Darach E. Haughey and Another v. Lam Mui and Others

HCMP 1593/2014

[2024] HKCFI 2222

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1593 OF 2014

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D E C I S I O N

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A.  INTRODUCTION

1.On 28 March 2024, I gave a decision (“the Decision”) on 4 issues concerning costs of the Administrators and the amount that they should repay the Estate. I held that D2 was effectively the true winner. However, as the issues arose in the course of administration, I ordered, on a nisi basis, costs of $400,000 be paid by the Estate to the Administrators.

2.Before me are 2 applications:

(1)  A summons dated 10 April 2024 taken out by D2 to vary the costs order nisi (“Variation Summons”) such that costs of D2 be borne by the Administrators;

(2)  A summons dated 11 April 2024 taken out by the Administrators for leave to appeal against the Decision on Issue 1, ie whether DTT’s costs should be regarded as part of the costs of the Administrators under Yam J's Order (“Leave Summons”).

3.The abbreviations used in the Decision shall be adopted in this decision. This decision affects only the Administrators and D2.

B.  VARIATION OF COSTS ORDER NISI

4.D2 seeks an order that the costs of her summons dated 9 February 2023 seeking rulings on the 4 issues (“2023 Summons”) be paid by the Administrators to her, to be summarily assessed by the Court; and that the Administrators be disentitled to be paid any of their legal costs and disbursements of and incidental to the 2023 Summons. Similarly, D2 seeks costs for the Variation Summons and an order that the Administrators be disentitled to be paid costs out of the Estate.

5.The grounds put forth by D2 are that:

(1)  D2 was the true winner and the Administrators’ stance was not truly neutral (“True Winner Ground”);

(2)  D2 has made Calderbank offers which, if accepted, would have avoided the hearing of the Summons and the intended appeal (“Calderbank offer Ground”).

6.The only ground in opposition put forth by the Administrators is that the 4 Issues concern matters arising in the course of administration, which concerned the proper construction of Yam J's Order, the 2 Master So’s Orders and the Statutory Cap. Unless the Administrators have acted unreasonably, they should be entitled to their costs out of the Estate. I shall deal with the ground of opposition first as the Administrators have not disputed the 2 grounds put forth by D2.

B1.  Administrators’ ground in opposition

7.Mr To, counsel for the Administrators, submits that the 2023 Summons was taken out in the context of an originating summons commenced under Order 85, rule 2, RHC and D2 must have intended this summons to be part of the administration action and the Administrators have dealt with the 2023 Summons on this basis.

8.The normal rule is that, absent unreasonable or improper conduct, the costs of the trustee and of the beneficiaries should be paid out of the trust fund. See Order 62, rule 6(2); Chiu Pak Wo v Chiu Yim Kam [2019] HKCFI 2517, DHCJ William Wong SC, §§5-12.

9.It was held in Re Buckton [1907] 2 Ch 406, that guidance sought for construction of documents or administration is necessary for the administration of the estate and costs of all parties are necessarily incurred for the benefit of the estate as a whole and the costs of the parties should be paid out of the estate:

“In a large proportion of the summonses adjourned into Court for argument the applicants are trustees of a will or settlement who ask the Court to construe the instrument of trust for their guidance, and in order to ascertain the interests of the beneficiaries, or else ask to have some question determined which have arisen in the administration of the trusts. In cases of this character I regard the costs of all parties as necessarily incurred for the benefit of the estate, and direct them to be taxed as between solicitor and client and paid out of the estate…

There is a second class of cases differing in form, but not in substance, from the first. In these cases it is admitted on all hands, or it is apparent from the proceedings, that although the application is made, not by trustees (who are respondents), but by some of the beneficiaries, yet it is made by reason of some difficulty of construction, or administration, which would have justified an application by the trustees, and it is not made by them only because, for some reason or other, a different course has been deemed more convenient. To cases of this class I extend the operation of the same rule as is observed in cases of the first class. The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate regarded as a whole.” pp.414-415 (underline added)

10.Whether the application was taken out by a beneficiary (like D2 in the present case) or the administrator/trustee does not affect the above general principle on costs.

11.It may seem at first blush that the 4 Issues concern construction of Court orders and the terms of appointment of the Administrators arising in the course of administration. However, when one looks at the substance, the administration in fact has ended. As pointed out by Mr Sousa, the net outcome of the Decision was to decide how much fees the Administrators could keep, or further receive, or how much they should repay to the Estate. They were issues on which the Administrators had a direct personal interest against the Estate and not issues arising in the course of administration. The Administrators did not remain neutral but have opposed D2’s demand for repayment on every front, but failed. I rule against the Administrators on this ground of opposition.

B2.  D2 was true winner and Administrators were not truly neutral

12.There is no dispute over the finding that D2 was the true owner of the 2023 Summons (§60 of the Decision). The error of this Court, in thinking that the 2023 Summons was an application by the Administrators for guidance concerning administration of the Estate, would not affect the conclusion on any of the Issues but only the question of costs.

