Nanyang Commercial Bank Trustee Ltd and Another v. John Ku, Tam & Ho (A Firm)

CACV 234/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 234 OF 2010

(ON APPEAL FROM HCA 1742 of 2007)

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BETWEEN

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Before : Hon Cheung, Yeung and Yuen JJA in Court

Date of Hearing : 5 May 2011

Date of Judgment : 24 May 2011

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J U D G M E N T

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Hon Cheung JA :

1.This is the defendant’s appeal against the assessment of damage made by Master K Lo. In a writ endorsed with an endorsement of claim, the plaintiffs claim against the defendant for the following relief :

(1) Notarial fees, service charges as well as loss and damages arising from the defendant’s unauthorized use of 33 Notarial Certificates prepared and issued by the 2^nd plaintiff but entrusted by the 1^st plaintiff with the defendant on or about 18 April 1997 in connection with the application to the Probate Registry of the High Court for the grant of representation in respect of the estate of Choy Ching Ming, deceased;

(2) Interest pursuant to Sections 48 and 49 of The High Court Ordinance, Cap. 4;

(3) Costs of this action; and

(4) Further and/or any other relief.

2.The defendant did not file any notice of intention to defend and as a result, on 6 October 2008, interlocutory judgment was entered against the defendant that ‘the defendant do pay the 1^st plaintiff and 2^nd plaintiff damages with interest thereon to be assessed and costs to be taxed’. 

3.Master Lo awarded damages of HK$905,957 to the 1^st plaintiff and HK$4,529,785 to the 2^nd plaintiff together with interest and costs.    

The parties

4.Mr. Choy Ching Ming (‘the deceased’) died in Hong Kong on 28 August 1996 without leaving a will.  After his death he was found to be a rich man having an estate of more than HK$180 million.  Under the laws of intestacy in Hong Kong, the persons entitled to his estate comprised of his relatives living in Shanghai in the Mainland. They included a surviving brother Cai Guo Xiang (‘Cai’) and the surviving children of the deceased’s brothers and sisters.  Two women also claimed to have an interest in the deceased’s estate, namely, Madam Wong Siu Mui (also known as Ng Kwan Ying (‘Wong’) who claimed to be his lawful wife and Madam Elsa Mok Hang Won (‘Mok’) who had been cohabiting with the deceased until his death.  Mok claimed that the deceased had made a will in her favour.

5.Cai was the representative of the beneficiaries in the Mainland.  The 1^st plaintiff was the attorney of Cai and the 2^nd plaintiff was and still is a public office in the Mainland vested with the statutory authority to issue notarial certificates. 

6.The defendant was and still is a firm of solicitors practising in Hong Kong.  

The proceedings

7.In late 1996 the 1^st plaintiff applied to the 2^nd plaintiff for the issue of notarial certificates for the purpose of applying for the grant of letters of administration of the estate of the deceased.  The 2^nd plaintiff issued 33 notarial certificates.  

8.According to the plaintiffs, the 2^nd plaintiff was entitled to charge notarial fees at the rate of 5% of the gross value of the estate and the 1^st plaintiff was entitled to be remunerated at the rate of 1% of the gross value of the estate for their services.  

9.Due to the efforts of third parties including that of the 1^st plaintiff the beneficiaries in the Mainland and Wong reached a compromise and they decided to fight Mok for the estate.  They agreed to distribute the estate of the deceased amongst themselves.

10.On 10 June 1997 a deed of family arrangement (‘DFA’) was executed by Cai, the other beneficiaries in the Mainland, Wong and the 1^st plaintiff.  They agreed that the 1^st plaintiff in its capacity as the lawful attorney of Cai shall apply for the letters of administration of the estate of the deceased in Hong Kong.  Under clause (7) of the DFA, Cai, the Mainland beneficiaries and Wong agreed with the 1^st plaintiff that it was entitled to be paid out of the estate of the deceased the expenses set out in the schedule of the DFA which included a 5% notarial fee based on the gross estate value (Clause 5 of the Schedule) and remuneration of the 1^st plaintiff (acceptance fee of 3% on the gross market value of the estate and administration fee of 1% per annum accruing from November 1996) (Clause 8 of the Schedule).  The latter was only relevant if the 1^st plaintiff became the administrator of the estate. 

