Kwan Chui Kwok Ying and Another v. Tao Wai Chun and Others

HCMP 2996/1990

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 2996 OF 1990

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BETWEEN

THIRD PARTY PROCEEDINGS

AND BETWEEN

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Before: Deputy High Court Judge To in Chambers (Open to Public)

Date of Hearing: 14 February 2007

Date of Decision: 4 May 2007

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D E C I S I O N

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Introduction

1.This is the Plaintiffs’ application to review my costs order made on 30 May 2006 (the “Costs Order”) in the Third Party Proceedings in a probate action about the estate of the late Mr Kwan Kai Ming (the “Father”).  The Father had two wives and two concubines and altogether sixteen children who survived him.  The 1^st Plaintiff was the second wife of the Father.  She has no children.  The 1^st Defendant was a concubine of the Father.  The 2^nd to 5^th Defendants are her children born out of that concubinage.  The 16^th Defendant is the son of the other concubine who predeceased the Father.  The 2^nd Plaintiff and the other Defendants, including the 6^th and 15^th Defendants, are children of the Father’s first wife, Madam Wong Woon Wan.

2.On 27 June 1985, the 1^st and 2^nd Plaintiffs obtained an order by consent in Probate Action No 1 of 1984 that Letters of Administration of the estate of the Father be granted to them.  In the course of the Plaintiffs’ application for grant of the Letters of Administration, the Probate Registry raised requisitions as to the identity of the 1^st to 5^th Defendants.  The Plaintiffs commenced the present proceedings for the purpose of determining the identity of the 1^st to 5^th Defendants as beneficiaries of the estate.  In the course of those proceedings, the 6^th, 7^th and 9^th Defendants commenced the Third Party Proceedings on 1 April 1992 to challenge the 15^th Defendant’s identity as one of the lawful and natural sons of the Father.  The 7^th and 9^th Defendants abandoned their claim shortly before trial, while the 6^th Defendant pursued.

3.The Third Party Proceedings were tried before Patrick Chan J, as he then was, in March 1994 (the “1994 Trial”).  The learned judge delivered the judgment on 30 December 1994 dismissing the 6^th Defendant’s claim with costs.  He made the following costs order on 3 January 1995 (the “1995 Costs Order”): -

(1) costs of the 15^th Defendant to be borne by and paid out of the estate of the Father to be taxed on common fund basis with certificate for two counsel (if not agreed);

(2) costs of the 15^th Defendant to be borne by and paid by the 6^th Defendant to be taxed on common fund basis with certificate for two counsel (if not agreed);

(3) upon recovery of the costs from the 6^th Defendant, the 15^th Defendant shall reimburse the estate of the Father with such recovered costs to the extent that his own respective costs have been borne by and paid out of the estate; and

(4) The 15^th Defendant’s counterclaim be dismissed with costs to the 6^th Defendant to be taxed on party and party basis.

4.The 6^th Defendant appealed.  On 3 November 1995, the Court of Appeal allowed the appeal and ordered a re-trial of the Third Party Proceedings.  The Court of Appeal also ordered that “all of the costs, including the costs below, the costs of this appeal and the costs of the new trial be reserved to the new trial”.

5.Towards the end of 1996, the 15^th Defendant obtained DNA evidence showing that he is the legitimate child of the Father.  While that dispensed with the re-trial, the proceedings took a treacherous course in the ten years that followed solely for the purpose resolving the parties’ liability as to the costs of the Third Party Proceedings.  Eventually on 30 May 2006, I made the following Costs Order in favour of the 15^th Defendant:

(1) the costs of and occasioned by the original trial before Patrick Chan J in 1994 be paid by the 6^th Defendant to be taxed on an indemnity basis with certificate for two counsel, if not agreed;

(2) the costs of the appeal to the Court of Appeal in 1995 be paid by the 6^th Defendant to be taxed on an indemnity basis with certificate for two counsel, if not agreed;

(3) unless otherwise provided for, the costs of preparation for re-trial from 3 November 1995 until 10 May 1999, including all costs reserved if any, be paid by the 6^th Defendant to be taxed on an indemnity basis, if not agreed;

(4) unless otherwise provided for, 75% of the costs of preparation for the re-trial from 11 May 1999, including all costs reserved, if any, and the costs of the present costs hearing be paid by the 6^th Defendant to be taxed on an indemnity basis, if not agreed;

(5) the costs awarded under item (1) shall be with interest from 3 January 1995; the costs awarded under item (2) shall be with interest from 3 November 1995; and the costs awarded under item (3) and such of the costs awarded under item (4) which were incurred on or before 4 October 2001 shall be with interest from 4 October 2001;

(6) 50% of the total of the 15^th Defendant’s costs taxed or agreed in accordance with items (1) to (4) above not inclusive of interest be borne by and paid out of the estate of Kwan Kai Ming; and

(7) upon recovery of the costs from the 6^th Defendant, the 15^th Defendant shall reimburse the estate of Kwan Kai Ming with 50% of the costs so recovered not inclusive of interest.

However, in making the above Costs Order, I had not invited submission from the Plaintiffs.  Hence, the Plaintiffs now invite me to review my Costs Order insofar as it affects the Plaintiffs.