13.Costs should follow the event of the 2023 Summons and be granted to D2.

B3.  Calderbank offers from D2

14.CLW made 2 offers for full and final settlement of the costs of the Action and the administration of the Estate by letters dated 29 April and 1 August 2022, respectively, well before the 2023 Summons was taken out on 9 February 2023. There is no suggestion that even if the authorities cited above applied in favour of the Administrators’ costs, the Estate was not entitled to make a Calderbank offer.

15.Had the Administrators accepted D2’s 2^nd offer,

(1)  The Administrators could have kept 90% of their bills (about HK$2.1 million) and all disbursements in all 4 of their bills, instead of just HK$443,365.46 pursuant to the Decision. SFKS’ offer meant that the Plaintiffs could retain all costs previously received, ie HK$2.23 million and receive a further HK$80,000.

(2)  Would not need to face the risk of losing the Statutory Cap challenge and hence have to repay D2, which is now the outcome of the Decision;

(3)  Would save a taxation and the risk of their fees being taxed down, thereby losing costs due to the Calderbank offer, have to repay D2 the taxed down amount and repay some of the fees/costs received;

(4)  Would have saved the costs and time of the Court on the Leave Summons and (if leave is granted) on an appeal.

16.D2’s Calderbank offer has made clear that it was independent of SFKS’ costs, such that the Administrators could have accepted the Calderbank offer and have SFKS’ costs dealt with separately.

17.Under the Decision, the Administrators had to repay about HK$1.87m (see corrigenda) but get costs order nisi of $400,000, hence having to pay a net amount of HK$1.47m to the Estate.

18.Should the Administrators win on the appeal, they could, at best, keep HK$1.72m (see corrigenda), have to repay HK$149,276 and get, say, the apportioned costs of HK$200,000 for Issue 1 but would have to pay costs to D2 for the rest of the Issues.

19.Mr To has not suggested that the Administrators have beaten any of the 2 Calderbank offers. Hence the Administrators should bear costs on indemnity basis. This applies even if my ruling in Section B1 is wrong.

20.The Calderbank offers were in line with D2’s consistent approach in trying to get the administration to a close and save time and costs, since she has become sole beneficiary of the estate after the Judgment on 8 June 2017 and more so after CLW came on board. This was evidenced by her efforts to get involved in costs between the Administrators and D4-D6 and the various costs orders that formed the subject matter of the Decision.

21.As Mr Sousa rightly points out, §63(1) and 64 of the Decision ordered that the Administrators’ costs of the 2023 Summons (HK$220,750) were not recoverable in view of the Court’s ruling on Issue 1. Accordingly, those costs need not be varied but it is prudent to spell that out in the final costs order.

22.I therefore vary the costs order for the 2023 Summons and order that:

(1)  The Administrators do pay costs of the 2023 Summons to D2 forthwith, summarily assessed on indemnity basis at $450,000;

(2)  The Administrators shall be disentitled from being paid any of their legal costs and disbursements of and incidental to the 2023 Summons from out of the Estate;

(3)  The costs of and incidental to the Variation Summons be paid by the Administrators forthwith to D2, to be summarily assessed on indemnity basis;

(4)  The Administrators shall be disentitled from being paid any of their legal costs and disbursements of and incidental to the Variation Summons from out of the Estate.

C.  LEAVE SUMMONS

23.Leave to appeal is granted only on points of law. The court must be satisfied that the appeal has a reasonable prospect of success or there are some other reasons in the interests of justice why the appeal should be heard before granting leave. Reasonable prospect of success involves the notion that the prospects of succeeding must be ‘reasonable’ and therefore more than ‘fanciful’, without having to be ‘probable’: SMSE v KL [2009] 4 HKLRD 125 at §17.

24.In his written submission, Mr To advances 3 grounds:

(1)  Administration of estate was professional services provided by DTT as CPA (“Ground 1”);

(2)  There should be liberal construction of Yam J's Order (“Ground 2”);

(3)  The Statutory Cap only applied to fiduciaries, ie the Administrators but not DTT (“Ground 3”).

25.These are points of law, but do they have reasonable prospect of success?

26.The effects of the Decision on Issue 1 are that the Administrators were personally entitled to remuneration, subject to the Statutory Cap (§17 of the Decision). The Administrators could engage others to assist them in the administration of the Estate. Those people could be “independent legal and other professional advisers” and/or DTT as CPA for the fulfilment of the Administrators’ duties (§19). The expenses of these professional advisers and CPA are disbursements not subject to the Statutory Cap (§20). With regard to clerical services, even if provided by DTT or to fulfill the duties of the Administrators, the Estate is not obliged to pay for those expenses beyond the Statutory Cap (§20).