11.After the execution of the DFA the 1^st plaintiff managed to obtain legal aid for Cai and the beneficiaries in the Mainland.  The Director of Legal Aid granted a legal aid certificate to a Hong Kong person called Lam Fong (‘Lam’) who was said to be Cai’s attorney ad litem.  The defendant was appointed to act for Lam and in turn for Cai.  The defendant disputed that it was acting for the plaintiffs.

12.In November 1997 the defendant issued a probate action (HCAP 13/1997) in the name of Lam as lawful attorney for Cai, naming Mok as the defendant.  The writ claimed that the deceased died intestate and the Mainland beneficiaries were solely entitled to his estate.  It claimed that the alleged will given to Mok by the deceased was invalid.  

13.Yam J who heard the case decided that Mok had failed to prove the will.  However he also found that the deceased had made a gift in the nature of a Donatio Mortis Causa (‘DMC’) in favour of Mok.  By this gift the deceased had practically given all his estate to Mok.  According to the defendant, after deducting the portion represented by the DMC gift, the estate to be distributed to the Mainland beneficiaries would only be about $6 million. 

14.Lam on behalf of Cai lodged an appeal against the judgment.  However before the appeal was heard a settlement was reached between the parties.  By the settlement Mok agreed to take only half of the estate of the deceased.  In simple terms, after deducting expenses, Mok would get about HK$83 million and Cai would get HK$83 million.  The net sum that was to be given to the beneficiaries in the Mainland would be about HK$50 million (or 60% of HK$83 million) because Wong would be entitled to 40% of HK$83 million under the DFA.  

Bermuda Trust

15.Yam J on 13 June 2001 appointed Bermuda Trust (HK) Limited (‘Bermuda Trust’) to act as the administrator for the estate of the deceased and the trustee of the assets given to Mok under the DMC.

16.Yam J directed that the defendant and Messrs Josip Ma & Co (who acted for Mok) to assist Bermuda Trust ‘for the purpose of applying for the grant of administration in respect of the estate and the assets of the DMC of the deceased’.  

17.Bermuda Trust applied for estate duty clearance.  Since the DMC took place within three years before the deceased died, the gift under the DMC was subject to estate duty.  The schedule of the deceased’s properties for the purpose of estate duty issued by the Estate Duty Office of the Inland Revenue Department attached to Letters of Administrations later granted to Bermuda Trust showed that the value of the estate was HK$181,191,399.50. 

Request for death certificates

18.On 7 July 2001 Bermuda Trust applied in the High Court (HCAG 005504/01) for the Letters of Administration.  

19.By a letter dated 31 July 2001 the Probate Registry (‘the Registry’) requested the defendant to file death certificates of the parents of the deceased and his six siblings.  

20.The defendant responded by a letter dated 13 August 2001 stating that,

‘ Concerning Requisition No. 4 [i.e. the request for death certificates], we would like to inform that the subject Deceaseds all died in China and their death certificates with due authentication would only be issued upon giving of an undertaking to make payment of notarial charges equivalent to 4% of the overall estate amount including the DMC gift to which undertaking no beneficiary is in a position to make decision on this aspect.

That being the case and since the applicant herein has already been appointed by the Court as the Administrator of the estate under Section 36, may we hereby apply for the requirement of file death certificates be dispensed with.  Enclosed herewith is the letter of Messrs. Josip Ma & Company dated 9^th August 2001 confirming not obtaining the notarized documents.’

