Wong Tat Lun Eddie and Others v. Wong Chi Ho Jimmy and Others

HCMP 2391/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2391 OF 2013

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BETWEEN

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D E C I S I O N
(On Costs)

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Introduction

1.On 21 October 2014, this court handed down a judgment dismissing an application by Ps under section 33 of the Probate and Administration Ordinance Cap 10 and Order 85 of the Rules of the High Court, for an order, among other things, that D1,  the executor of the estate of the Deceased be removed (“Judgment”).  As for costs, I directed that the parties to lodge their written submissions on costs and that the matter to be dealt with on paper, unless otherwise directed by the court.

2.The terms/abbreviations in the Judgment are adopted herein, unless otherwise stated.

3.Mr Ho SC submitted on behalf of D1 that there was no sufficiently exceptional matter that justified the departure from the usual costs should follow the event, and that this court should order costs in favour of D1, with certificate for Counsel in the Leave Application, and 2 Counsel for the 1^st and 2^nd Hearings.

4.Although Ps had failed in the Removal Application, Mr Lam  SC submitted on their behalf  that this was not a simple or straightforward case that costs should follow the event, and that the appropriate costs order should be as follows:

(i)   D1 to pay the costs of Ps up to D1’s 2^nd affirmation to be taxed on a party and party basis if not agreed; and

(ii)  The costs of Ps and D1 for the period after D1’s 2^nd affirmation shall be paid out of the Deceased’s Estate, to be taxed on a solicitor and client basis if not agreed.

(iii)  No order as to costs in respect of D2 – D4, who were not represented and had not appeared.

General Principles

5.Mr Lam had referred this court to s 52A(1) of the High Court Ordinance, Cap 4 and also Order 62 of RHC.

6.Order 62 r 3(2) of RHC states as follows: 

“If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs”.

7.Order 62 r 5(1)  and (2) further state that:

“1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account-

(aa) the underlying objectives set out in Order 1A, rule 1;

(a) …

(b) …

(c) …

(d) …

(e) The conduct of all the parties;

(f) Whether a party has succeeded on part of his case, even if he has not been wholly successful, and

(g) …

(2) For the purpose of paragraph (1)(e), the conduct of the parties includes-

(a) Whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b) The manner in which a party has pursued or defended his case or a particular allegation or issue;

(c) … and

(d)  Conduct before, as well as during, the proceedings.”

8.It was held by Kwan JA in Pfeiffer GmbH and Cheung Hay Kit CACV 245/2013 (29/10/2014) that:

“Although the general rule that costs will follow the event still plays a significant part, it is but a starting point from which the court is more ready to depart, mindful that too robust an application of the general rule encourages litigants to increase the costs of litigation since it discourages them from being selective as to point they take…[1]”

9.Mr Lam had referred to Cheung Pui Yuen v Worldcup Investment Inc (2009) 132 HKCFAR 31 where Lord Scott of Foscote NPJ of the Hong Kong Court of Final Appeal approved the principles propounded in Re Buckton [1907] 2 Ch 406 and Lord Scott had said as follows:

“56. The case on costs, as explained by Mr Thomas, is based on the principle that where proceedings have been properly instituted for the benefit of a trust fund, or a deceased’s estate, the court may, in an appropriate case, make an order for the costs of the proceedings to be borne by the fund or estate, as the case may be. The principle was explained by Kekewich J in In re Buckton [1907] 2 Ch 406 at 414/415. He referred, first, to cases in which trustees ask the court to determine some question which has arisen in the administration of the trust. In such cases, said Kekewich J, the general rule would be that the costs of all necessary parties would be taxed as between solicitor and client and paid out of the estate. He then referred to a second class of case in which the question for determination by the court is raised not by the trustees but by some of the beneficiaries. In such a case, if the question raised would have justified an application by the trustees but for some reason or other the application has been made by beneficiaries, the same costs consequences, he said, should follow:

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 as a whole.” (p.415)

Kekewich J distinguished, however, the first and second classes of case from the third class, a class where the application to the court is made by a beneficiary but is, in substance although not in form, an adverse claim made in hostile litigation. In such a case, said the judge, the rule applicable to hostile litigation should be applied and the unsuccessful party ordered to pay the costs.

