Pursuant to the Court’s directions, the plaintiffs and Henry had lodged written submissions on the summons. After Henry submitted his written submission, the plaintiffs filed, without leave from the Court, an affirmation of their solicitor to address Henry’s complaints that the applications were a misuse of Order 62 rule 6A and were extremely late. This led Henry to file a reply affirmation made by his solicitor to deal with the first part of the plaintiffs’ solicitor’s affirmation regarding the representation of the Estate, while maintaining objection to the admission of the rest of the plaintiffs’ affirmation dealing with the delay in making the joinder application. G4. Applicable principles on non-party costs order applications 71.Under section 52A(2) of the High Court Ordinance, Cap. 4, the court may, in accordance with the rules of court, make an order awarding costs against a non-party if the court is satisfied that it is in the interests of justice to do so. Order 62 rule 6A of the Rules of the High Court provides that where the court is considering whether to make a costs order against a non-party, that person must be joined as a party for the purposes of costs only and that person must be given reasonable opportunity to attend a hearing at which the court shall consider the matter further. While Order 62 rule 6A contemplates a two-stage process, the submissions lodged by the plaintiffs and Henry have addressed both stages. There is also no objection to the two stages being considered together. 72.The court’s approach to the two stages was discussed in Sun Focus Investment Ltd v. Tang Shing Bor [2012] 5 HKLRD 853. After reviewing the relevant authorities[2], M Chan J concluded at [19], and I respectfully agree, that at the first stage when the court is considering whether to join a non-party, the court should refuse the joinder only if it is plain and obvious that the application amounts to an abuse of process, by reason of delay or other misconduct on the part of the applicant, or because the application can be seen to be manifestly and fundamentally misconceived so as to be an abuse by the applicant. And at the second stage, the court will consider whether the costs order should be made against the non-party, when the overall consideration will always be whether it would be in the interests of justice to do so. 73.In Metalloy Supplies Ltd v. M A (UK) Ltd [1997] 1 WLR 1613 at 1620B-E, Millett LJ referred to two situations where it would be appropriate to make a non-party costs order. The first is where the third party is considered to be the real party interested in the outcome of the suit. The second is where the third party has been responsible for bringing the proceedings and they have been brought in bad faith or for an ulterior purpose or there is some other conduct on his part which makes it just and reasonable to make the order against him. His Lordship went on to observe that in the case of a director, it is not sufficient that he caused the company to bring or defend proceedings which he funded and which ultimately failed, and that where such proceedings are brought bona fide and for the benefit of the company, the company is the real party. It was further pointed out that the position of a liquidator is a fortiori, and that:
74.In Dymocks Franchise Systems (NSW) Pty Ltd v. Todd & Ors [2004] 1 WLR 2807 at [25] and [29], the Privy Council considered the principles by which the discretion to order non-party costs is to be exercised and summarised the position as follows:
G5. The arguments on the plaintiffs’ summons 75.Miss Chan, who had the conduct of the plaintiffs’ summons, argued that Henry should be joined for the purpose of costs and be ordered to pay the plaintiff’s costs of the appeal because he funded the litigation, controlled the litigation and also stood to benefit from the litigation. 76.Henry opposed both the joinder application and the personal costs order application. Mr Tang for Henry argued that both applications should be refused because it was a misuse of Order 62 rule 6A, and the applications were unfair, extremely late and abusive. G6. Decision on the plaintiffs’ summons 77.I begin with Mr Tang’s arguments. His first argument is that the plaintiffs’ present applications are necessitated by their failure to follow the mandatory requirements of Order 15 rule 6A(4), and are therefore a misuse of Order 62 rule 6A in that it is an attempt to cure a procedural defect. 78.Under Order 15 rule 6A(4)(a), in an action brought against a deceased’s estate of which no grant of probate or administration has been made, the plaintiff shall, during the period of validity for service of the writ or originating summons, apply for an order appointing a person to represent the estate for the purpose of the proceedings, and for an order that the proceedings be carried on against the person so appointed as if he had been substituted for the estate. Rule 6A(4)(b) further enables the court to make the representation order and the order to carry on proceedings at any stage of the proceedings whether on own motion or upon application. 