21.The Registry insisted on the filing of the certificates.  By letter dated 16 August 2001 the Registry informed the defendant that,

‘ While I appreciate that substantial charges may be incurred in obtaining the Notarial Death Certificates as required by Requisition No. 4 and despite of the appointment by the Court of the “Trust Corporation” as the Administrator of the estate of the deceased, I regret that the requirement to the such death certificates may not be dispensed with since such death certificates are necessary to prove that those persons having a prior right to the grant have been cleared off (as required under Rule 6 of NCPR, Cap. 10).

Please comply with Requisition No. 4 accordingly.’

22.The 1^st plaintiff had previously supplied the death certificates to the defendant for the purpose of the probate action.  The original certificates had since been returned by the defendant to the 1^st plaintiff.  The defendant requested the 1^st plaintiff to supply them with the certificates for submission to the Registry.  However this was refused by the 1^st plaintiff who insisted that the fees for the documents payable to itself and the 2^nd plaintiff should be settled or adequately safeguarded first before the certificates could be released.  

23.By a letter dated 17 August 2001 the defendant asked the Registry to dispense with the filing of the original death certificates.  The letter stated that

‘ We present herewith :-

1. Judgment under HCPA 13/97 dated 26^th March 2001 handed down by Mr. Justice Yam with direction to deal with the appointment of administrator under Section 36 at the adjourned hearing (see pages 30 and 31 thereof);

2. Order dated 13^th June 2001 made at the adjourned hearing appointing the Applicant herein as the administrator; and

3. Certified true copy notarial certificates of death of the father and mother of the deceased and births of the deceased and his younger brother, exact copies whereof have been produced to Court under HCPA 13/97 in support of the claim by the younger brother of the deceased.

We are unable to produce the originals of the required death certificates for the same are now with the agent of the Notarial Office awaiting for undertaking to pay the notarial fees to be given on which undertaking no beneficiary is in a position to make the decision.

Without the required death certificates in hand, we are instructed that the appointed administrator is not in a position to affirm the date(s) and place(s) of death(s), if therefore those details are left out in the filed Affirmation by the Administrator.’

24.By cover of that letter the defendant supplied to the Registry photocopies of the notarised death certificates of the deceased’s parents and the birth certificates of the deceased and his younger brother Cai.  These documents were used in the probate action and kept by the defendant.  

25.The Registry on 23 August 2001 informed the defendant that

‘ Ms. Registrar H. C. Wong has directed that the filing of original death certificates (as required under Requisition No. 4) be dispensed with.’

26.On 1 December 2001, the Letters of Administration of the estate of the deceased was granted to Bermuda Trust.

Demand for fees

27.In June 2002 the 1^st plaintiff demanded payment from Bermuda Trust of the notarial fees and the fees of the plaintiffs in the sum of HK$10,871,484,400.  This amount was based on the 2^nd plaintiff’s 5% charge on the value of the estate of HK$181,191,400 at HK$9,059,570 and the 1^st plaintiff’s 1% handling fees based on the same value of the estate at HK$1,811,914.  Bermuda Trust was only prepared to pay HK$5,435,742 being half of the notarial fees and expenses.  Mok refused to pay any of the fees.

28.Bermuda Trust commenced High Court proceedings (HCMP 2953/2002) against, among other persons, the plaintiffs seeking a direction from the Court about the claims by the plaintiffs.

29.Yam J ordered that Bermuda Trust be released from liabilities in respect of the plaintiffs unless the plaintiffs lodged their claims against it within a specified time.

30.The plaintiffs did not lodge any claim against Bermuda Trust having been paid HK$5,435,742 by Bermuda Trust. The plaintiffs claimed that they were entitled to recover the remaining HK$5,435,742 from the defendant.  

The approach

31.An appellate court will only interfere with an assessment of damages in two situations.  First, if the Judge has acted on a wrong principle of law (for example, he has misdirected himself on law or has given undue or insufficient weight to the evidence).  Second, if he has made an entirely erroneous estimate of the damages (for example, if the damages are hopelessly incorrect or if it can be shown by calculation that the Judge must have wrongly taken or failed to take certain elements into consideration).  See McGregor on Damages 18^th Ed para 46-026.

