Tan Man Kou and Another v. Nina Kung and Another

CACV000065/2003

CACV 65/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 65 OF 2003

(ON APPEAL FROM HCA NO. 2415 OF 2002)

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Coram: Hon Rogers VP and Le Pichon JA in Court

Date of Hearing: 21 May 2003

Date of Handing Down Judgment: 3 June 2003

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J U D G M E N T

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Hon Rogers VP:

1.I agree with the judgment of Le Pichon JA.

Hon Le Pichon JA:

2.This is an appeal by the joint administrators pendente lite ("the administrators") from the order dated 25 February 2003 of Waung J staying all proceedings in High Court Action No. 2415 of 2002 pending final judgment (including any appeals to the Court of Appeal and the Court of Final Appeal) in Hong Kong High Court Probate Jurisdiction Action No. P8 of 1999 ("the probate action"). The basis of the stay was that the administrators and the 1st defendant had agreed that the issues in the High Court Action would not be litigated until after final judgment of the probate action.

Background

3.The administrators are joint administrators pendente lite of the estate of the late Wang Teh Huei ("the deceased"). They were so appointed by court order dated 15 March 2000, subsequently amended on 11 April 2000 (collectively "the appointment order"). Pursuant to paragraph 3(1) of the appointment order, on 26 April 2000, the 1st defendant's solicitors sent to the administrators a list of "all properties, known to our client, in the estate of [the deceased]" as at that date. Item 10 of the schedule read as follows:

"Chime Corporation Limited's shares of which ownership may be disputed."

These were 19,998 'A' shares in Chime Corporation Limited registered in the name of the 1st defendant ("the shares").

4.Other than the indication in the letter of 26 April 2000 of a possible dispute as to the beneficial ownership of the shares, despite the administrators' requests, the administrators had not been furnished with any details regarding any disputed ownership of the shares or whether the 1st defendant claimed any beneficial interest in them. The administrators sought directions from the court and on 19 December 2000, Chu J made an order ("the December 2000 order") in the probate action, paragraph 3 of which read:

"The Administrators are directed to require the Defendant forthwith to transfer to the Administrators 19,998 of the 'A' shares in Chime Corporation Limited standing in her name and in default the Administrators have leave to apply to the Court for an order requiring her to effect such transfer."

5.The 1st defendant sought a discharge of that order by summons dated 16 January 2001. Two days later, on 18 January 2001, the administrators issued a summons ("the administrators' summons") in the probate action seeking the following relief:

"1. within 7 days the Defendant do:

a. deliver to the solicitors for the Administrators all the certificates of 19,998 of the 'A' shares in Chime Corporation Limited ('Chime') standing in her name (the 'Shares');

b. execute all necessary instrument/s of transfer of the Shares in favour of the Administrators and deliver such instruments to the Administrators' solicitors;

..."

6.Pending the hearing of those summonses, on 10 April 2001, the 1st defendant's solicitors sent to the administrators' solicitors a copy of a declaration of trust dated 3 July 1974 in respect of the shares in favour of the 1st defendant. In light of that disclosure, on 18 April 2001, the administrators sought directions from Chu J as to whether paragraph 3 of the December order should be varied. This came on for hearing on 14 May 2001. Meanwhile, on 19 April 2001, Chu J dismissed the 1st defendant's summons seeking a discharge of the December 2000 order. At 14 May hearing, Chu J declined to make an order on the administrators' summons of 18 April so as not to interfere with the then imminent hearing of the administrators' summons.

7.The administrators' summons was scheduled to be heard on 21 May 2001. Three days before the hearing, by letter dated 18 May 2001, the 1st defendant's solicitors wrote to the administrators' solicitors with a proposal with a view to dispensing with the need to proceed with the hearing of the administrators' summons. In pertinent part, the letter read as follows:

"Our client is willing to agree that, pending the outcome of the Probate Action :-

1. She shall deliver to the Administrators or yourselves on their behalf the original share certificate relating to the Chime 'A' shares.

2. She shall execute all necessary instrument(s) to transfer the legal interest alone in the Chime 'A' shares to the Administrators and to deliver such instrument(s) to the Administrators or yourselves on their behalf.

