HAU KING WAI KEITH AND OTHERS v. HAU TAK CHEUNG

HCAP 18/2013

[2018] HKCFI 2250

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO 18 OF 2013

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D E C I S I O N

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A. Background

1.  After the trial of this Action, by the Judgment handed down on 12 December 2017 (the “Judgment”), this court gave judgment in favour of the plaintiffs and dismissed the defendants’ counterclaim.

2.  By the Judgment, the court further made a costs order nisi that “the defendants do pay to the plaintiffs the costs of this action and the defendants’ counterclaim, such costs to be taxed if not agreed”.

3.  There are 2 summonses before the court for variation of the costs order nisi: –

(1)   Summons taken out by the plaintiffs on 29 December 2017, seeking an order for costs to be paid by the defendants “on an indemnity basis and with certificate for 2 Counsel”; and

(2)   Summons taken out by the defendants on 2 January 2018, seeking an order for the defendants to pay “60% of [the plaintiffs’ costs] on a party to party basis, with certificate for 2 Counsel”.

4.  After the trial of the Action but before the Judgment was handed down, Hau Chi Kin (the 4^th Defendant to Counterclaim) unfortunately passed away on 11 July 2017.  Order has since been made by the Master for Hau Kingsley Jiunn Git to represent the estate of Hau Chi Kin for the purpose of these proceedings.

B.   Certificate for 2 Counsel

5.  It appears from the summonses respectively taken out by the plaintiffs and the defendants that there is no dispute between the parties that a certificate for 2 counsel is warranted. 

6.  At the trial, both the plaintiffs and the defendants were represented by leading and junior counsel.

7.  Further, having regard to the complexity of the case, the diversity of issues on Chinese Law and Customs raised and the nature of the claim on breach of fiduciary duties by Hau Sun Chiu (as the person to whom the Grant of administration of the estate of Hau Fook Sui was granted) with Hau Tak Cheung and Hau Wing Yin (who is by profession a solicitor) as accessory to such breaches, a certificate for 2 counsel is plainly warranted.

C.   The relevant principles on costs

8.  The following trite principles on costs are relevant for the present applications: –

(1)   Costs are in the discretion of the trial judge.

(2)   The “general rule” on costs, after Civil Justice Reform, remains that of “costs follow the event”. 

(i)   It would be an “exceptional course” to take to displace the “general rule”.

(ii)   The party seeking to displace the “general rule” bears the burden of proof.

(iii)   The exercise of the discretion to displace the “general rule” is to be approached with due circumspection so as not to undermine the utility of the “general rule”.

(iv)   Though a successful party may be deprived of part of its costs where there are improper or unnecessary acts or omissions, an act should not be treated as being “unnecessary” when such act was not, “with wisdom of hindsight”, strictly necessary.

(3)   An award of costs on an indemnity basis will be appropriate where the case has “special or unusual features” making it “appropriate” for such order to be made.

(i)   The categories of cases where indemnity costs are justified are not closed.

(ii)   An order for indemnity costs would be appropriate for cases where: –

(a)   The proceedings were fought “with an ulterior motive” or “for an improper purpose” or “in circumstances as to constitute an affront to the court”, or

(b)   There was “some deception or underhand conduct on the part of the losing party”.

(iii)   The “attributes of the parties” and the “character of the proceedings” are relevant to the exercise of the discretion to award indemnity costs.

(iv)   The grounds for making an order for indemnity costs extend to any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation.

[Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114, at paras 15-18

Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570, at pp 575B-576E

Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327, at pp 1333I-1334G, 1335J-1336B & 1338F-H]

(4) Order 62, rule 5 of the Rules of the High Court has also listed a number of matters which the court may take into account in exercising the discretion on costs, such as the conduct of the parties, including: –

(i) Whether it was reasonable to raise or pursue a particular allegation or issue;

(ii) The manner in which a party has pursued or defend his case;

(iii) Whether a party has succeeded in whole or in part of his claim; and

(iv) Conduct before and during the proceedings.

D.   Costs on an indemnity basis

9.  I agree that this is a plain and obvious case for an order for indemnity costs to be made against the defendants, having regard to: –

(1)   The defendants’ conduct and the circumstances leading to the litigation;

(2)   The deception and underhand conduct practiced by the defendants on or against the plaintiffs;

(3)   The attributes of the defendants and the character of the proceedings;

(4)   The ulterior motive of the defendants; and

(5)   The defendants’ conduct of the litigation constituting an affront to the court. 