The facts of the Third Party Proceedings

6.The factual background leading to the Third Party Proceedings were set out in paragraphs 27 to 38 of my judgment dated 30 May 2006.  In a nutshell, the facts were as follows.  The 6^th and 15^th Defendants were born in the Philippines in 1934 and 1938 respectively.  The 6^th, 7^th and 12^th Defendants were sent back to Shanghai to live with their grandfather in 1936.  They never met the 15^th Defendant until the family reunited in Hong Kong in 1948.  In order to obtain a Portuguese passport to facilitate the 15^th Defendant’s study in the United States, the Father and his brother, Mr Kwan Heng, obtained a Macau birth certificate certifying that a person named “Daniel Kwan” was the son of Kwan Heng and Madam Lok Si born in Macau on 15 October 1935.  The application for the Macau birth certificate was supported by, amongst other documents, a graduation certificate dated 15 July 1957 from Chong Tak High School in Macau (the “1957 Chong Tak Certificate”) showing that a person by the name of “Kuan Tan Lau” (the pronunciation of which is strikingly similar to “Kwan Daniel” in English) had attended and graduated from that school.  

7.In 1983, the 6^th and 9^th Defendants started proceedings in Macau claiming to be the only issues of the Father entitled to the Father’s estate in Macau.  Their attempt was frustrated by the 15^th Defendant filing a claim for all the siblings.  Then the 6^th and 9^th Defendants applied for an Exclusion Order to exclude the 15^th Defendant from the estate.  The 15^th Defendant abandoned contesting the exclusion application as the 6^th Defendant’s lawyer had threatened to expose him to the risk of prosecution in Macau for fraud in relation to the Macau birth certificate and some other documents used in support of the application for the Macau birth certificate.  As a result, an Exclusion Order dated 12 October 1988 was issued by the Judicial Court of Macau excluding the 15^th Defendant from the Father’s estate in Macau.

8.In Hong Kong, the 6^th Defendant’s challenge against the 15^th Defendant’s legitimacy is essentially based on the Macau birth certificate and the Exclusion Order.  The 15^th Defendant denied his knowledge and involvement in applying for the Macau birth certificate and other documents used in support of the application for that certificate and denied he was the person referred to in the 1957 Chong Tak Certificate.  He also denied that he knowingly abandoned contesting the application for Exclusion Order against him, putting the blame on his Macanese lawyers.  While I disbelieved the 15^th Defendant and rejected his evidence on the above issues of fact, I found against the 6^th Defendant on the most crucial issue.  I found that not only was there no reasonable ground based on which the 6^th Defendant could have held the belief that the Macau birth certificate and the 1957 Chong Tak Certificates were genuine, the evidence is overwhelming that he knew those documents were false before he instituted the Third Party Proceedings.  At no time, whether before or after the 1994 Trial, did the 6^th Defendant ever believe that the 15^th Defendant was the natural son of Kwan Heng and Lok Si.  On that basis, I dismissed the 6^th Defendant’s argument that the 15^th Defendant should be deprived of his costs.  However, I reduced the 15^th Defendant’s costs recoverable after 10 May 1999 to 75% to discount for the costs he unreasonably wasted for having refused to admit facts contained in a notice to admit facts served on him pursuant to Order 27 rule 2 of the Rules of the High Court on 10 May 1999, for denying his involvement in relation to the Macau birth certificate and related documents and for denying that he knowingly abandoned contesting the application for Exclusion Order.

9.I found that the 6^th Defendant was making up a false case against the 15^th Defendant on documents which he knew were false.  He kept on seeking evidence through legal and illegal means to fortify his false case so as to pass it off as genuine.  He took advantage of 15^th Defendant’s handicap in being entangled in some illegality of the past to concoct a false case against the 15^th Defendant and to fix him with a false identity.  He subjected the 15^th Defendant to the scourges of prosecution.  All these were done as part of his vendetta against the 15^th Defendant, at least for fouling his greed in the attempt to appropriate the Father’s estate in Macau if not also for having ousted him from the Father’s company.  Another purpose of his appeal was to force the estate to pay his costs in the Third Party Proceedings which he failed.  The 6^th Defendant’s conduct in this litigation was extremely shameful, malicious, appalling and wicked.  He was ruthless.  His conduct fits into every category of conduct which justifies an order for indemnity costs: scandalous, vexatious, malicious, oppressive.  I do feel a very strong sense of indignation at such conduct.  Hence, I ordered that the costs awarded against the 6^th Defendant be taxed on indemnity scale.

10.I have carefully excised all the costs unreasonably incurred by the 15^th Defendant which I assessed to be 25% of the costs incurred by the 15^th Defendant since 11 May 1999.  Then I ordered the 6^th Defendant to pay all the costs of the 15^th Defendant, including the costs of the 1994 Trial and the costs of the appeal in 1995 on an indemnity basis.  I ordered the estate to pay 50% of the costs for the 6^th Defendant upfront.