Damages for conversion

32.The parties proceeded on the basis that the converted properties were the four notarised certificates supplied by the defendant to the Registry.  The parties agreed on the measure of damages for conversion.  It is normally the market value of the goods ascertained at the time of the conversion.  If there is no market for the goods, the value of the goods is ascertained by any available evidence, such as the price at which the goods have been bought, or sold under a subcontract (Clerk & Lindsell On Torts 19^th Ed para. 17-88, 17-89 and 17-93)

33.The parties further proceeded on the basis that the best evidence of the value of the converted properties would be the amount which the plaintiffs could reasonably obtain from the use of the notarial certificates.  In this case it is the notarial fees and service charges of the plaintiffs respectively.

What were the rates?

34.The starting point of the analysis is what were the rates of the service provided by the plaintiffs.  In relation to the 1^st plaintiff, the rates were contained in a pamphlet on fees for the provision of attorney service.  The relevant part (1(2)) stated that in respect of administration of estate, upon completion of instruction, 1% of the total value of the estate.

‘收費表
項目	摘要	收費
1. 遺產承辦
(1) 委託費	按遺產總市值計	2% (最低收費2,000元)
(2) 完成委託或中途撤銷委託	按遺產總市值計	1% (最低收費1,000元)
(3) 管理費	按遺產總市值計	每年1% (最低收費1,000元)’

35.In relation to the 2^nd plaintiff, the charge was in accordance with the written notification from the Justice Department of the Mainland, Memo No. 202 of 1991, which set out the approved notary charges for notary offices (Memo No. 549 of 1991 issued by the Pricing Bureau of the Ministry of Finance, PRC dated 19 November 1991).  Item 13 dealt with certification for succession and gift.  The charge was according to the amount received by the beneficiary.  Explanation Note (2) identified three situations in respect of overseas properties, namely, succession, gift by way of will and gift.  The rates charged were in accordance with the target value received.  A discretionary charge of not exceeding 5% was levied on difficult and complicated certifications.

‘ 公証費收費標准表

收費表

項目	公証事項	收費標准
13	証明財產繼承、贈與	按受益人收入金額總數： (1)        不滿1萬元的收1%，最低10元； (2)        1萬元以上的收2%。

說明：

(1)   如當事人以繼承域外財產為目的而要求辦理親屬關係、出生、死亡公証書的，按“証明財產繼承”的標准收費。為繼承域外同一宗財產而同時辦理“財產繼承”、“親屬關係”、“出生”或“死亡”等多項証明時，只按“財產繼承”標准收一次費。

(2)   繼承、遺贈、贈與域外財產按所得標的額收費。疑難复什的証明，可酌情增收，最高不超過5%。’

36.It is clear from these published documents that the rates charged by the 1^st plaintiff were based on the value of the estate and the 2^nd plaintiff’s charge was based on the amount of the estate received by the parties to the DFA and Mok.

What was the estate?

37.The next important question is what was the estate of the deceased.  It is clear that according to the order of Yam J, the estate, in the sense of what the deceased was beneficially entitled to and able to confer on the beneficiaries on his death, was only a small sum, namely, HK$6 million out of HK$181 million.  The balance of that amount was the DMC gift given to Mok by the deceased.  Although the properties comprised in this gift were also in the name of the deceased, he was merely holding them as a trustee for Mok.  He was a bare legal owner of these properties.  The parties i.e. Cai and Mok had later compromised and agreed to share the estate equally i.e. each would be entitled to $90 million before deduction of expenses, but this will not change the nature of their respective entitlement as there was no successful appeal and Yam J’s order stood.  Mok’s share was still not by way of succession of the deceased’s estate but under the gift.  She only agreed to take less of the gift.

38.The legal position is discussed in In re Hudson. Spencer v. Turner [1911] Ch D206 where a testator made a donatio mortis causa of a sum of money owing to him on a deposit account in favour of a person by the delivery to her of the deposit notes.  The question is whether so much of the estate duty payable in respect of the testator’s estate as was attributable to the subject-matter of a donatio mortis causa was payable out of the general estate of the testator or by the donee.