79.In the present case, after the plaintiffs issued the originating summons naming the Estate as the defendant, their solicitors wrote to Henry’s solicitors indicating they were contemplating applying under Order 15 rule 15 for directions regarding the representation of the Estate, and asked whether Henry would agree to act as the Estate’s representative in the action.[3] Henry’s solicitors replied that Henry intended to act as the representative of the Estate in the action, and asked for clarification on what were the directions to be sought under Order 15 rule 15.[4] After the plaintiffs’ solicitors provided the proposed directions[5], Henry, through his solicitors, consented to act as the representative of the Estate for the purpose limited to the conduct and defence of the action, and asked that a draft consent summons be sent for approval[6]. 80.The draft consent summons provided by the plaintiffs’ solicitors[7] asked for orders that: (i) pursuant to Order 15 rule 15 Henry be appointed as the representative of the Estate for the purpose limited to the conduct and defence of the action; (ii) costs incurred by Henry in the conduct and defence of the action be paid out of the Estate; and (iii) the plaintiffs’ be given leave to amend the name of the defendant to reflect the representation order. 81.The consent summons was not signed. According to the plaintiffs’ solicitor, he had a telephone conversation with Henry’s solicitor who told him that Henry’s counsel considered it was unnecessary to obtain directions from the court since the parties were in agreement on the representation of the Estate. Henry’s solicitor, however, said in his affirmation that he had no recollection nor record of the conversation. It is not necessary to resolve this issue because whatever may have been the cause of the consent summons not being signed and filed with the Court, it is immaterial for reason that will become apparent from the discussion below (see [84] below). 82.There is no dispute that the plaintiffs have not complied with the requirement under Order 15 rule 6A(4). Mr Tang’s argument is that as a result of the plaintiffs’ failure to obtain an order appointing Henry to represent the Estate and an order to carry on proceedings, Henry was, until the joinder order made by the Judge, not a party in the action, and he is not a party in this appeal. Consequently, the plaintiffs are driven to seek a non-party costs order under Order 62 rule 6A in this appeal to get round the problem and in order that they may seek costs from Henry. Mr Tang submits that this is a misuse of the non-party costs regime which is designed to assist a party who, due to the nature of the case (usually insolvency of the opposing party), has difficulties enforcing costs orders against the opposing party and also non-parties deserving to be liable, and not for curing procedural defects and short-circuiting established means of dealing with costs in representative actions. 83.In reply, Miss Chan criticised Henry for refusing to sign the consent summons, and argued that Henry had acted and was treated as the representative of the Estate in the conduct and defence of the action. It was said that Henry should have applied under Order 15 rule 15 and/or rule 6A(4) before accepting service. Alternatively, it was argued that Henry could have been treated as participating in the proceedings in his personal capacity of a beneficiary. It was further submitted that the non-compliance with Order 15 rule 6A(4) is a curable irregularity, which Henry had waived by taking no action to set aside the proceedings and by keeping the complaint up his sleeve for future use. 84.In my view, these arguments are misplaced. Firstly, the plaintiffs’ solicitors were clearly mistaken in contemplating and initiating a joint application under Order 15 rule 15. The rule deals with representation of a deceased person interested in proceedings that have already commenced. It has no application to the present case where the Estate was already made a defendant, and is a party, in the action. The rule that is applicable is Order 15 rule 6A(4), and its requirement is mandatory as far as the plaintiffs are concerned. Apart from the erroneous reference to Order 15 rule 15 in the marginal note, a further defect in the draft consent summons is the omission of an order for the action to be carried on against Henry as the person appointed to represent the Estate as if he had been substituted for the Estate. In any event, the consent summons is unnecessary. Since there is no other defendant in the action and given that Henry had through his solicitors consented in writing to represent the Estate, the plaintiffs could have simply applied ex parte to appoint Henry to represent the Estate and for an order to carry on the proceedings: Hong Kong Civil Procedure 2019 Vol. 1 §15/6A/5. In short, the fact that Henry did not sign the consent summons is of no consequence and is not the cause of the non-compliance with Order 15 rule 6A(4) and the consequential difficulty faced by the plaintiffs in pursuing costs against Henry personally. 