BERMUDA TRUST (HONG KONG) LTD v. CAI GUO XIANG AND OTHERS

HCMP2953/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO.2953 OF 2002

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J U D G M E N T
on
(i)    costs upon discontinuance of these proceedings herein; and
(ii)    Order 62 rule 8 proceedings against a firm of solicitors
previously represented the 1^st defendant herein.

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Three stories

1. Everyone has a story to tell.  In this case there are three stories :

(i)      The 1^st story is about a person who appeared to be poor and lived a very frugal life, but after his death, it was discovered that he in fact was very, very rich.

(ii)      The 2^nd story is about a group of persons who had been poor but suddenly became very rich because of inheritance from the aforesaid person.

(iii)     The 3^rd story is about whether or not some people were trying to get rich from the aforesaid persons entitled to the said inheritance.

2. Hence I have divided this judgment into three separate stories.  They are true stories based on finding of facts after due process of law.

The first story

3. The late Mr Choy Ching Ming (已故蔡晶明先生) died in Hong Kong on 28 August 1996.  He had been living a very frugal life and was even receiving social welfare assistance since 1989 until his death.  However it was later found in his safe deposit box that he had left behind nearly $100 million time deposit with various banks and shares of about $80 million.  His whole estate is more than $180 million.  That was the evidence given before me at the trial of the previous probate action in HCAP13/1997 [1].

4. Apart from the princely sums of money he had left behind, he had also left behind him : (i) his girlfriend Madam Elsa Mok Hang Won who had been cohabitating with him until his death; (ii) Madam Wong Siu Mui (王小妹女士) who claimed to be his lawful wife together with their daughter [2] but they had emigrated to the USA long time ago in 1974 before his death; (iii) his brothers and sisters in the Mainland, some of whom had already predeceased him leaving behind their spouses and children [3].  Cai Guoxiang (蔡國祥) is one of the brothers who had survived the late Mr Choy.  He became the plaintiff in the aforesaid probate action.

5. In fact Mr Cai also represented Madam Wong by a Deed of Family Arrangement (“the DFA”) dated 10 June 1997, entered into even before the probate action between the brothers and sisters or their surviving children entitled under the estate of Mr Choy if he died intestate, Madam Wong [4] and Nanyang Commercial Bank Trustee Limited (“NCB Trustee”).  NCB Trustee was given various general power of attorney under section 7 of the Powers of Attorney Ordinance, Cap. 31, by the statutory beneficiaries to represent their interests in Hong Kong (and they are collectively called “the statutory beneficiaries” or “SBs”).

6. Madam Elsa Mok claimed to be in possession of a will signed by the late Mr Choy, giving her the entirety of his estate upon his death.  It was not witnessed by two witnesses but only by one and therefore fell short of the formal requirements of the Wills Ordinance, Cap. 30.  Accordingly, she had to prove beyond reasonable doubt that this piece of evidence was the last will of the late Mr Choy according to my decision on the new section 5(2) of the Wills Ordinance.

(1)      In the aforesaid probate action Mr Cai (as representing all the statutory beneficiaries) sued Madam Mok on the ground that Mr Choy died intestate.

(2)     Madam Mok, on the other hand, counterclaimed that Mr Choy died with the aforesaid last will giving her all his estate.

7. On 9 May 2000 Madam Mok amended her Counterclaim and alleged that the late Mr Choy had given her all his property in his safe-deposit box in the bank by giving her a key thereto which would take effect upon his death.  In law we call it a gift of donatio mortis causa

(“DMC”).  This gift would not be part of the estate.  However under the Intestates’ Estates Ordinance, Cap.73, a gift of DMC would also attract estate duty.

8. Upon trial of this probate action before me I delivered a judgment on 26 March 2001 as follows :

(i)      Madam Mok could not satisfy me beyond reasonable doubt that that was the last will of Mr Choy;

(ii)     however, she has satisfied me on a balance of probabilities that Mr Choy had given her a gift of everything in the safe-deposit box upon his death, i.e. the DMC.