57. Kekewich J pointed out, at 415, the difficulty in many cases in deciding whether the particular case falls within the second class or the third class he had described but, subject to that difficulty, the distinction is a legitimate and well recognized one. It is relied on by Mr Thomas. He is entitled, in my opinion, to do so. The events regarding the gift of the Worldcup and Profit-taking shares in 1985 were known at first hand only to the deceased and Madam Chin and the probative weight proper to be given to the 1996 declarations, critical to the success of Four Pillars and Megabest, was a matter that cried out for judicial evaluation and determination. The executors’ conflict of interest (see para.49 above) made it reasonable for beneficiaries to initiate the proceedings.

58. There is, moreover, a further principle regarding litigation to resolve questions arising in the administration of a deceased’s estate that needs to be borne in mind. If it is the deceased who is responsible for the creation of the doubts that have necessitated an application to the court for the doubts to be resolved, it is the deceased’s estate on which the costs of the application should fall. The principle is a well known one: “where the difficulty is occasioned by the … conduct of the testator … the costs are costs of administration” (Williams, Mortimer & Sunnucks’ Executors, Administrator & Probate 19^th Ed. at para.66 – 25; see also In re Hall-Dare [1916] 1 Ch 272 at 277 and, in Hong Kong, Nina Kung v. Wang Din Shin (No.2) (2006) 9 HKCFAR 800 at 811).

59.   But these principles do not constitute rules.  They provide a guide as to how, in probate or administration proceedings, judicial discretion regarding the costs of litigation should be exercised.  The answer to that may depend not only on the principles referred to but also upon the particular circumstances in which the litigation has been commenced and prosecuted.  So I must turn now to the litigation that has led to this appeal[2].”

10.Mr Lam referred to the judgment of the Court of Appeal in the Supreme Court of Western Australia in Saffidi v Montevento Holdings Pty Ltd [2011] WASCA 146 (07/07/2011) which involved an application to remove a trustee, and the supplementary costs judgment [2011] WASCA 146 (S) (11/07/2011). 

11.As pointed out by D1’s Counsel, it turned out that there was an appeal after the above Saffidi CA decision and that the decision was overruled by the High Court of Australia.  The Scaffidi CA (Costs) was set aside on the ground that the appeal on the substantial issue had succeeded.  I accept there was no intention on the part of Ps’ Counsel to mislead the court and accept their apologies, and as pointed out by Mr Lam, there was no discussion on the costs order by the High Court on appeal, or the principles in Re Buckton or those principles propounded in Scaffidi CA (Costs) had been cited in subsequent cases.

12.Mr Ho had distinguished the Pfeiffer case, the Worldcup case and the Scaffidi CA (Costs) from the present case, submitting that they were not related to probate actions.  He had referred this court to the principles set out Ribeiro PJ in Nina Kung v Wang Din Shin (No 2) (2006) HKCFAR 800 in relation to costs in contested probate proceedings.

13.As can be seen from Nina Kung, the general rule where opposition to a will is unsuccessful is that costs follow the event.  However, if the case can be shown to fall into one or other of the two exceptions, the order is, in the first category (where the litigation is caused by the conduct of the testator or the residual beneficiary) for the costs to come out of the estate; and in the second category (where circumstances lead reasonably to an investigation of the will’s validity) for there to be no order as to costs. 

14.Further, as seen in Shovelar v Lane [2012] 1 FCR 318, Ward LJ had held in that case that the judge in that case was entitled to find that the contention between the parties was not unlike any other hostile litigation and not such that would enable the court to move away from the general rule. 