85.Secondly, while the plaintiffs must make an application under Order 15 rule 6A(4) timeously, neither Henry nor the Estate is under a duty to make the application. Rule 6A(4)(a) provides that the plaintiff “shall”, whereas the defendant and the person interested in the deceased’s estate “may” make the application. Further, the primary responsibility to ensure that the proceedings are properly constituted must rest with the plaintiffs, who have the carriage of the proceedings. Accordingly, the argument that Henry, having accepted service and taken steps in the action, should have made the application to clarify the position, cannot stand. 86.Thirdly, the fact that Henry has conducted the defence of the action on behalf of the Estate and initiated this appeal in the Estate’s name is beside the point. The fact remains that the plaintiffs have yet to obtain an order under Order 15 rule 6A(4). Likewise, the fact that Henry is a beneficiary of the Estate and could have made the application under Order 15 rule 6A(4) as a person interested in the Estate is also irrelevant. I also do not accept there is a proper basis to treat Henry as participating in the proceedings in his capacity as a beneficiary of the Estate. It is common ground that with the plaintiffs’ agreement, Henry has acted as the personal representative of the Estate for the purpose of the conduct and defence of the action.[8] 87.Fourthly, whether the plaintiffs’ non-compliance with Order 15 rule 6A(4) is a curable irregularity or will render the proceedings a nullity, and the argument that Henry has waived the irregularity and is estopped from relying on the irregularity are not pertinent to the present discussion. I do not read Mr Tang’s submission as seeking to challenge the validity of the outcome of the proceedings. The core point of his argument is that the plaintiffs should have obtained an order under Order 15 rule 6A(4). Their failure to comply with the rule not only results in a procedural defect, but also results in Henry not being a party in this appeal such that it is not open to the plaintiffs to seek costs against him personally. The plaintiffs’ present Order 62 rule 6A application is to overcome this self-created difficulty. This analysis is clearly correct. There is also force in the submission that the present application is unlike the bulk of Order 62 rule 6A applications where the applying party has no other avenue of pursuing costs against the non-party. Here, had the plaintiffs complied with Order 15 rule 6A(4), they would not have to make the present application. 88.This brings me to Mr Tang’s second argument that the application was extremely late with no attempt made to warn Henry of the intention to seek costs against him personally at the earliest opportunity. There can be no doubt that the joinder was applied for at a very late stage in this appeal. It was made after the appeal was dismissed and the arguments on costs had been heard, and after the Court had retired to consider its decision on the arguments. It can also be seen from sections G1 and G2 above that it was only upon the Court’s enquiry that it occurred to the plaintiffs’ legal advisers that a joinder application had to be made before the plaintiffs could seek costs against Henry personally. However, despite a joinder application being issued in the action below, no joinder application was made in the appeal until after the Judge had ordered Henry to pay 20% of the plaintiffs’ costs of the action. This is a much delayed application, for which there does not appear to be any valid explanation. 89.In answer to the argument on delay, Ms Chan relied on Chiu Tak Kwong v. Tan Yufang [2010] 5 HKLRD 718 in which a non-party costs order was made after trial on the judge’s own motion. While the case does show that a non-party costs order may be made at any stage of the proceedings, the circumstances of that case are very different to the present case. In that case, the plaintiff, who was one of the parties to a family settlement agreement, sued on the validity of the agreement. The evidence at the trial revealed that the plaintiff’s siblings, who were also parties to the agreement and supported the plaintiff and had given evidence for him, had been given notice of the proceedings but they did not apply to be joined in the action or acknowledge service of the writ in order to avoid being made liable for the costs should the plaintiff’s claim fail, though they would stand to gain if the plaintiff succeeded. In the premises, the earliest time that the court could consider a non-party costs order would be at the time of the delivery of the judgment. Here, it was due to the failure of the plaintiffs to observe the requirement under Order 15 rule 6A(4) that Henry has not become a party in this appeal, and the non-party costs application could have been avoided or the joinder could have been sought much earlier on in the proceedings. It is also to be noted that the siblings in Chiu Tak Kwong were ordered to be liable for the defendant’s costs jointly and severally with (not in lieu of) the plaintiff, who was legally aided. 