9. Mr Cai appealed to the Court of Appeal from my decision on the DMC and Madam Mok also lodged her cross-appeal against my decision on the alleged will of Mr Choy.  However the parties settled their dispute before the hearing of the appeal by way of a Tomlin order.  It simply means that they had agreed by consent that the appeal should be adjourned indefinitely subject to the carrying out into effect of a contractual agreement between the parties as follows :

(i)      Mr Cai and Elsa Mok shall, by their respective solicitors, jointly instruct the administrator to distribute the net estate including the assets of Mr Choy by, first of all, paying Elsa Mok’s sister Rosa Chan Yam in the sum of $15 million in full and final settlement of Rosa’s claims against the estate of Mr Choy.

(ii)      Thereafter, the administrator shall realise all other assets in the estate of Mr Choy and after deduction of estate duty, administration and testamentary expenses, [emphasis supplied] proved just debts and liabilities of his estate (i.e. proved to the satisfaction of the Estate Duty Office), to distribute the same equally between Elsa Mok and Mr Cai (who was representing all the statutory beneficiaries including himself).

(iii)     Each party shall pay their own costs in the probate action.

10. The properties left behind by the late Mr Choy therefore comprised the assets of the DMC and the estate.  As aforesaid the assets in the safe-deposit box comprise nearly $100 million time deposits with various banks and shares of about $80 million.  The estate, however, was valued at less than HK$9 million.  The total sum of the assets and the estate was $181,191,399.50 and that was the value of the “estates” for estate duty purpose, which was sworn by the applicant for the debtors of administration.  (This “estate” for estate duty purpose is different from the true meaning of the estate under the intestacy of Mr Choy, i.e. the total amount of the properties less the DMC assets).

11. Eventually the properties of Choy were divided as follows :

Total value of Choy’s properties	$181,191,400
Less sum due and owing to Rosa	$15,000,000
	$166,191,400
Half thereof shall be given to Elsa Mok	$83,095,700
Half shall be shared between Wong Siu Mui (40%)	$33,238,280
and all other SBs (60%)	$49,857,420
	$166,191,400

12. Thus the first story ended with an amicable settlement in that Rosa got back the money she had given to Mr Choy for investment.  The statutory beneficiaries got half of the balance instead of having to share the much smaller sum of $9 million.  Elsa therefore eventually ended up with only the other half of the balance but nevertheless it was still a princely sum of money.

The second story

13. One would have thought that all the parties would live happily thereafter.  Unfortunately that was not the case.  The administrator appointed by my order, i.e. the plaintiff herein, instituted the present proceedings (i.e. HCMP2953/2002) pursuant to Order 85 of the Rules of High Court in respect of the respective claims of NCB Trustee and one Shanghai City Xuhui District Notary Public Office (上海市徐匯區公證處) (“NPO”).  Originally they claimed against the plaintiff for the respective sums of $1.8 million odd by way of handling fees as alleged by NCB Trustee and $10.8 million odd as notarial fees by NPO on the gross estate value of $181 million at the respective rates of 1% and 5% thereof.  These claims are the subject matter of the second story.  I will have to recapitulate events leading to the appointment of the administrators and the institution of the present proceedings as they are relevant to the decision I am going to make herein.

14. Mr Cai himself, though representing all the statutory beneficiaries under the estate, is outside this jurisdiction.  On the other hand Elsa Mok is only a donee under the DMC and not a beneficiary under the estate.  Further, due to the enormous amount of the estate, I consider that it is only appropriate to appoint a professional administrator to handle the administration.  Furthermore Elsa Mok’s former solicitors, Messrs Josip Ma & Co.[5], requested the administrator to act as the administrator of both the assets and estates of Mr Choy and the administrator agreed to do so.  Consequently she jointly made an application together with Mr Cai’s then solicitors Messrs John Ku, Tam & Ho to appoint the administrator as the administrator of the estate and the assets of the DMC of Mr Choy, pursuant to section 36 of the Probate and Administration Ordinance, Cap. 10.  Thus on 13 June 2001 the plaintiff herein, Bermuda Trust (Hong Kong) Limited was appointed as the administrator of the estates of Mr Choy.

15. The administrator also agreed that Elsa Mok’s solicitors and the solicitors acting for the statutory beneficiaries to apply for the letters of administration jointly on behalf of it.  The aforesaid agreement among the parties was made in terms in my aforesaid order dated 13 June 2001 in the appointment of the administrator.  They were further directed that, upon the obtaining of the grant of letters of administration in respect of the estate and/or the assets of the DMC of Mr Choy, the administrator should perfect and pass the title of the assets/properties in the assets of the DMC to Elsa Mok and to administer the estate of Mr Choy under his intestacy.