39.Warrington J at 211 explained :

‘ The subject-matter of a donatio mortis causa does not pass to the executor as such, in my opinion. All that passes to the executor is the bare legal interest which was vested in the testator up to the moment of his death; but the executor holds that bare legal interest not qua executor, but as trustee for the object of the gift—he has no interest in it as executor.’

40.Bermuda Trust was appointed by Yam J in two different capacities.  First, as an administrator for the estate of the deceased and second, as a trustee for Mok. The latter appointment was to facilitate the vesting of legal title to the DMC properties on Mok.  The fact that Yam J drew this distinction in his judgment put the matter beyond doubt that one must recognize the different nature of the two component parts of the deceased’s ‘estate’.

41.The fact that under the Schedule of the letters of administration, the value of estate was stated to be HK$181 million was in the context of the value for estate duty purpose.  Estate duty was still applicable at the time of the deceased’s death.

Were the certificates necessary for the grant?

42.Mr. Edward Chan SC and Ms Joyce Chan, counsel for the defendant, argued that the Registry did not issue the Letters of Administration as a result of the photocopied certificates supplied by the defendant.  The Registry required eight death certificates but the defendant only supplied two of them.  In addition the birth certificates of the deceased and his younger brother not required by the Registry were also supplied by the defendant.  If the requirement of the Registry was for proof of evidence that prior interest of those who were entitled to the grant had been cleared, then clearly the documents supplied by the defendant would not be sufficient to meet this need. 

43.In the light of the contemporaneous correspondence, I disagree with the Master’s view that the certificates were necessary for the issue of the grant.  As Bermuda Trust was appointed by the Court, there was no question of it being required to clear any prior interest before it can receive the grant.  The certificates may be relevant to ascertain who were the beneficiaries but I do not regard their production as a prerequisite for the issue of the grant.  A more probable reason for the Registry to later dispense with the certificates was the terms of Yam J’s order appointing Bermuda Trust as the Administrator.  Although the defendant, by not filing the notice of intention to defend, had admitted the claim for conversion of the certificates pleaded in the Endorsement of Claim (see Lam Chi Fat v. Liberty International Insurance) [2003] 2 HKLRD 169 citing Cribb v. Freyberger [1919] WN 22 (CA) and Hong Kong Civil Procedure 2011 Vol 1 para 13/0/10), it does not mean that causation for the damage has also been admitted or proved.

44.In any event, even if, for the purpose of argument, Bermuda Trust was required to produce the certificates, they were only needed for the purpose of obtaining the Letters of Administration and Mok could have had the title to the DMC properties vested in her under other, less expensive, ways, e.g. making applications to the court under Order 15 Rule 6A. 

45.Neither Bermuda Trust nor Mok had agreed to pay any fees to the plaintiffs in respect of the gift.  In respect of the estate under the Letters of Administration, the value was about $90 million before the deduction of expenses and Bermuda Trust had already paid the plaintiffs HK$5,435,742 which was half of the 1% charged by the 1^st plaintiff and 5% charged by the 2^nd plaintiff on HK$181,191,400.  The plaintiffs were not entitled to levy a charge on the DMC gift as well.  The Master was wrong to order the defendant to pay any further sum by way of damages to the plaintiffs.  She had erred on a principle of law.

Conclusion

46.I would allow the appeal and set aside the damages assessed by the Master.  The defendant is entitled to the costs of the appeal and below.

Hon Yeung JA :

47.I agree.

Hon Yuen JA :

48.I agree with the judgment of Cheung JA.

Mr. Anderson Chow SC and Ms Queenie Lau, instructed by Messrs Liu, Chan & Lam, for the 1^st and 2^nd Plaintiffs

Mr. Edward Chan SC and Ms Joyce Chan, instructed by Messrs John Ku & Co., for the Defendant

Please refer to FAMV37/2011 for the relevant appeal(s) to the Court of Final Appeal.