D1.   Embarking on a scheme to grab the 6 Properties for personal benefits

10.  The plaintiffs’ claim was for Hau Sun Chiu’s breach of fiduciary duties in transferring the 6 Properties to Hau Tak Cheung and Hau Wing Yin, with Hau Tak Cheung and Hau Wing Yin being accessories to the breach of fiduciary duties. 

11.  It is clear from the findings of this court that the defendants, in particular Hau Tak Cheung and Hau Wing Yin, “had embarked on a scheme to grab for their personal benefits as much of the land under the control of Hau Sun Chiu”, including inter alia the 6 Properties; and the “dishonesty of Hau Tak Cheung and Hau Wing Yin is obvious” and what they did was “to participate in a misapplication of trust assets to the detriment of the beneficiaries”.  When the transfers of the 6 Properties were made, “what the defendants intended was also to take away Hau Fook Sui’s land from the beneficiaries”.  I agree that those findings are by themselves very clear findings of the “deception”, “underhand conduct” and “ulterior motive” of the defendants.

12.  Such conduct on the part of the defendants is, of course, aggravated by the attributes of Hau Wing Yin being a solicitor by profession and what she did was clearly an abuse of her superior position as a solicitor.

13.  The underhand conduct and ulterior motive of the defendants is further compounded by the manner in which Hau Wing Yin and Hau Tak Cheung embarked on the scheme, and the way they responded and conducted themselves after the misappropriation of the 6 Properties was discovered by the other beneficiaries.

(1)   They orchestrated and procured, unnecessarily and through a whole series of misrepresentations to the probate court (including the conscious decision of Hau Wing Yin to conceal the existence of the 1^st “fong” in the application for the Grant), the Grant of administration of Hau Fook Sui’s estate to Hau Sun Chiu, so that the 6 Properties could be transferred by Hau Sun Chiu to Hau Wing Yin and Hau Tak Cheung without any prior knowledge of the beneficiaries. 

(2)   They procured assignments to be signed by Hau Sun Chiu for transferring the legal and beneficial title to all the 6 Properties to Hau Tak Cheung and Hau Wing Yin, (i) with Hau Wing Yin misrepresenting to Hau Sun Chiu about the true purport and effect of the assignments, (ii) in secrecy and with the beneficiaries being kept in the dark, and (iii) without any declaration of trust signed by them in favour of the beneficiaries, plainly with the intention of taking away the 6 Properties from the beneficiaries.

(3)   Hau Wing Yin drafted and back-dated the Letter of Authorization “to face the challenge of somebody from within the family … and to whitewash themselves” in case the transfers of the 6 Properties were being discovered by the beneficiaries.

(4)   When the other beneficiaries discovered the misappropriation of the 6 Properties, they still did not return the 6 Properties to the estate. Instead, Hau Wing Yin, “making use of her status as a solicitor”, repeatedly and deliberately attempted “to misguide the members of the 1^st ‘fong’ in both the 1^st Meeting (on 25 April 2013) and the 2^nd Meeting (on 15 May 2013) after the plaintiffs had discovered and complained about the transfer of the 6 Properties”, by raising extraneous and irrelevant matters and putting forward misrepresentations and false pretences.

(5)   Facing the enquiry from the 1^st “fong”, the defendants were evasive about whether they had paid the consideration for the 6 Properties as stated in the assignments (when the hard fact was that the defendants knew very well that they had not paid anything for the transfers).

(6)   When the attempts to misguide the 1^st “fong” failed, they on the one hand put up the “purported offer ‘to re-assign the legal title of the said 6 pieces of land to the Ancestor’s Estate in a manner that would not require penal levels of stamp duty’” which the court has found to be “meaningless”, and on the other hand “rejected”, “without any explanation or counter-proposal”, “the very reasonable invitation by the plaintiffs’ former solicitors … for confirmation that the defendant ‘will give an irrevocable undertaking to set aside all the transactions of the land under the estate [of Hau Fook Sui] made in their favour and return all properties concerned back to the estate of the Deceased irrespective of who should be the beneficiaries’ ”.

(7)   By putting up various excuses (both at the family meetings and in court), it is plain that they never intended to return the 6 Properties to the beneficiaries.

(8)   Indeed, up to the trial, the defendants never returned the 6 Properties to the lawful beneficiaries.  Yet, they had the audacity to run the plainly false case that they were only holding the 6 Properties as bare trustees for the beneficiaries of the estate of Hau Fook Sui.