90.In addition to delay, Mr Tang also complained that no timeous warning of the intention to apply for a non-party costs order had been given to Henry. In Symphony Group Plc v. Hodgson [1994] QB 179 at 192H to 193C, it was held that material considerations in dealing with a non-party costs order application include, inter alia, (1) an order for the payment of costs by a non-party is exceptional and should be approached with caution; (2) it will be even more exceptional for such an order to be made where the applicant has a cause of action against the non-party and could have joined him as a party to the proceedings; and (3) even if there is a good reason for not joining the non-party against whom he has a valid cause of action, the applicant should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. 91.In reply, Ms Chan contended that warnings had been given by the plaintiffs’ leading counsel during the argument on costs at the appeal hearing, and also by the plaintiffs’ solicitors’ letter issued on the same day. The submission that warning had been given at the appeal hearing cannot stand given that the application for costs against Henry personally was abandoned and there was no indication from counsel that an application would be made subsequently to join Henry to this appeal for the purpose of costs. Even if counsel did indicate that a joinder application would be made, it would serve no useful purpose as by then the appeal was effectively concluded. Likewise, the solicitors’ letter to Henry, issued after the appeal hearing had concluded, could not have served any useful purpose. 92.An important purpose of a timeous warning to the non-party is to alert him to the risks of being personally liable for the legal costs so that he may give due consideration to whether to play, or continue to play, a role in the proceedings and, if so, the extent of it, before taking any or any further step in the proceedings. The need and the importance of a timeous warning is not abated by the fact that this appeal was brought by the Estate, represented effectively by Henry. In this connection, it is relevant to note that the plaintiffs had applied for security for costs against the Estate leading to an order by consent, pursuant to which[9] Henry had procured $630,000 to be paid into court as security for the plaintiffs’ costs of the appeal. 93.Having regard to the matters discussed above, including the plaintiffs’ non-compliance with the Rules which necessitated the non-party costs application and very late application, I am of the view that it would not be just and appropriate to grant the joinder at this very late stage of the proceedings. This being the case, it would not be necessary to proceed to the second stage to consider the exercise of discretion. However, in deference to counsel’s submissions, I would make some brief observations. 94.On the facts of this case, it is not really in dispute that funds for contesting the claim and appealing the Judge’s decision, and the instructions on the conduct of the proceedings, would have come from Henry. It is also correct to say that, as one of the beneficiaries of the Estate, Henry stands to gain financially from the litigation if the claim and the appeal were determined in the Estate’s favour. Against all these, however, three matters are of relevance and should also be taken into account in deciding on the exercise of the discretion. 95.The first is that Henry, with the plaintiffs’ consent, has assumed the role of the personal representative of the Estate in these proceedings. He is thus under a duty to act to preserve the assets of the Estate. The duty is made more onerous by the fact that the other beneficiary is a minor. He comes under a duty to safeguard the minor’s interest, and to be vigilant and cautious about any claim that is adverse to the interest of the Estate. As the Judge pointed out in his decision on costs, on the facts of this case, whether the 17th Floor Property was gifted to Amy by her parents was a legitimate issue, and there were aspects in the case that rendered the litigation inevitable (see [55], [58] and [59] of the Judgment). Hence, to contend that Henry should have just required the plaintiffs to prove their case is to overlook the duty of a personal representative and also the presence of minor’s interest in the Estate. 96.Secondly, it is true that the decision to appeal was made by Henry on behalf of the Estate, and that when making the decision to appeal he had the benefit of the Judge’s findings on the issues in dispute and the reasons for his decision. It is also true that the grounds of appeal and the arguments advanced on behalf of the Estate have been rejected by this Court. However, in considering whether there is conduct on the part of Henry that makes it just and reasonable to order costs against him personally, it is relevant to take into account the fact that the Estate was legally represented in the appeal. Unless the contrary is shown or can be inferred, the Court has to proceed on the basis that the decision to appeal was taken, and the grounds of appeal and arguments were put forward, on the basis of proper legal advice. 