3. The Administrators shall not exercise any voting rights or any other rights attaching to the Chime 'A' shares without our client's prior consent or an order of the Court (such order to be sought and obtained as reasonably expeditiously as possible).

4. Any future dividends declared payable and paid on the Chime 'A' shares shall be paid into a joint escrow account held in the name of Johnson Stokes & Master and CMS Cameron McKenna.

5. The costs in respect of the Summons shall be costs in the Administration and the costs of the Administrators shall be payable on a trustee basis."

The administrators' solicitors' reply was as follows:

"We refer to your letter dated 18 May 2001 in relation to the 19,998 'A' shares in Chime Corporation Limited in the name of your client.

We confirm that the Administrators are agreeable in principle to paragraphs 1-5 (inclusive) of the proposed terms, subject to the Court's direction." (emphasis added)

8.At the hearing, Deputy High Court Judge Muttrie made the following order ("the Muttrie order"):

"1. Concerning the Administrators' Summons dated 18th January 2001:

(a) The Defendant shall deliver to the Administrators the original share certificate relating to the 19,998 'A' shares in Chime Corporation Limited standing in her name (the "Chime 'A' shares") on or before 12 June 2001;

(b) The Defendant shall execute all necessary instrument(s) to transfer the legal interest alone in the Chime 'A' shares to the Administrators and to deliver such instrument(s) to the Administrators on or before 12 June 2001;

(c) The Administrators shall not exercise any rights attached to the Chime 'A' shares without the Defendant's prior consent or an order of the Court (such order to be sought and obtained as reasonably expeditiously as possible);

(d) Any future dividends declared payable and paid on the Chime 'A' shares shall be paid into a joint escrow account held in the names of CMS Cameron McKenna and Johnson Stokes & Master.

...

3. The costs in respect of the Administrators' Summons dated 18 January 2001 shall be costs in the Administration and the costs of the Administrators shall be payable on a trustee basis.

..."

9.The judge below found that the parties had reached an agreement on 19 May and all that the court was doing on 21 May was to give recognition to that agreement. He also found that the agreement was made on the basis of pending the outcome of the probate action.

This appeal

10.The question which arises is whether the administrators are barred (whether by the Muttrie order or an antecedent agreement) from litigating the issue of the beneficial ownership of the shares pending the outcome of the probate action.

11.Mr Thomas SC, who appeared for the 1st defendant, submitted that the ground for his client's application of a stay of proceedings is the agreement reached between the parties through the exchange of correspondence on 18 and 19 May 2003 ("the antecedent agreement") and not the Muttrie order. The order below that is the subject matter of this appeal simply required the parties to honour the agreement they had earlier reached. It was therefore submitted that the focus ought not to be the Muttrie order but the antecedent agreement reached. It was said that it was "a bit of forensic footwork which distracts us into thinking that it's all about the [Muttrie] order."

12.Mr Thomas's submission was premised on there having been a concluded agreement between the parties prior to the court hearing. But when one looks at the letter of 19 May, it was expressed to be "in principle" only and "subject to the Court's direction". This language does not sit comfortably with there having been a concluded agreement. Moreover, the relevance of the reservation "subject to the Court's direction" is immediately apparent given the context, namely, that the other party to the alleged 'agreement' was not a private party but officers of the court: it is relevant to bear in mind that the administrators' summons was issued at the behest of the court and pursuant to its directions. Plainly the administrators did not consider that they should or were able to agree to any proposal without the court's blessing, as it were, and the court was not bound to approve what was put before it. In short, it was open to the court to make any order it deemed appropriate and provide for different or additional terms. In my view, not only did the exchange of correspondence not culminate in any concluded and enforceable agreement, even if, contrary to my view (as to which see below) there were an antecedent agreement, it is the true effect of the Muttrie order that is determinative of the issue that has arisen.

13.Mr Thomas proffered an alternative analysis of the exchange of correspondence, namely, that there was a conditional agreement, the condition being that the agreement should be approved by the court. It was further submitted that the events of 21 May demonstrated that the court did give its approval. But what was the subject matter of the court's approval? In other words, to what had the parties allegedly agreed?