16. In the course of the application to the Probate Registry, Messrs John Ku, Tam & Ho was requested by the Probate Registry on 16 August 2001 to provide notarial death certificates of those who had predeceased Mr Choy and they are his parents and one of his brothers.  The Probate Registry further explained later on that these certificates could

not be dispensed with because they have to clear those who have the prior right to the grant before they would grant the letters of administration to the administrator in spite of the fact that the administrator was appointed by the court.  That was a requirement under rule 6 of the Non-Contentious Probate Rules.

17. Consequently, Messrs John Ku, Tam & Ho sent copies of notorial death certificates of the father, mother and younger brother of Mr Choy and Mr Choy’s birth certificate to the Probate Registry.  Later on the Probate Master had directed the filing of original death certificates could be dispensed with as she was persuaded that they could not obtain the original notarial certificates because the originals would only be released upon the payment of the notarial fees.  This would be an enormous amount for them because it was charging 5% on the amount of the estate.  No beneficiary, there and then, was able to pay that amount of fees.

18. On 27 September 2001, Josip Ma and John Ku, Tam & Ho submitted a joint bill to the administrator in the sum of $10.57 million odd, claiming that they were the legal costs of the two firms for obtaining the grant of letters of administration.  The administrator disputed this joint bill and the two firms of solicitors subsequently withdrew the same.  They substituted it with a revised joint bill on 4 December 2001 in the sum of $1.18 million odd only.  The revised bill was agreed and promptly paid by the administrator.

19. Actually in between time, John Ku, Tam & Ho by a short letter dated 5 October 2001, in an attempt to resolve the dispute regarding the joint bill, submitted to the administrator, a copy of the aforesaid Deed of Family Arrangement dated 10 June 1997, i.e. the DFA.  This was submitted because NCB Trustee as aforesaid was also a party to the DFA.  But it was never suggested in this letter that NCB Trustee was entitled to charge handling fee at 1%, and notarial fee would be calculated at 5%, of the estate and assets of Mr Choy.

20. Further it should be noted that the DFA was entered into well before the judgment passed in the probate action HCAP13/1997.  In fact it was entered into before Elsa Mok amended her Counterclaim to include her claim on the DMC.  Thus, it has never been suggested by John Ku, Tam & Ho in any correspondence or communication with the administrator that any notarial fees or other fees or expenses claimed by NCB Trustee or other person should be paid by the administrator out of the estate and/or assets of the DMC.   Further no one has suggested that the formula of calculating the notarial fees or handling fees should be based on the total estate value calculated on both the estate and the assets.  They are aggregated together only for the purpose of estate duty under section 6(1)(b) of the Estate Duty Ordinance, Cap. 111.

21. In other words, it could be said that at the time when the parties entered into the DFA, Mr Cai and other statutory beneficiaries were under the impression that on one hand Elsa Mok might not be able to propound the will as the last will of Mr Choy, in which case they would be entitled to the full amount of the properties left behind by Mr Choy as the estate of him.  Alternatively, on the other hand Elsa Mok would be entitled to the same in total to the exclusion of all the others if she was successful in the probate action in that this will was actually the last will of Mr Choy.  Both Mr Cai, representing all the statutory beneficiaries and NCB Trustee were not aware of a situation whereby Elsa Mok would put forward a case of DMC and if successful would obtain the lion share of Mr Choy’s properties leaving only a much smaller proportion for the estate.  Eventually that was the effect of my judgment upon trial of the probate action.

22. Further on 2 November 2001, notice was given by the administrator in the newspapers that the Registrar of the High Court had made an order limiting the time for creditors and others to send in their claims against the estate of Mr Choy by 2 January 2002 pursuant to Rule 60A of the Non-Contentious Probate Rules, Cap. 10.  Eventually, no claim was received either from NCB Trustee or the NPO.

23. It was only after all these events that the appeal from my judgment was heard by the Court of Appeal on 26 May 2002 and eventually on the day of the hearing the parties had come to an amicable settlement as aforesaid.  There was no appeal lodged against the decision to appoint the administrator to act as the administrator for the estate and the assets of the DMC of Mr Choy.