15.Mr Ho also referred to what had been said by Applegarth J of the Supreme Court of Queensland in Frizzo & Anor v Frizzo & Ors (No 2) [2011] QSC 177, namely that the usual rule that costs follow the event is applicable to probate proceedings and that the notion, sometimes entertained, that the costs of unsuccessful parties will generally be ordered out of the estate in a probate action is wrong.

16.With the above principles in mind, I turn to the facts of the present case.

Discussion

17.As summarised in the Judgment, P’s specific complaints against D1 included:

(i)   D1’s unsatisfactory way of handling the US Litigations;

(ii)  D1’s failure to conduct the Property Valuation;

(iii)  D1’s failure to ascertain the Loans and conflict of interest;

(iv)  Existence of friction and hostility.

18.Mr Lam had set out Ps’ complaints about D1 in respect of the lack of information about the US Litigation, the change of mind about carrying out the Property Valuation, the lack of information about the Loans and the delay in the distributing the Estate.

Period up to the time of D1’s 2^nd affirmation

19.Although I had mentioned in the Judgment that the tone of the 18.05.12 Letter from Ps’ solicitor had become aggressive, in my view this should not be a reason for D1 not providing to Ps, who are the beneficiaries of the Estate, any information on the administration and distribution until the 1^st Progress Report of 1 February 2013.  D1 did not respond to a further letter sent by Ps’ solicitors, and it was only after Ps sent a pre-action letter at about end of July 2013 that they received the 23.08.13 Letter from D1’s solicitors.  There had also no proper executor accounts provided by D1 to the beneficiaries, even though I accept that there was no proper application by Ps under s 56 of the Ordinance.

20.I had also mentioned in the Judgment that even though almost 1,000 pages of documents were produced in relation to the US Litigations, it was not clear from D1’s 1^st affirmation whether D1 had taken all proper and necessary steps under the US law to collect the Rialto Property or to safeguard the interests of the Estate.  As I have said, D1 owes fiduciary duties to the other beneficiaries, and is obliged to give a full and frank account of all relevant facts to them.  It was only in D1’s 2^nd affirmation that a copy of the Advice Email was produced.

21.Further, I had said in the Judgment that it was D1 who clearly changed his mind about carrying out the Property Valuation, and that up until his 2^nd affirmation, Property Valuation had not been carried out and it was only D1’s 2^nd affirmation that he attached the Distribution Plan indicating that all the landed properties held by the Estate would be put up for sale and dealt with Ps’ complaint in this regard.

22.Again, I also said that it was only in D1’s 2^nd affirmation that he had clarified that the Loans owed by the 4 TC Companies were in fact owed to him instead of the Deceased.

23.I accept that there had been delay and deficiencies in that D1 had at least not been forthcoming with providing sufficient information to Ps on the administration and distribution of the Estate and this was only remedied by D1’s 2^nd affirmation which was filed shortly before the 1^st Hearing. 

24.As Mr Lam had submitted, and which I accept, Ps had achieved real and substantial success by the time of D1’s 2^nd affirmation in that they had successfully compelled D1 to remedy the delay and deficiencies by providing various information about the administration of the Estate and also the Distribution Plan. 

25.Having considered D1’s conduct, I am of the view that it was not unreasonable for Ps to have made the Removal Application and that D1 should pay Ps’ costs up to the time of D1’s 2^nd affirmation.

Period from the time of D1’s 2^nd affirmation

26.D1 had remedied most of the previous complaints by the time of his 2^nd affirmation, and it was Mr Lam’s submission that the proceedings after that served useful purposes in the future administration of the Estate.

27.During the 1^st Hearing, I had commented that had there been more provision of information from D1 in relation to the Loans, this might have helped in alleviating Ps’ concerns, and I had further encouraged the parties to communicate during the adjournment.  After the 1^st Hearing, Ps had attempted to request for further information from D1 in relation to the 4 TC Companies from 2001 concerning the matter of the Loans.  This had unfortunately failed, and led to Ps writing direct to Ip, which later led to the Leave Application.