D2.   Raising the “fan ka” issue with ulterior motive

14.  With the finding of the court that “Plainly the defendants hoped that by raising this issue [of ‘fan ka’], the plaintiffs may be prevented from getting an order for the defendants to disgorge the land assigned to Hau Tak Cheung and Hau Wing Yin even though they had paid lip service in saying that they were willing to do so”, it is obvious that the counterclaim based on the issue of “fan ka” was raised by the defendants with ulterior motive. 

15.  It was apparently a counterclaim raised by the defendants out of desperation, when they realized that they simply could have no defence to the claim for misappropriation of the 6 Properties.  The allegation of “fan ka” was not supported, and indeed was plainly contradicted, by the letters of 10 October 1979 and 15 July 1980 (which the defendants “relied heavily” on for their case of “fan ka”).  Nor was the defendants’ case supported by the evidence of the defendants’ own expert. 

16.  The raising of such completely groundless allegation of “fan ka” had led to a lot of factual evidence as well as expert evidence being led.

17.  I agree the raising of such completely unmeritorious counterclaim with ulterior motive is an affront to the court.

D3.   Hau Sun Chiu’s adoption

18.  As this court has found, “apart from the hearsay evidence given by Hau King Wai and Hau Yuen Kwong, there are still many pieces of cogent evidence pointing to the fact that Hau Sun Chiu had been adopted to Hau Man Sau’s fong”.

19.  As descendants of Hau Sun Chiu, it is hard to imagine that the defendants would not know of Hau Sun Chiu’s adoption, when the uncontradicted evidence of Hau Kan Po was to the effect that “it was widely known by people close to the stirpes of Hau Hing Sau and Hau Man Sau that Hau Sun Chiu had been adopted to be the descendant of Hau Man Sau”.

20.  Further, most of the evidence pointing to Hau Sun Chiu’s adoption is actually objective evidence which the defendants must be well aware of, but which they have chosen to ignore when taking issue on Hau Sun Chiu’s adoption, such as: –

(1)   The arrangement of the ancestral tablets;

(2)   The passing of House G6 to Hau Sun Chiu;

(3)   The arrangement regarding ancestral tomb visit and in particular the unusual sequence and role played by each “fong” in the worship of Hau Hing Sau and Hau Man Sau (which actually came from Hau Tak Cheung’s own evidence);

(4)   The repair / renovation of the graves of the Hau ancestors; and

(5)   The role played by Hau Sun Chiu at the funeral of Hau Fook Sui and Tang Kam.

21.  Yet, the defendants, unreasonably, attempted to disown the adoption (so as to bring them a windfall entitlement to a share in the estate of Hau Fook Sui), not only by challenging the fact of the adoption by relying on the completely untruthful witness of theirs Hau Yuk Chun, but also by relying on various arguments on Chinese Law and Customs which have all been rejected by the court.

D4.   Hau Ying Fat’s adoption

22.  As this court has found, the evidence of Hau Ying Fat’s adoption was “overwhelming”.

23.  The adoption of Hau Ying Fat was plainly a well-known fact in Ho Sheung Heung, and it is difficult to imagine that the defendants would not have known of that.  The further facts of (i) Hau Ying Fat having taken possession of all the belongings and the house of Hau Look Shun after his demise, (ii) the role played by Hau Ying Fat in the funeral of Hau Look Shun, and (iii) Hau Ying Fat having actually succeeded to all the estate of Hau Look Shun through the Deed of Gift and Deed of Family Arrangement, simply could not have escaped the attention of the defendants.  In this regard, it is also important to bear in mind that at the 2^nd Meeting, even Hau Wing Yin and Hau Tak Cheung, and indeed everyone present, appeared to accept that Hau Ying Fat was the successor of Hau Look Shun.

24.  Against such background, the defendants chose to rely on the completely unreliable and even “concocted” evidence of Hau Yuk Chun to challenge Hau Ying Fat’s adoption.

25.  Again, the defendants in contesting Hau Ying Fat’s adoption have advanced all possible arguments on Chinese Law and Customs, which all have been rejected by the court.

26.  I agree the defendants’ conduct in contesting the issue of Hau Ying Fat’s adoption was plainly unreasonable. 

D5.   Defendants’ witnesses

27.  Hau Wing Yin and Hau Tak Cheung gave evidence themselves.  They further called Hau Yuk Chun to give evidence.  It is plain from the findings of this court in rejecting their evidence that their lack of credibility went way beyond a usual case of certain witness being found to be unreliable or untruthful, but their conduct and untruthfulness is particularly venal.