27.With regard to Ground 1, the general propositions that services provided by CPAs was not limited to traditional book-keeping and financial reporting services but extended to the administration of estates could not advance the Administrators’ case. It was on the facts, on their own bills, that the Administrators failed to show that DTT’s costs fell within the principles summarized in paragraph 26 above.

28.The bills issued by DTT, with self-serving remarks that the fees were for “professional services”, did not distinguish between time costs of the Administrators and DTT’s staff. The Administrators never billed for DTT’s costs as disbursements like those for DTT France (§21 of the Decision).

29.The reply submission of Mr To concedes that §6 of the Yam J's Order expressly treated “the costs of DTT” as a form of “disbursements”. However, it is not necessarily the case that once DTT had incurred costs, that must be disbursements. As pointed out by Mr Sousa, under §6 of Yam J's Order, it was contemplated that the Administrators had staff and the Administrators were entitled to be indemnified by the Estate by reference to the time properly given “by the Administrators and their staff” in attending to matters arising in the administration. That was what the Administrators purportedly did by their letters dated 21 February 2016 and 21 September 2009, which referred to time spent by or remuneration of “the Administrators and their staff”, not DTT as a separate provider of service.

30.Ground 1 has no reasonable prospect of success.

31.Ground 2 complains that this Court should have given a liberal interpretation to Yam J's Order. Mr To submits that §§4(1), (2), (3) and (6) of Yam J's Order authorized the Administrators to engage both professional and non-professional service providers to assist them in the fulfillment of their duties. Expenses incurred were treated as disbursements.

32.With respect, I fail to see how this would advance the Administrators’ case. Their case under Issue 1 was that they were authorized to engage DTT as a professional adviser to assist in the administration of the Estate (§18 of the Decision). Again the problem with the Administrators’ case is that they could not, on the facts, on their own bills, bring DTT’s costs within the terms of Yam J's Order. Ground 2 has no reasonable prospect of success.

33.Ground 3 is that the Statutory Cap only applied to fiduciaries such as an executor, administrator or attorney but not DTT/its staff. I agree with Mr To. In fact, no one ever disputed this and §20 of the Decision is in line with this.

34.Mr To submits that Issue 1 did not ask for any contractual arrangement between DTT and the Estate that the DTT costs would be subject to the Statutory Cap to be determined. I agree. This was a non-issue that the Decision never attempted to address. To the contrary, §§17 and 20 of the Decision expressly stated that the Administrators’ remuneration, but not disbursements, was subject to the Statutory Cap. The Court was never told that there was a contractual arrangement between DTT and the Estate, beyond the ONC Letter, at the substantive hearing of Issue 1.

35.Paragraphs 11 (b) and (c) of the reply submission of Mr To states as follows:

“(b) The ONC Letter is a composite document written from the perspective of DTT rather than from that of the Administrators. For commercial convenience, DTT puts forth the relevant charging rates for its personnel, irrespective of whether they would be engaged by the Estate directly as administrators, or through DTT indirectly as its personnel; and

(c) Similarly, DTT issued composite bills by putting together all the fees to be payable by the Estate to DTT. It is not surprising that the ‘disbursements’ in the bills do not include the DTT Costs as the bills were issued by DTT, not by the Administrators. The DTT Costs were therefore organized and presented from the perspective of DTT. As such although the provision of services by DTT would not be a ‘disbursements’ for the purpose of DTT, it would be a disbursement for the purpose of the Estate.”

36.These points were neither advanced at the substantive hearing on Issue 1 nor in the first set of written submission in support of the Leave Summons. In any case, the problem in the Administrators’ case did not lie with the ONC Letter but the Administrators’ own failure to distinguish their personal roles as administrators and DTT’s role as their staff or as their independent advisers in the bills.

37.Having considered the draft grounds of appeal and the submissions, I am not satisfied that the grounds of appeal have reasonable prospect of success. I therefore decline to give leave to appeal.

38.Just to complete the picture, even if the Administrators can obtain leave to appeal, they still have not demonstrated how the financial outcome of the appeal would have beaten the Calderbank offers. Accordingly, I would require the Administrators to bear costs of the Leave Summons anyway, on indemnity basis.

D.  CONCLUSION ON BOTH SUMMONSES

39.I vary the costs order nisi and make an order along the lines of paragraph 23 above in relation to the Variation Summons. I dismiss the leave application and make an order along the lines of paragraph 22 in relation to the Leave Summons. I dismiss the Leave Summons with costs to D2 on indemnity basis.

40.Summary assessment for both Summonses shall be carried out on paper after CLW has answered the Court’s requisitions on their costs statements raised on the same day as the handing down of this decision.

41.I thank Mr To and Mr Sousa for their assistance.

Mr Ken To, instructed by Sit, Fung, Kwong & Shum, for the Plaintiffs

Mr Richard Alvaro Sousa of Messrs Chan, Lau & Wai, for the 2^nd Defendant