24. In fact, according to Mr Ma Shun Cheong, an associate director of Bermuda Trust, he attended the Court of Appeal hearing for and on behalf of the administrator on a watching brief.  When Mr Cai and Elsa Mok were negotiating terms of the settlement in the conference room outside the court, he was invited to join the meeting, at which solicitors and counsel for both parties were present.  He was asked in the presence and hearing of those present at the meeting whether there were any significant liabilities to be paid by the estate.  He replied that the enormous amount claimed by John Ku, Tam & Ho and Josip Ma in respect of legal costs, for obtaining the grant of letters of administration, was settled and that apart from their administrator’s trustee service fees, which should not be very much, there should not be any significant liability.  By then Mr Cai’s representation was taken over by Messrs Fong & Ng from John Ku, Tam & Ho in the conduct of the proceedings before the Court of Appeal.  Messrs Fong & Ng naturally were also present at that meeting.

25. In fact, Mr Ma had a subsequent meeting with Mr Bruce Fu of Fong & Ng together with a Miss Wong and two representatives of NCB Trustee on 30 May 2002.  At that meeting, neither Mr Fu nor any of those other persons present made any mention of a claim by NCB Trustee against the estate for notarial fees and expenses.

26. On 13 June 2002, an important letter was received by the administrator from Fong & Ng.  This is important in this judgment because, to my mind, this is the genesis of the present proceedings.  After enclosing a sealed copy of the order of the Court of Appeal on 28 May 2002, they also enclosed the letter from NCB Trustee dated just the day before on 12 June 2002 to them together with the enclosed letter of NPO and they said the contents are self-explanatory.  The letter of NPO was addressed to NCB Trustee dated 6 June 2002.

27. Fong & Ng’s letter went on to say this :

“We are instructed that the Plaintiff [i.e. Mr Cai] and the other statutory beneficiaries have no objection for the notarial fee and the fee of NCB Trustee to be deducted from the estate of the deceased.  We should, therefore, be grateful if you could let us have a cheque in favour of ‘Nanyang Commercial Bank Trustee Limited’ for the sum of HK$10,871,484,400.00 in settlement of the notarial fee and the fee of NCB Trustee at your earliest convenience.

Thank you for your kind attention and prompt assistance in this matter.  Should you have any questions arising out of this letter, please do not hesitate to contact our Mr. Bruce FU at telephone no. …”  [Emphasis added]

28. This letter was stated to be copied to various persons :  Mr Cai but it was only care of Mr Lam Fong (林晃) who was the usual representative in Hong Kong for Mainland litigants, NCB Trustee, and Messrs Louis K.Y. Pau & Co. who were the solicitors acting for Elsa Mok there and then.

29. According to the enclosure letter of NCB Trustee, the notarial fee claimed by NPO was based on 5% of the total value of the property of Mr Choy, i.e. 5% of $181,191,400.00, which is $9,059,570.00.  NCB Trustee’s own 1% handling fee thereof is $1,811,914.00 and the total would therefore be $10,871,484.00.

30. Naturally, the administrator was puzzled by this letter for the following reasons :

(1)     Such a claim was said to be deducted from the estate of the Deceased, but neither Mr Bruce Fu for and on behalf of Fong & Ng acting for the statutory beneficiaries nor NCB Trustee had ever mentioned that the 2 aforesaid claimants have any such claims against the estate.  There was no such claim before the expiration of the limit as prescribed by the Registrar of the High Court by 2 January 2002.  There was no such claim made there and then in front of all parties present at the conference meeting outside the Court of Appeal when Mr Ma was asked in everyone’s presence whether there were any significance liabilities to be paid by the estate.  Neither NCB Trustee nor Fong & Ng had ever mentioned these two items of claims just about 14 days before nor in the aforesaid meeting of the administrator in the earlier meeting with Mr Fu together with a Miss Wong of Fong & Ng and 2 representatives of NCB Trustee on 30 May 2002.

(2)     Further Fong & Ng was not acting for NCB Trustee but the statutory beneficiaries and they said they were instructed that Mr Cai and other statutory beneficiaries had no objection to pay the notarial fee and the fee of NCB Trustee.