Whether the Costs Order issue should be re-opened by the Plaintiffs

11.While Ms Chih, counsel for the 15^th Defendant, does not argue that I have no jurisdiction to review the Costs Order, she argues that the issue should not be re-opened by the Plaintiffs at this stage.  Her grounds are that neither the Plaintiffs nor the estate suffered any prejudice but the 15^th Defendant would suffer prejudice if the Costs Order is reviewed.

12.Ms Chih argues that for the ten years since the 1995 Costs Order, the Plaintiffs never expressed any objection that the estate had to pay the 15^th Defendant’s costs for the 6^th Defendant upfront.  However, according to the affidavit of Mr Chow Wai Ying John filed on behalf of the Plaintiffs, the Plaintiffs had filed an application by way of an affirmation on 19 September 2002 that the estate should not be liable for the costs of the Third Party Proceedings.  However, upon being notified of the appeal by the 6^th Defendant, the Plaintiffs withdrew the application on 4 October 2002.  Prior to the withdrawal of the application, the Plaintiffs’ solicitors informed the 15^th Defendant’s then solicitors, Messrs T C Lau & Co, that if the 15^th Defendant wished to claim against the estate for costs of the Third Party Proceedings, they should give ample notice in advance so that the estate would be legal represented in such application to argue about liability and quantum.  Messrs T C Lau & Co replied on the same day that the 15^th Defendant would claim against the estate for costs of the Third Party Proceedings and undertook to inform the Plaintiffs’ solicitors when the hearing date was available.  Thus, the position of the parties then was very clear.  The Plaintiffs objected to the estate having to pay the costs of the 6^th or 15^th Defendants in the Third Party Proceedings.  They withdrew their application to review the 1995 Costs Order because of the 6^th Defendant’s pending appeal.  The parties agreed that the issue of the estate’s liability for costs and quantum would be disposed of at an appropriate time and Messrs T C Lau & Co undertook to inform the Plaintiffs’ solicitors of the hearing date.

13.Ms Chih also argues that the Plaintiffs attended most of the hearing and even participated in the 15^th Defendant’s conference with counsel, yet they never filed an affirmation in opposition to the estate having to pay the costs of the Third Party Proceedings.  She says that the position of the 15^th Defendant to demand payment of costs by the estate had never changed since Messrs T C Lau & Co’s letter dated 26 September 2002.  She submits that if the Plaintiffs were really serious about their objection to pay the 15^th Defendant’s costs for the 6^th Defendant upfront, they should have instructed counsel at the beginning of the hearing or at any material time before the close of the parties’ case.   

14.However, shortly after the first session of the costs hearing commenced, the Plaintiffs’ solicitors wrote to Messrs T C Lau & Co on 9 December 2004 reminding them to give ample notice in advance if the 15^th Defendant wished to claim against the estate for costs of the Third Party Proceedings.  The 15^th Defendant denied knowledge of that letter alleging that Messrs T C Lau & Co had ceased acting for him since 2003.  But I do not think that is a matter of any consequence as the Plaintiffs’ solicitors were informed by the 6^th Defendant’s solicitors that Messrs Huen & Partners are now acting for the 15^th Defendant and as a result the Plaintiffs’ solicitors sent a copy of their letter of 9 December 2004 to Messrs Huen & Partners on 10 January 2005. 

15.In response, Messrs Huen & Partners wrote two letters to the Plaintiffs’ solicitors on 11 January 2005.  In what I believe to be the first letter, they wrote:

“We refer to your letter dated 10^th January 2005 and enclose herewith copies of Notice of Change of Solicitors and Notice of Hearing for your information.

Please be informed that our client Mr. Daniel Kwan wishes to claim against the estate for costs of the third party proceedings.  The hearing of the case has been adjourned to 10^th June 2005.  We shall inform you of the result of the case in due course.”

I think that was the first letter because it referred to the Plaintiffs’ solicitors’ letter of 10 January 2005 and the response made sense.  In what I believe to be the second letter, Huen & Partners wrote:

“Further to our letter dated 11^th June 2004.

We wish to clarify that it is our client’s intention to seek costs of the third party proceedings against D6 Mr Kwan Chi On.  Our client does not intend to claim costs of the third party proceedings against the estate.”

I find that to be the second letter as it sought to clarify a message which must have been sent earlier, i.e. the first letter of 11 January 2005.  Messrs Huen & Partners could not produce a copy of their own letter dated 11 June 2004.  The Plaintiffs’ solicitors have never received such a letter and had they ever received such a letter they would not have sent their letter dated 9 December 2004 to Messrs T C Lau & Co.  Probably the date of 11^th June 2004 was a double error.  The typist mis-typed “January” for “June” together with the not unusual new year mistake which occurs in January.  I therefore find that by that letter, Messrs Huen & Partners expressly informed the Plaintiffs’ solicitors that the 15^th Defendant does not intend to claim costs against the estate. 

16.To complete that round of correspondence, on 9 June 2005 the Plaintiffs’ solicitors wrote again to Messrs Huen & Partners referring to their letter of 11 January 2005 and reminding them that if the 15^th Defendant wished to claim costs against the estate they should give ample notice to the Plaintiffs’ solicitors.  In a second letter of the same date, the Plaintiffs’ solicitors said that in default of notice requiring the Plaintiffs’ representation at the hearing on 10 June 2005, the estate and the Plaintiffs would not be represented at that hearing.  There was no response from Messrs Huen & Partners.