97.Thirdly, Henry, as a beneficiary of the Estate, undoubtedly has an interest in the outcome of the litigation. He is not a pure funder. However, in the circumstances of this case, this alone may not be sufficient to lead to the conclusion that he should be regarded as the real party interested in the outcome of the litigation. As mentioned above, there is another beneficiary who also has an interest in the outcome of the litigation. Further and importantly too, in assuming the role of the personal representative of the Estate in these proceedings, Henry has a duty to protect the Estate and the interest of the minor beneficiary. In my view, unless it can be safely concluded that Henry has acted unreasonably and solely out of consideration for his own interest in the pursuit and prosecution of the appeal, the Court should be slow to come to the view that he should be considered as the real party. On the materials available to the Court and having regard to what was said in the preceding paragraph, I would not be prepared to come to such a view. 98.In conclusion, for the reasons set out above, I would dismiss the plaintiffs’ summons. Applying the normal rule of costs follow event, I would order that the costs of the plaintiffs’ summons be paid by the plaintiffs to Henry, to be taxed if not agreed. G7. Decision on the application for indemnity costs 99.I turn next to deal with the remaining application for the plaintiffs’ costs to be awarded on indemnity basis. As noted above, Mr Ismail for the Estate did not oppose to costs following the event and a certificate for two counsel. 100.The plaintiffs’ application for indemnity costs is made on the ground that the appeal was totally without merits, being brought on flimsy grounds and based on a misreading of the evidence. 101.In opposing the application, Mr Ismail argued that a higher costs order would adversely affect the minor’s interest in the Estate. He relied on the observations of the Judge at [155] and [156] of the Judgment when making no order as to costs between the plaintiffs and the Estate. The Judge noted that the litigation was a family dispute and it has further strained the relationship between Mr and Mrs Leung and Henry, which he hoped would improve for the sake of Angel and out of respect for Amy. The Judge further considered that as Angel is one of the two beneficiaries of the Estate, and having regard to the circumstances of the case, he would not wish the financial burden of the plaintiffs’ costs to fall on the Estate. 102.I accept that the Court should consider ordering costs on a higher basis where an appeal is wholly hopeless and unmeritorious. While the present appeal was brought on very slim grounds, I should not lose sight of the fact that costs is ultimately a matter of discretion. Having regard to the minor’s interest in the Estate, and the fact that the Estate does not have a lot of assets, I am of the view that the discretion should be exercised against the making of an indemnity costs order. 103.I would therefore order that the costs of the appeal, including the costs of the Respondent Notice, and the costs of and incidental to the plaintiffs’ summons on the application for security of costs which has been reserved by the order dated 7 January 2015, are to be paid by the Estate to the plaintiffs, to be taxed on party-and-party basis, if not agreed, together with a certificate for two counsel. H. Payment out 104.Henry had caused the payment into court of two sums in the amount of $630,000 and $280,000, respectively as security for the plaintiffs’ costs of the appeal and as payment for his occupation of the 17th Floor Property from the date of the Judgment to the date of the appeal hearing. They were paid into court pursuant to the consent order dated 7 January 2015. The sum of $280,000 has since been paid out to the plaintiffs pursuant to an order made by consent. 105.In respect of the remaining sum of $630,000 now standing in court, I would order that the sum together with interest accrued be paid out to the plaintiffs through their solicitors towards satisfaction of their costs in this appeal. Hon Barma JA: 106.I agree with the Reasons for Judgment and Decision on Costs of Chu JA, and with the orders proposed.
Mr Russell Coleman SC and Ms Winnie Chan, instructed by Or & Lau, for the 1st and 2nd plaintiffs. Mr Anthony Ismail, instructed by Ernest Li & Co, for the defendant. Mr Alexander Tang, instructed by Ernest Li & Co, for Sit Chai Yuen, Henry. [1] Transcript p.13Q to p.14G. [2] Robertson Research International Ltd v. ABG Exploration BV [1999] CPLR 756; Anstalt v. Hayek [2005] EWHC 2435 (Ch); and PR Records Ltd v. Vinyl 2000 Ltd [2008] 1 Costs LR 19. [3] Letter dated 24 September 2012. [4] Letter dated 5 October 2012. [5] Letter dated 15 October 2012. [6] Letter dated 19 November 2012. [7] Letter dated 19 November 2012. [8] See §10 of the Defence and Counterclaim and §8 of the Reply and Defence to Counterclaim. [9] §2(b) of the Schedule to the Order dated 7 January 2015. | |||||||||||||||||||||
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