(3)     They further said that they had agreed that the same should be deduced from the estate of the Deceased.  But the estate was only $9 million.  In any event if that means the statutory beneficiaries’ entitlement to half of the properties of Mr Choy after deduction of all the liabilities thereof, that would mean less than half of the properties[6].  But the calculations were based on Mr Choy’s total property value even before deduction of all his or its liabilities.  That means the eventual share of each of the statutory beneficiaries would be significantly reduced after such deduction.

31. As expected, in no time Louis K.Y. Pau & Co. for Elsa Mok raised her objection to the payment of these claims out of the combined estate and the assets and they contended that these are not administration or testamentary expenses.

32. On 27 June 2002, the two parties in HCAP13/1997 i.e. Cai and Elsa Mok, appeared before me.  In an attempt to settle this dispute concerning the NCB Trustee’s further claim for handling and notarial fees, it was agreed between them, inter alia, that :

(a)      $25 million should set aside for the settlement of all administrator and testamentary expenses and proven just debts and liabilities of the estate.

(b)     The parties would jointly instruct the administrator to make a decision as to whether or not the said total sum of $10,871,484 should be paid out of the estate to NCB Trustee as part of the administration and testamentary expenses.

33. Before the administrator made his decision on 17 July 2002, Messrs Fong & Ng (acting only for the statutory beneficiaries) by 2 letters dated 5 and 10 July 2002 pushed hard and urged the administrator to pay the claim of NCB Trustee.  In the former letter they contented that :

(a)      Messrs John Ku, Tam & Ho submitted certified true copies of the notarial certificates to the Probate Registry on 17 August 2001, which were entrusted to them by NCB Trustee and NPO, without their prior notice or consent;

(b)     It was only upon receipt of the certified true copies of the death certificates that the Probate Registry agreed to dispense with the filing of original death certificates;

(c)     Without the benefit of the notarial certificates or the certified true copies thereof no grant of letters of administration would and could have been issued in this case;

(d)     Accordingly the fees for obtaining the notarial certificates should be paid out of the estate as part of the testamentary or administration expenses.

34. (a)      In the 2^nd letter, Fong & Ng enclosed a letter from NCB Trustee who disagreed with Elsa Mok’s solicitors that the material fees and expenses should be paid solely out of the entitlement of the statutory beneficiaries under the estate of the Deceased.  They said it should be paid out of the total value of the estate and the assets.  They reasoned that those handling and material fees were necessary in order to obtain the letters of administration, so that Elsa Mok could realize the assets of DMC of the Deceased.

(b)     Fong & Ng themselves requested that, as all statutory beneficiaries of the estate have agreed to pay the notarial fees and expenses claimed, the administrator should pay half the notarial fees and expenses (i.e. $5,435,742) to NCB Trustee from $25 million retained as aforesaid by him and thereafter he should deduct the said payment from the entitlement of the beneficiaries.

35. The aforesaid two letters were copied to Cai but again they were only sent to him care of Mr Lam Fong.  Cai and other beneficiaries later said they had never received the letters nor noted the content of the letters.

36. The administrator promptly made his decision.  By his long letter dated 17 July 2002 of 11 pages with full reasoning given, he considered that those notarial fees and expenses claimed were only matter between the NCB Trustee and the statutory beneficiaries.  He therefore concluded that :

(a)      The notarial fees and expenses claimed by NCB Trustee are not a testamentary and administration expense of the estate of the Deceased and/or the assets of donatio mortis causa.

(b)     The administrator is prepared to pay to NCB Trustee for and on behalf of the statutory beneficiaries an amount equal to half the notarial fees and expenses claimed in the sum of HK$5,435,742, on condition that this payment shall be deducted from the entitlement of the statutory beneficiaries in the sum of HK$25,000,000, retained by the administrator pursuant to clause 3 of the Joint Instruction dated 27 June 2002, and not treated as a testamentary and administration expense of the estate of the Deceased and/or the assets of donatio mortis causa.

37. One would have thought that this is the end of the dispute among the administrator, Fong & Ng purportedly acting for Cai and the statutory beneficiaries, Elsa Mok, NCB Trustee representing also NPO.  Unfortunately, this is only the end of the second story but the beginning of the third story, which is the main story of these proceedings before me now, i.e. HCMP2953/2002.  But before I do, I shall include a side issue herein concerning of cheque of $35,000 of Elsa Mok given and payable to Mr Choy before his death.