17.The 15^th Defendant reiterates his intention to claim costs against the estate and seeks to explain that the word “claim” in the letter dated 26 September 2002 from Messrs T C Lau & Co meant a demand upon the estate to pay costs for the 6^th Defendant upfront, while that used by Ms Christine Tsang of Messrs Huen & Partners in their second letter dated 11 January 2005 bore the formal legalistic meaning of making a formal claim.  It is trite law that construction of a document is not the same as interpretation of the meaning of the words used in the document.  It is the ascertainment of the meaning which the document would convey to a reasonable person having all the background knowledge which would reasonably have been available to the parties in the situation in which they were at the time of making of the document: see Investors Compensation Scheme Ltd and West Bromwich Building Society [1998] 1 WLR 897 at 912-913 per Lord Hoffmann.  The letter of 11 January 2005 was a serious utterance by a solicitor in reply to another solicitor about an issue in a possible litigation which is referable to what was said in an earlier letter dated 26 September 2002, albeit by a predecessor firm of solicitors.  Bearing in mind the factual matrix and the correspondence, it is impossible to read the word “claim” as meaning one thing in one letter and something else in another letter from the same side.  I reject the 15^th Defendant’s argument.  I find that the word “claim” in all the letters bore its ordinary meaning of a “demand”, whether by way of legal proceedings or otherwise.

18.Accordingly, I find that by the second letter of 11 January 2005, the 15^th Defendant had, through his solicitors, informed the Plaintiffs of his intention not to claim costs against the estate.  His solicitors would not have written that letter without the instruction of the 15^th Defendant.  This finding is consistent with the conduct of the parties and explains why the Plaintiffs attended the hearing on most occasions without legal representation and why they took no part in the proceedings.  The finding is also consistent with the conduct of the 15^th Defendant’s counsel.  Ms Chih never asked for costs against the estate or for the estate to pay the 15^th Defendant’s costs for the 6^th Defendant upfront.  Certainly, the Plaintiffs suffered prejudice in that an order was made which affects the interests of the estate without the Plaintiffs being heard.

19.Ms Chih further argues that this kind of order for upfront payment was pursuant to the Plaintiffs’ stance as stated in their Amended Originating Summons or by reason of the equitable principle or out of the pure discretion of the Court in the totality of the circumstances and not directly or indirectly because of the lack of the Plaintiff’s representation at the hearing.   Ms Chih argues that if this issue of the estate’s liability to pay the 15^th Defendant’s costs upfront is re-opened, it is the 15^th Defendant rather than the estate who will be seriously prejudiced.  She referred to the Amended Originating Summons dated 19 March 1991 issued by the Plaintiffs in which the Plaintiffs sought a determination of the status of the 1^st to 5^th Defendants as beneficiaries of the estate.  Paragraph (3) of the Amended Originating Summons seeks a determination whether there should be advancement to the beneficiaries of the estate.  Paragraph (7) states that the costs of and incidental to this application be borne out of the estate.  Ms Chih argues that paragraph (3) provoked the 6^th, 7^th and 9^th Defendants into instituting the Third Party Proceedings against the 15^th Defendant and paragraph (7) misled the 15^th Defendant into believing that the Plaintiffs did not object to the estate paying his costs upfront.  She submits that as a result the 15^th Defendant forfeited his right to seek costs against the 7^th and 9^th Defendants and to call evidence to further prove how the other members of the estate or the estate as a whole should be responsible for his costs.  I think the main theme of the Amended Originating Summons was to seek a determination of the status of the 1^st to 5^th Defendants.  Paragraphs (3) and (7) must be read subject to that theme.  The Third Party Proceedings, as I have found, were instituted maliciously.  The 6^th Defendant would have instituted the Third Party Proceedings whether paragraph (3) was contained in the Amended Originating Summons or not.  I am also unable to read paragraph (7) as providing anything more than the costs of determining the status of the 1^st to 5^th Defendants and the other matters for which determination was sought.  It cannot be extended to the Third Party Proceedings.  In any event, how could the 15^th Defendant have been misled in the light of the Plaintiffs’ solicitors’ letters of 26 September 2002 and his own solicitors’ second letter of 11 January 2005?  As for the second and third limbs of Ms Chih’s argument, it is trite principle that if the Court is not being made aware of a party’s objection, the Court cannot properly exercise its discretion in making any order affecting that party’s interest without hearing from that party.  Ms Chih’s argument is wholly devoid of merit.  

20.For the above reasons, I find that the Plaintiffs did suffer prejudice in that the Costs Order which affects the interest of the estate was made without hearing submission from the Plaintiffs.  It was most inappropriate that counsel for the 15^th Defendant did not inform me of the objection of the estate to paying costs upfront.  On the other hand, I find that the 15^th Defendant would not suffer any prejudice if I am to re-open the issue of the estate’s liability to pay upfront costs as it has always been his position since 11 January 2005 not to make any claim against the estate for costs of the third Party Proceedings.  I think it was only in the light of the Costs Order I made that the 15^th Defendant found it convenient to change his position and sought to ask the Plaintiffs to pay his costs upfront for the 6^th Defendant.  But there is nothing to prevent him from changing his mind.  Accordingly, I allow the issue to be re-opened.