28.  The court has found that “their credibility is beyond redemption. … it is plain and obvious that they have been lying in court, making up stories in their witness statements, making up further stories when giving evidence in court …” (paragraph 107 of the Judgment).

29.  As to the 3 witnesses individually,

(1)   The court has made very strong findings about the “appalling” lack of credibility of Hau Wing Yin, who is a solicitor in practice since 2006.  The court found that “she has demonstrated herself to be prepared to tell and state untruths to suit her own interests: to lie to the Rating and Valuation Department, to lie to the bank, to lie to potential creditors of the estate of Hau Fook Sui, to lie to the plaintiffs, and, as submitted by the plaintiffs, to lie to the Court......that it is difficult to find any document that went through her hands which are completely truthful... [the only exception being the 2nd will of Hau Sun Chiu]”.  Further, “she must have blatantly disregarded her discovery obligation when she purported to have destroyed her notes about the 2^nd Meeting after preparing the witness statement.”.

(2)   The credibility of Hau Tak Cheung is not any much better.

(3)   As to Hau Yuk Chun, apart from being found to be wholly incredible, she was also found to have (i) on occasions made “sudden change” in her evidence or story over lunch breaks which “at the very least, shows that she was making up stories along the way” (if not something even more sinister), (ii) acted in defiance of the court’s repeated reminders and “discussed, at least with her daughter, about the evidence while she was in the course of giving evidence”; and (iii) gave untruthful evidence with the motive of getting “a share in the estate of Hau Look Shun if they could somehow defeat Hau Ying Fat’s adoption”. 

D6.   Indemnity costs should be ordered

30.  I agree the conduct of Hau Tak Cheung and Hau Wing Yin in orchestrating the transfer of the 6 Properties was clearly dishonest and had plainly cross the line of honest mistakes or negligence. Indeed, this court found that “the falsity of the defendants’ case that they were only holding the 6 Properties (and also Hau Sun Chiu’s own land) as bare trustees for the beneficiaries of the estate of Hau Fook Sui (and for Hau Sun Chiu and his estate) is plain beyond doubt…”(paragraph 79(3) of the Judgment).

31.  In the premises and for the reasons set out in paragraphs 9 to 30 above, I agree that the defendants ought to be ordered to pay the plaintiffs’ costs on an indemnity basis.

E.   No basis to deprive the plaintiffs of any part of their costs

32.  I agree with the plaintiffs that there is no basis to deprive the plaintiffs of any part of their costs.

E1.   Plaintiffs succeeded in all issues and arguments

33.  As summarized in Section C of the Judgment, there are 5 main issues arising in the disputes in these proceedings.  The court has found in favour of the plaintiffs on all the 5 main issues, granting essentially all the reliefs sought by the plaintiffs and dismissing the defendants’ counterclaim. Further, in so doing, the court has rejected essentially all the arguments raised by the defendants in relation to the 5 main issues. 

E2.    No “bona fide attempts at settlement” by defendants

34.  The “sanctioned” or “calderbank” offers relied on by the defendants simply cannot assist them on costs, for the simple reason that none of those offers were any reasonable or realistic offer for settlement.  In particular, under those offers, (i) the defendants did not accept Hau Sun Chiu’s adoption or Hau Ying Fat’s adoption, which adoptions have been well known within the Hau family and in Ho Sheung Heung and have since been confirmed by the court; and (ii) the defendants never offered to compensate the plaintiffs for the costs incurred by the plaintiffs to right the wrongs of the defendants.

E3.   Trial language

35.  The defendants’ reliance on the argument that the arrangement for some of the factual witnesses to be giving evidence with English interpretation has lengthened the trial is also misplaced.  The trial was conducted in accordance with the ruling and direction of the court in exercise of the court’s case management power and no doubt in exercising such power the court “shall always recognize that the primary aim in exercising the powers of the Court is to secure the just resolution of disputes in accordance with the substantive rights of the parties” [see Order 1A, rule 2(2) of the Rules of the High Court].