38. Elsa Mok’s cheque was dated 16 September 1992.  Fong & Ng claimed that it was intended to repay Mr Choy for expenses incurred by Choy for Mok in the purchase of certain shares for her.  Mok said she had already repaid Choy for those expenses.  In any event the action should be barred by 2002 after 6 years.  The administrator however contended that :

(a)      whilst a loan was not repayable until a demand is made and therefore the action is not barred yet; but

(b)     since Choy had given everything in the box to Mok, this would include the cheque found therein and therefore might well indicate that Choy intended to release Mok from the debt, by giving her back her own cheque.

39. Since these proceedings were not mainly concerned with this cheque of $35,000, I would just consider the costs of these proceedings arising out of the main claim of NCB Trustee in the third story.

The third story

40. After the administrator’s aforesaid decision, his solicitors Messrs Denton Wilde Sapte (“DWS”) informed Fong & Ng two days later on 19 July 2002 that the administrator intended to commence an administration action pursuant to Order 85 of the Rules of the High Court in order to obtain the court’s direction as to the aforesaid claim of NCB Trustee for $10,871,484.00.

41. In the same letter from DWS, they also enquired from Fong & Ng whether they would accept service of the originating summons on behalf of :

(a)      Cai, acting by his lawful attorney Lam Fong;

(b)     NCB Trustee; and

(c)     NPO.

42. On 29 July 2002, DWS commenced these proceedings and herein by Originating Summons and named Cai, represented by his lawful attorney Lam Fong as the 1^st defendant and Elsa Mok, the 2^nd defendant.

43. On 30 July 2002, Fong & Ng did not state whether they had instructions to accept service for NCB Trustee and NPO.  They only urged the administrator to remain neutral and let Cai and Mok to sort out the dispute between them.

44. On 31 July 2002, NCB Trustee wrote to its agent in Shanghai, Bank of China, Shanghai Branch and asked them to, inter alia, inform them that the Originating Summons was to ask the court to decide whether Elsa Mok should share the notarial fees out of her portion of money she obtained from the estate and the assets (and pay the $35,000 cheque).  Further they were in the course of obtaining counsel’s opinion from Mr Jason Pow.

45. On 17 August 2002, Messrs Liu, Chan & Lam represented NCB Trustee and NPO.

46. Lengthy correspondences then ensued between various parties.  They concerned mainly with :

(a)      whether NCB Trustee and NPO should be joined as additional parties;

(b)     whether these proceedings were only domestic litigation, as suggested by the administrator, for a direction from the court concerning the liability of the estate and/or the assets to the fees as claimed; or hostle litigation between Elsa Mok and Cai for all the beneficiaries or between NCB Trustee and Elsa Mok and/or all the beneficiaries; and

(c)     in any event whether the administrator should remain neutral and not participate actively in these proceedings.

47. Affidavits were then filed by various parties.  Certain incidents were then revealed to all for the first time.  Eventually Mr Zhang Wen Qi was represented by Messrs Paul Cheng & Co. and he applied to be joined as the intended 5^th defendant.

48. Mr Fu filed his affidavit on 10 February 2003.  He said in his paragraph 99 that :

“If the plaintiff [i.e. the administrator] and the 2^nd Defendant [i.e. Mok] failed to pay the Notarial Fees, the whole amount of the Notarial Fees [i.e. the $10.8 million] would naturally be borne by the 1^st Defendant [i.e. Mr Cai] and the other statutory beneficiaries absolutely.”

He did not mention any meeting with the Cais in Shanghai on 28 August 2002.