The law

21.The general principle is that award of costs is a largely matter of discretion of the court.  But this discretion has to be exercised judicially.  The starting point is Order 62 rule 3.  Another general principle is that as between litigating parties, the successful party will receive his costs unless there are special circumstances which justify the court to exercise its discretion by denying him of his costs in full or in part.  There is also a third general principle which applies where the parties are beneficiaries of a trust and the subject matter for determination is the parties’ interest as beneficiaries under the trust.  Under such circumstances, the general rule is that costs of all parties as necessarily incurred for the benefit of the estate shall be taxed on solicitor and client basis and paid out of the estate.  In In re Buckton [1907] 2 Ch 406, Kekewich J identified three categories of cases: (1) the trustee’s application to determine a question which has arisen in the administration of the trust; (2) the beneficiary’s application to determine a similar question which would have justified the application to be made by the trustee; and (3) adverse litigation whether raised by trustee or beneficiary.  He held that in the first two categories costs shall be taxed on solicitor and client basis and paid out of the estate while in the third category the issue of costs is a matter between the parties.  In determining to which category the case belongs, it is important to look at the substance rather than the form of the litigation.  He said at 414:

“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 has 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.  It is, of course, possible that trustees may come to the Court without due course.  A question of construction or of administration may be too clear for argument, or it may be the duty of trustees to inform a claimant that they must administer their trust on the footing that his claim is unfounded, and leave him to take whatever course he thinks fit.  But, although I have thought it necessary sometimes to caution timid trustees against making applications which might with propriety be avoided, I act on the principle that trustees are entitled to the fullest possible protection which the Court can give them, and that I must give them credit for not applying to the Court except under advice which, though it may appear to me unsound, must not be readily treated as unwise.  I cannot remember any case in which I have refused to deal with the costs of an application by trustees in the manner above mentioned.

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.

There is yet a third class of cases differing in form and substance from the first, and in substance, though not in form, from the second.  In this class the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation.  It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs.  Whether he ought to be ordered to pay the costs of the trustees, who are, of course, respondents, or not, is sometimes open to question, but with this possible exception the unsuccessful party bears the costs of all whom he has brought before the Court.”

Whether the Third Party Proceedings are adverse litigation

22.Mr Cheung, counsel for the Plaintiffs, agrees that in ordering the estate to pay the 15^th Defendant’s costs upfront in the 1994 Trial, Patrick Chan J, as he then was, must have a genuine concern that should the 6^th Defendant succeed in his action it would amount to a genuine defence of the estate’s interest.  However, Mr Cheung argues that over the years as the Third Party Proceedings progressed it transpired that it was a hostile action than a legitimate defence in the general interest of the estate and the beneficiaries.  Hence, he submits that this order should be reconsidered in the light of the later development, in particular, when the hostile legal action has become detrimental to the interest of the estate.  In effect, Mr Cheung is saying that the present case falls within the third category in In re Buckton.

23.Mr Cheung quoted the decision of Pang J in Hongkong Bank Trustee Ltd v Lee See Ching John [1998] 2 HKC 706 in support of his argument that the present proceedings were hostile.  In that case, the court dismissed the defendant’s assertion that certain monies belonging to the estate were gifts to the defendant.  Pang J also dismissed the defendant’s application for his costs of the proceedings to be paid out of the estate.  After quoting the passage in In re Buckton, Pang J held at 708:

“The present case does not involve the construction of a will or deed of settlement.  The present litigation was caused by the defendant who asserted that the money in the accounts was a gift from the deceased.  His claim, if successful, would have been against the interest of those entitled to the estate of the deceased to the extent that their respective shares would have been proportionally reduced.  In this context, it must have been hostile litigation.

Despite the defendant’s assertion that the monies were gifts, this court disbelieved him and found that he had not been truthful in his testimony about the circumstances under which the bank accounts in his name were opened by the deceased.  I have little doubt that the defendant’s conduct in these proceedings was motivated by greed and fuelled by animosity against his siblings.

I am of the view that it is neither just nor reasonable that such a defendant should have his costs paid out of the estate and I would therefore dismiss the application.”

24.On the face, Hongkong Bank Trustee Ltd v Lee See Ching John is similar to the present case, but it is distinguishable.  In that case, the defendant was asserting a positive claim to monies he held on behalf of the estate as gifts.  His claim is obviously adverse to the interests of the other beneficiaries.  Pang J was clearly right to hold that was a hostile litigation and it is neither just nor reasonable that the defendant should have his costs paid out of the estate.  But in the present case, the 6^th Defendant was not asserting any claim to anything in the estate which is personal to himself.  He was querying the status of the 15^th Defendant for the benefit of all the other beneficiaries.  Another point to note is that the issue in Hongkong Bank Trustee Ltd v Lee See Ching John is whether an unsuccessful beneficiary may have his costs paid out of the estate whereas the issue in the present case is whether a successful beneficiary is entitled to have his costs paid upfront by the estate.  The considerations are wholly different.