36.  Hau Tak Cheung and Hau Yuk Chun gave evidence in Punti.  There can be no valid complaint about Hau King Wai, Hau Yuen Kwong and Hau Kan Po giving evidence in Punti, the language they are most conversant in.  Their evidence (like the evidence of Hau Ying Fat, who gave evidence in English) was plainly relevant to the issues of “fan ka”, Hau Sun Chiu’s adoption and Hau Ying Fat’s adoption, in respect of which Professor Palmer was the expert for the plaintiffs and Professor Baker was the expert for the defendants. 

37.  If English interpretation was required for the benefit of the expert, then it was required; irrespective of whether the need for interpretation was raised at the Pre-trial Review or at the trial (as was in this case).  In my view, as a matter of principle, the choice of using either or both of the official languages in legal proceedings, whether by the court, by a party, by a witness or by a legal representative, thus resulting in the lengthening of a trial, should not affect the amount of costs payable by the paying party.

38.  What is important is that in this case the court, having heard the parties on the matter about the need for English interpretation for the evidence for some of the factual witnesses and having balanced the relevant factors, made the case management decision for evidence of some of the factual evidence to be given with English interpretation.  Plainly, the court considered that it was conducive to the trial that the factual evidence which would be relevant to the expert evidence to be taken with English interpretation. 

39.  What was plain from the witness statements filed by the parties was that the evidence of Hau King Wai, Hau Yuen Kwong and Hau Kan Po (and also Hau Ying Fat) (for the plaintiffs) and also the evidence of Hau Tak Cheung and Hau Yuk Chun (for the defendants), would be relevant to the issues of “fan ka”, the adoption of Hau Sun Chiu and the adoption of Hau Ying Fat.  It is not to the point for one to say “with wisdom of hindsight” that it was unnecessary for any part of the factual evidence to be taken with English interpretation. 

40.  In any event, it is evident from the Judgment itself that the expert evidence eventually did turn on various parts of the factual evidence given in court by the relevant witnesses.

41.  I agree there is no substance in the defendants’ complaint that the cross-examination by the plaintiffs of the defendants’ witnesses was “lengthy”. 

(1)   The facets of cross-examination of Hau Yuk Chun now referred to by the defendants not only go to her credibility, but also go to her relationship with her maiden family in the village and her professed knowledge of things which allegedly happened in the village and her motive in giving evidence.  The cross-examination in relation to her medical records actually arose because Hau Yuk Chun in defiant of the court’s repeated reminder had discussion with her daughter of her evidence in the course of her evidence, and produced her medical records in an ill-attempt to explain away the inconsistencies between her oral evidence and her witness statement. 

(2)   The cross-examination of Hau Tak Cheung and Hau Wing Yin in relation to their handling of Hau Sun Chiu was plainly relevant.  This is evident from the fact that the court, in finding Hau Tak Cheung and Hau Wing Yin being liable as an accessory to Hau Sun Chiu’s breach of fiduciary duties, has found that “Hau Tak Cheung and Hau Wing Yin had embarked on a scheme to grab for their own personal benefits as much of the land under the control of Hau Sun Chiu be it under his own personal name or under his control as administrator of the estate of Hau Fook Sui, in the final days of Hau Sun Chiu.”.  Further, as the court has found, what Hau Wing Yin (in her witness statement) allegedly had said to Hau Sun Chiu about the purport and effect of the assignments were contrary to the actual effect of the assignment, and the “common theme” of the defendants’ case that they “did not acquire any beneficial interests in any of the land” transferred from Hau Sun Chiu (including those owned by him personally and the 6 Properties held by him as administrator of the estate of Hau Fook Sui) was untruthful.

(3)   It is plain and obvious that a lot of time in the cross examination is spent on uncovering the defendants’ attempt to give false evidence and to cover one lie after another.

F.   Conclusion

42.  By reason of the matters set out above, the defendants are ordered to pay all of the plaintiffs’ costs of the original action and the counterclaim on an indemnity basis, with certificate for 2 counsel.

43.  Further, I order that the defendants’ summons filed on 2 January 2018 be dismissed.

44.  I see no reason why costs should not follow the event. Accordingly, I order that the costs of the 2 summonses be paid by the defendants to the plaintiffs.

45.  For the same reason that costs of the action should be taxed on the indemnity basis, I order that the costs of the 2 summonses should also be taxed on the indemnity basis, if not agreed.  I consider that the applications by the parties to vary the costs order nisi are in essence a continuation of the tail-end of the trial, so that the taxation of the costs thereof shall be conducted on the same basis as the trial itself.

46.  For that reason, I also grant a certificate for 2 counsel for the hearing on 4 July 2018.