14.The letter of 19 May was couched in such a way that its meaning was not unambiguous. Leaving aside, for the moment, the fact that the administrators' response was hedged about with reservations or qualifications, that response was hardly an unreserved and unequivocal acceptance of the 1st defendant's proposals as set out in their letter of 18 May. Rather, it expressly accepted specific parts of the proposals, namely, paragraphs 1 to 5 but omitted any mention of the phrase "pending the outcome of the Probate Action". The letter of 19 May was thus susceptible of being read and construed in more than one way in terms of the duration of the interim arrangements. There might have been more force in Mr Thomas's submission had the correspondence not given rise to any scope for ambiguity as to what the parties meant.

15.One should not lose sight of the fact that the negotiations conducted prior to the hearing of the administrators' summons were about a postponement of the scheduled hearing which was then imminent. The 1974 declaration of trust which had been belatedly disclosed by the 1st defendant meant that the resolution of the administrators' summons required a determination of the beneficial ownership of the shares. That was an issue that was not evident when the administrators' summons was taken out. It could be said that the administrators' summons took on a new complexion as a result of the disclosure of the 1974 declaration. As mentioned above, it caused the administrators to apply for directions from Chu J on 18 April regarding a possible variation of the terms of paragraph 3 of the December order which was the genesis of the administrators' summons. Further, it must have been doubtful whether the beneficial ownership issue could have been satisfactorily resolved at the hearing given the time-frame involved: it was raised for the first time some 3 months after the date of the administrators' summons and only about 5 weeks before the scheduled hearing. A postponement of the resolution of that issue would not have been unattractive to both the 1st defendant and the administrators provided that mutually acceptable arrangements could be made regarding the rights attached to the shares in the interim.

16.It is certainly not the case that only a postponement 'pending the outcome of the probate action' would have made sense. That might have been so had the 1st defendant's only claim been as beneficiary under the deceased's will since the probate ruling would have been dispositive of her claim. But the 1st defendant was maintaining a separate claim to beneficial ownership which, if successful, would mean that the shares do not from part of the estate of the deceased. Resolution of the probate action would thus not necessarily be dispositive of the outstanding claims.

17.It was also said that there was no reason for the 1st defendant to have done what sub-paragraphs (a) to (d) of the paragraph 1 of the Muttrie order had provided without insisting on the beneficial ownership issue being litigated. In other words, it was suggested that the 1st defendant had provided the safeguards the administrators had wanted but was now denied the benefit that was the quid pro quo. But that submission does not withstand close scrutiny. First, if the 1st defendant had wanted the beneficial ownership issued litigated, there would have been no need to make a proposal whose sole purpose was to defer the resolution of that issue. Second, the safeguards meant that pending the resolution of the beneficial ownership issue, neither side would be entitled to what would normally be part and parcel of beneficial ownership, namely, the right to receive dividends and to exercise voting rights attached to the shares. These matters were to be 'put on ice' in the interim. In my view, the quid pro quo for the 1st defendant was the deferral, pro tem, of the resolution of the beneficial ownership issue.

18.Turning to the Muttrie order itself, it is apparent from paragraphs (b) - (d) that the order was not meant to be any other than a provisional order. The Muttrie order does not contain the words "pending the outcome of the probate action". Simply as a matter of construction, there is nothing on the face of the order to suggest that the administrators were to be barred from litigating the beneficial ownership issue pending the outcome of the probate action. No application was ever made by the 1st defendant to amend the order after it was drawn up. There was never any suggestion that the order did not reflect what the judge had ordered. It is of some significance that the Muttrie order was worded as it was, omitting any reference to the duration of the interim arrangement. Deputy Judge Muttrie was never asked to insert the words "pending the outcome of the probate action" into the order. Had he been asked to do so it would have been very surprising if such words as "or further order" had not also been included, given the provisional nature of the order. In those circumstances, it must take effect until superseded by a 'further order' of the court.

19.For these reasons I would allow the appeal and set aside the order below. I would also make an order nisi for costs against the 1st defendant.

Representation:

Mr Mark Strachan, instructed by Messrs Clifford Chance, for the Plaintiffs/Appellants

Mr Michael Thomas SC and Mr Alexander Stock, instructed by Messrs Johnson, Stokes & Master, for the 1st Defendant/Respondent