25.The effect of the Third Party Proceedings, if the 6^th Defendant is successful, is to exclude the 15^th Defendant from the estate.  I have no doubt that the litigation is adverse, viewed through the eyes of the 15^th Defendant.  But it is not necessarily so from point of view of the estate.  By these proceedings, the 6^th Defendant sought a determination whether the 15^th Defendant is a legitimate son of the Father.  He is ascertaining the status of one of the beneficiaries which is a question of interest to all the other beneficiaries.  This is a question which has arisen in the administration of the estate which would have justified the Plaintiffs as adminstratrix to seek a determination.  A similar question as to the status of the 1^st to 5^th Defendants as beneficiaries of the estate was asked in the main action.  That litigation was not considered as adverse and the estate paid the costs of all the parties involved.  I can hardly find any distinction between that action and the present one.  Whether the challenger has anything to gain and the challenged has anything to lose is not determinative of the nature of the proceeding.  At best, that is prima facie evidence that the proceeding is hostile but it is not conclusive.  Indeed, in In re Buckton, if the applicant was successful, the other beneficiaries’ interest would be adversely affected.  Yet, Kekewich J held that the litigation was nevertheless amicable because it was a convenient way to resolve the dispute.  In the Third Party Proceedings, if the 6^th Defendant is successful, the 15^th Defendant would be excluded from the estate.  The 6^th Defendant would have as much to gain as have any other beneficiaries, all at the expense of the 15^th Defendant.  But the 6^th Defendant has nothing to gain personally over and above that of the other beneficiaries.  As in In re Buckton, the Third Party Proceedings are a convenient means to have an issue which is of interest to the estate and which has arisen out of the administration of the estate determined.   

26.What is objectionable about the Third Party Proceedings is the way in which they were conducted by the 6^th Defendant.   As I have found, the proceedings were conducted by the 6^th Defendant in a hostile, scandalous, vexatious, malicious and oppressive manner which justified an award of costs on indemnity basis against him.  Whether the estate has to pay the costs of the Third Party Proceedings is to be determined on the substance or nature of the proceedings rather than on the manner in which the proceedings were conducted.  In substance, the Third Party Proceedings sought to determine a question for the benefit of the estate.  That the proceedings were carried out maliciously does not alter the nature or substance of the proceedings.

27.Mr Cheung also referred to In re Evans, Deceased [1986] 1 WLR 101 in which the English Court of Appeal held that whereas it was a matter for discretion whether the administrator of an estate should be indemnified out of the estate for the costs of defending a claim against the estate, or for pursuing an action on its behalf, regardless of the outcome and in cases where the beneficiaries were all adults capable of deciding whether or not to resist or pursue a claim, the potential injustice of such an indemnity to a successful claimant or defendant had to be balanced by countervailing consideration of some weight, such as the merits of the case, before it would be right for a claim to be defended or pursued at the cost of the estate.  It is immediately apparent that In re Evans, Deceased has no bearing as to which category the present case belongs. 

28.I therefore reach the conclusion that the present case falls within the second category of cases in In re Buckton.  The question then is whether there is any reason for me to exercise my discretion otherwise than to order all costs of the parties to be paid out of the estate.

The rationale behind the Costs Order

29.Having found the 6^th Defendant’s conduct in these proceedings scandalous, vexatious, malicious and oppressive and justified an award of costs on indemnity basis, the first discretion I exercised was to disqualify the 6^th Defendant from having his own costs paid out of the estate despite this is a case falling within the second category of In re Buckton.  The next question is how should I exercise my discretion as regards paying the costs of the 15^th Defendant out of the estate.

30.Patrick Chan J, as he then was, must have in mind the rule in In re Buckton when he made the 1995 Costs Order that the costs of the 15^th Defendant be paid by the estate.  The 1994 Trial before the learned judge lasted for fourteen days and the costs hearing before me took sixteen days.  There were more and more completed issues in the trial before me.  Many of the issues were maliciously raised by the 6^th Defendant or unreasonably raised by the 15^th Defendant.  I have carefully excised all the costs unreasonably incurred by the 15^th Defendant which I assessed to be 25% of the costs incurred by the 15^th Defendant since 11 May 1999.  Then I ordered the 6^th Defendant to pay all the other costs of the 15^th Defendant, including the costs of the 1994 Trial and the costs of the appeal in 1995 on an indemnity basis.  That I thought was the proper costs order as between the 6^th and the 15^th Defendants.  On the principles of In re Buckton, the 15^th Defendant is also entitled to have his costs paid by the estate.  While the 15^th Defendant suffered at the hands of the 6^th Defendant because of the 6^th Defendant’s personal vendetta against him, I was concerned if the estate should suffer the same, especially as the estate was not a party to the 6^th Defendant’s scandalous conduct.  Hence, I ordered the estate to pay 50% of the costs for the 6^th Defendant upfront in items (6) and (7) of the Costs Order.  The Plaintiffs now seek to review those items of the Costs Order.  Mr Cheung advanced four grounds why no costs order should be made against the estate.   