28.In my view, D1’s opposition to the Leave Application was quite unnecessary since it was D1 who was late in the first place in providing clarification and confirmation of the Loans having been transferred to him.

29.By the time of the 2^nd Hearing, Ps’ complaints in relation to D1’s failure to ascertain the Loans and conflict of interest had become the main focus.

30.The Loans were quite sizable, amounting to some HK$335m, and if owed to the Deceased, would increase the Estate substantially, and this could affect the interests of all beneficiaries, in particular those beneficiaries of the residuary estate.  After the 2^nd affirmation, Ps had raised further queries about the Loans, as set out in the Judgment, and I had agreed with Mr Lam’s submissions that D1 should carry out further enquiries including those set out in the Judgment. D1 had also shown his willingness to make further enquiries from BHC, and there was no indication that D1 would not be willing to make further enquiries as raised by Ps. 

31.I think the issue here was not so much about the actual audited financial statements of the 4 TC Companies, but more what had happened to the Loans owed to the Deceased by the 4 TC companies.  Although there had been no allegation of bad faith on the part of D1 by Ps, the information that the Loans had been transferred in about 2005/2006 was not clarified until quite late, and it was only after D1 filed his 3^rd affirmation after unsuccessfully opposing the Leave Application that there was more information available on the transfer of the Loans.  In fact at the time of the 2^nd Hearing, BHC had not yet provided the further information in relation to the transfers.  It was not known or clear whether there had been any transfer documents signed by the Deceased and D1 relating to the Loans, and whether there had been any board resolutions approving the transfers, or whether the transfers were valid.

32.Even though in the end I was not satisfied that D1 should be removed as executor at this time, as submitted by Mr Lam, I did indicate that D1 should make further enquiries and investigations about the transfer of the Loans, as raised by Ps. 

33.Mr Lam had submitted that the application should fall within the second class of disputes referred to by Kekewich J in Buckton and approved by Lord Scott.

34.The issue is whether the continuation of the Removal Application was made in connection with administration of the estate, or was in substance an adverse claim made in hostile litigation.

35.In the Judgment, I had said there was clearly distrust, suspicion and disagreement between the parties.  Ps had proposed that D1 be substituted by D4, or a professional accountant.  D4 and other beneficiaries had remained silent so far.

36.Proper enquiries in relation to the Loans would, in my view, be in connection with administration of the Estate and the interests of all beneficiaries, in particular those beneficiaries of the residuary estate.  In light of the D1’s initial lack of response and/or lack of clarification, I am of the view that Ps had not acted unreasonably in issuing the Removal Application or continuing it after D1 filed his 2^nd affirmation, and that after the 2^nd affirmation, the continuation of Removal Application would fall within the second class of cases referred to by Kekewich J.

37.In the exercise of my discretion, notwithstanding Ps had not succeeded with their Removal Application, I will depart from the usual costs order and make the orders as sought by Ps.  My order is thus:

(i)   D1 to pay Ps’ costs up to D1’s 2^nd affirmation, to be taxed on a party and party basis if not agreed with certificate for two Counsel; and

(ii)  The costs of Ps and D1 for the period after D1’s 2^nd affirmation, including the costs of the Leave Application, shall be paid out of the Deceased’s Estate, to be taxed on a solicitor and client basis if not agreed, with certificate for two Counsel.

(iii)  For avoidance of doubt, there be no order as to costs in respect of D2-D4.

Mr Paul Lam SC and Mr Jonathan Mok, instructed by C K Mok & Co, for the 1^st, 2^nd and 3^rd plaintiffs for all the hearings

Mr Ambrose Ho SC and Mr Leon Ho, instructed by Sit Fung Kwong & Shum for the 1^st defendant

The 2^nd, 3^rd and 4^th defendants were not represented and did not appear at the hearings

[1] At para 20

[2] At pgs 57-58