The Plaintiffs’ Ground (1) - no costs should be made against non-parties

31.Mr Cheung submits that the core of the Third Party Proceedings was a dispute between the 6^th and the 15^th Defendants.  All the other beneficiaries had to sit back for years waiting anxiously for that dispute to be resolved.  They took no part in or had no control of the proceedings or how they should be conducted.  As the proceedings progressed, it became clear that the proceedings were hostile litigation at the expense of the estate.  Therefore, he argues that the beneficiaries, hence the estate, are not parties and should not be ordered to pay costs of the 15^th Defendant.  That would be a valid submission if the Third Party Proceedings were separate and outside the administration of the estate, but they are not.  The Third Party Proceedings are offshoot from the Amended Original Summons.  As I have found that the Third Party Proceedings fall within the second category of In re Buckton, an order for the successful party’s costs to be paid out of the estate is not inappropriate.

32.Next, Mr Cheung submits that a costs order on indemnity basis was unfair as it means that all the beneficiaries had to bear costs for what they had no control of.  That was also my concern when I reduced the estate’s liability for costs to 50%.  I was unassisted by counsel for the estate then.  I think that order was wrong in principle.  An order on indemnity basis is a punishment for the malicious way in which a party conducted his litigation.  The estate had no control over the way the 6^th Defendant conducted the proceedings.  The conduct of the 6^th Defendant could not be fairly attributed to the estate.  I do not think the estate has any obligation to indemnify its beneficiaries from malicious litigation.  I think the liability of the estate should not extend beyond that under the rule in In re Buckton.  As for the difference between indemnity costs (as with the actual costs incurred) and solicitor and client costs, the 15^th Defendant had to blame his own misfortune.

The Plaintiffs’ Ground (2) and (4) - other beneficiaries have suffered and have been prejudiced

33.These two grounds are inter-related and could be conveniently dealt with together.  Mr Cheung submits that the Third Party Proceedings have unnecessarily prolonged the probate action as a result all the other beneficiaries have suffered severe prejudice.  The final distribution of the estate has been delayed and the amount available for distribution will be significantly reduced.  I fully share that view.  But, In re Buckton has stood unchallenged for more than thirty years.  If the law is that the estate has to pay the costs of the parties in any determination for the benefit of the estate which has arisen out of the administration of the estate, then these are the consequences which the beneficiaries have to live with.  They should take steps to mitigate those consequences or to protect their own interest.  What have they done?

34.The 15^th Defendant was one of the youngest amongst the sixteen siblings.  Most of them are older than the 15^th Defendant and had witnessed the pregnancy of Madam Wong Woon Wan and the birth of the 15^th Defendant into their family.  They could have effectively persuaded the 6^th Defendant to abandon these proceedings which they, too, must have known were conducted out of bad faith or could have joined force with the 15^th Defendant and effectively shorten the proceedings.  None, except the 2^nd Plaintiff, testified on behalf of the 15^th Defendant during the 1994 Trial.  None, except the 2^nd Plaintiff and the 8^th Defendant, provided blood sample for the DNA test to support the 15^th Defendant’s claim to legitimacy.  Excluding the 6^th, 7^th and 12^th Defendants who were in Shanghai when the 15^th Defendant was born in the Philippines and excluding the 2^nd to 5^th and the 16^th Defendants who are children of the two concubines, the attitude of most of the 15^th Defendant’s own blood siblings was one of indifference.  The 1^st Plaintiff was married into the family well after the 15^th Defendant was born and could not have assisted him.  The appalling truth is that most of the beneficiaries were happy to let the 6^th Defendant conduct the show as they watched.  Presumably, the majority was waiting to share in the loot of the 6^th Defendant’s malicious prosecution, if the 6^th Defendant could be successful as he was in the Macau proceedings.  How can the estate complain for delay, prejudice and for having to pay the 15^th Defendant’s costs upfront when the beneficiaries contributed to the delay by their self-interest? 

35.Mr Cheung further argues that a costs order that imposes upon the estate duty to bear all or any part of the 15^th Defendant’s costs carries the effect of releasing the 6^th Defendant from his liability to pay costs, which liability was wholly brought about by the 6^th Defendant but will have to be shared by the unblemished beneficiaries.  He argues that the costs order would effectively assist and encourage the 6^th Defendant to continue his long legal battle with the 15^th Defendant.  I do not agree with that view.  Firstly, I do not think all the beneficiaries are unblemished.  The majority of them have, by their indifferent attitude, encouraged the 6^th Defendant in his malicious prosecution and fuelled him with expectation of success.  Secondly, such an order does not release the 6^th Defendant from his liability to pay costs.  The 15^th Defendant has a right to enforce the costs order and has the obligation to reimburse the estate with costs recovered.  The effect of such an order would be to partly indemnify the 15^th Defendant but not to release the 6^th Defendant from his liability.  I could see no merit in Mr Cheung’s argument.  Thirdly, in my view, even if I make no order against the estate, the 6^th Defendant would fight the battle to its bitter end.  Indeed, he has appealed against my Costs Order.  Perhaps, the only way to stop the 6^th Defendant from his lunatic litigation is an order for security for costs or a bankruptcy order against him.  

36.On balance, I think the 15^th Defendant suffered more prejudice at the hands of the beneficiaries than have the beneficiaries suffered at the hands of the 6^th Defendant.

The Plaintiffs’ Ground (3) - the 15^th Defendant is estopped from recovering costs from the estate

37.Lastly, Mr Cheung referred me to the 15^th Defendant’s solicitors’ second letter dated 11 January 2005 to the Plaintiffs’ solicitors.  I have set out the circumstances in which that letter was issued in paragraphs 14 to 16.  Is that letter binding on the 15^th Defendant?   Mr Chow said in his affidavit that what was said in that letter was an undertaking of the 15^th Defendant.  With respect, I disagree.  In my view, the letter was what it said it was, a statement of intention of the 15^th Defendant.  As shown in the Plaintiffs’ solicitors’ first letter of 9 June 2005 to Messrs Huen & Partners, they did not treat the second letter dated 11 January 2005 as an undertaking or a promise.  They were still reminding Messrs Huen & Partners to give them notice if the 15^th Defendant would claim costs against the estate.  The promise was not supported by consideration.  That letter did not constitute a contract or an undertaking. 

38.Mr Cheung argues that the 15^th Defendant is nevertheless estopped from recovering costs against the estate by reason of the representation contained in that letter.  He submits that had I been informed of the 15^th Defendant’s assurance, I would have given due consideration to the estate’s position.  I certainly would have and would not have ordered costs against the estate without hearing from the Plaintiffs.  It was most inappropriate that counsel for the 15^th Defendant did not inform me of the position of the estate. 

39.However, the estate has not in any other way acted in reliance on the representation, apart from not being legally represented at the trial.   The Plaintiffs attended the hearing almost throughout.  The estate had all along expected that it will have to pay the 15^th Defendant’s costs upfront and withheld about $9 million in the account of the estate to meet that contingency.

40.In any event, no estoppel could be made out for the simple reason that the Plaintiffs could not have suffered any detriment.  They have been deprived of the chance to be heard at the trial, but they have not lost their right to be heard.  They could apply as they now do to review the Costs Order and be heard.  Indeed with hindsight, they had much to gain in the way the events turned out as they have spared themselves of the costs of three sessions of sixteen days of very wasteful hearing on issues which do not concern the estate. 

The appropriate costs order

41.Though the Third Party Proceedings were conducted by the 6^th Defendant in a hostile manner, they are in substance for the benefit of the estate.   They seek determination of an issue of interest to the estate and which has arisen out of the administration of the estate.  In accordance with the principle in In re Buckton, the costs of all the parties should be taxed on a solicitor and client basis and be paid out of the estate. 

42.But, in view of the manner in which the 6^th Defendant conducted the proceedings, it was appropriate that he should be deprived of that benefit.  It was unfortunate that the 15^th Defendant was dragged into these wasteful proceedings which were conducted out of malice and in a scandalous and vexatious manner.  As between the 6^th and 15^th Defendant, it is appropriate that the 6^th Defendant shall pay the costs of the 15^th Defendant on an indemnity basis after discounting that part of the costs which the 15^th Defendant has unreasonably incurred.  Those costs have been provided for in my Costs Order of 30 May 2006.

43.Neither the 15^th Defendant nor the estate could have any control over the way the 6^th Defendant conducted the proceedings.  Having considered the 15^th Defendant’s conduct and that of the other beneficiaries, I could find no reason to depart from the general rule in In re Buckton.  As a matter of principle, it was wrong to order the estate to pay the 15^th Defendant’s costs or any portion of it on an indemnity basis.  Hence, the estate should pay the full costs of the 15^th Defendant to be taxed as between solicitor and client upfront for the 6^th Defendant.  Any costs recovered from the 6^th Defendant should be first applied to reimburse the estate of the upfront costs it paid to the 15^th Defendant for the 6^th Defendant.  If indemnity costs are not recoverable from the 6^th Defendant, the 15^th Defendant has to bear the difference between indemnity costs and solicitor and client costs. 

Conclusion

44.I find that the Plaintiffs and the estate have been unfairly deprived of their chance to be heard before the Costs Order affecting the estate was made.  Accordingly, I set aside items (6) and (7) of my Costs Order dated 30 May 2006 and substitute them with the following order: 

(6)   the total of the 15^th Defendant’s costs in items (1) to (4) above, not inclusive of interest, taxed as between solicitor and client or as agreed be borne by and paid out of the estate of Kwan Kai Ming; and

(7)   upon recovery of any costs from the 6^th Defendant, the 15^th Defendant shall pay the same to the estate of Kwan Kai Ming to the extent that the costs paid by the said estate under item (6) have been fully reimbursed.

45.As the present application by the estate is an estate matter which has arisen out of the administration of the estate, I make an order that the parties’ costs of this application shall be taxed as between solicitor and client and paid out of the estate. 

Mr Y L Cheung, instructed by Messrs Li, Chow & Company, for the Plaintiffs

Ms Vivian Chih, instructed by Messrs Huen & Partners, for the 15^th Defendant