49. In fact there were also letters from Mr Cai and his son and niece thanking Mr Fu for his efforts in handling this case for them.  It was quite apparent that they were willing to continue to instruct Mr Fu’s firm to act for them under the false impression that their opponent was Elsa Mok who had caused these proceedings to be instituted by the administrator.  They did not know :

(i)      NCB Trustee and NPO put forward a claim of $10.8 million calculated at 6% total of the entire properties of Mr Choy;

(ii)      they had only agreed to pay them at 6% of the estate in 1997 which they thought would be the amount they might eventually received after a successful probate action;

(iii)     Mr Fu had filed an affidavit saying that his clients, i.e. all the statutory beneficiaries had agreed to pay this amount of $10.8 million out of the estate and assets of Mr Choy to NCB Trustee and NPO;

(iv)     Mr Fu had all along been acting for them by reason of their power attorney given by them to NCB Trustee; and

(v)     NCB Trustee, in turn acted on those deeds of power of attorney and instructed Mr Fu to act for them.  Those instructions included that the statutory beneficiaries had agreed to pay NCB Trustee the full amount of $10.8 million when no direct agreement was obtained from them.

50. In the end, Zhang Wen Qi found out the truth from his solicitors and instructed them to act for them as both he himself and his solicitors considered that Mr Fu and Fong & Ng were, strangely enough, not acting for the best interest of the statutory beneficiaries.  Zhang obviously would like to protect his own interest.  If these proceedings had not been discontinued, he would be allowed to be joined as the 5^th defendant.  In fact Mr Fu complained that Zhang was furnishing documents and accounts to the other side to the detriment of the statutory beneficiaries.

51. Eventually Cai and his son and niece became aware of the true fact and instructed John Ku Tam & Ho to act for them.  Fong & Ng then ceased to act for Cai.

52. Cai and his niece Cai Xiu Zhu then made a solemn declaration for all the statutory beneficiaries on 19 January 2004.  Some of the facts were disputed by Mr Fu.  In the summary jurisdiction of the court under O.62 r.8, I would assume those facts in favour of Mr Fu.  However some of the facts are not in dispute and some inferences are irresistible to be drawn.  I therefore would only rely on those “facts relating to the conduct of the case that are immediately and easily verifiable”[7].

53. Cai said they were only aware of these proceedings by June 2003.  They had never agreed to pay $9 million and $1.8 million to NPO and NCB Trustee.

54. They had not contracted, instructed, or agreed with Fong & Ng to handle these proceedings and the matter concerning the aforesaid two sums of $9 million and $1.8 million.  They had not in fact paid Fong & Ng any solicitors fee nor had Fong & Ng demanded any costs from them.  They had not instructed Fong & Ng to oppose Zhang’s application to be joined as a party.  In fact they did not even know of Zhang’s application.

55. However Mr Paul Shieh SC, counsel for Fong & Ng pointed out that NCB Trustee wrote to Bank of China, Shanghai Branch by a letter dated 31 July 2002 as aforesaid and informed Cai on the progress of matters relating to the estate.  It expressly reported on the existence of the action and the fact that Cai was D1 and Mok was D2.  Thus, it cannot be the case that Cai only learned of the action in June 2002.

56. But according to the wordings of NCB Trustee’s letter, it only said the action was to resolve whether Mok needed to pay the notarial expenses in respect of her share of the estate.  The original Chinese wordings are as follows :

“(一) 百慕達信託(香港)有限公司(‘百慕達’)於2002年7月29日以死者遺產管理人身份，單方入稟香港高等法院(‘高院’)提出原訴傳票(Originating Summons)(案中原告人是百慕達，第一被告人是蔡國祥，第二被告人是莫杏婉)，要求高院頒發命令，對莫杏婉須否就她分別的份額付出公證費和莫杏婉須否償還她向死者所借的HK$35,000借款兩件事作出指示。”

57. It is therefore not unreasonable for Cai to have the impression that the action did not concern him.  In fact, NCB Trustee gave Cai the impression that the action was just to determine whether Mok should pay the notarial fee.  Further after the meeting on 28 August 2002, Cai naturally was under the impression that he (together with all the statutory beneficiaries and Wong) had already paid the notarial fees in full according to the account and therefore the action did not concern him any more.

58. If the basis of Mok’s liability could only be that the notarial fees were testamentary expenses under the estate and when they were not, Mok would not be liable whatsoever.  She is not a party to the DFA and therefore not liable as the statutory beneficiaries and Wong.  That however was not explained to Cai in that letter or at that meeting.

59. Counsel for Fong & Ng further submitted that under clause 7 of the DFA, all signatories agreed to pay the expenses as set out in the schedule thereto.  By clause 15, the signatories agreed that NCB Trustee’s remuneration should primarily be paid out of the residuary estate.  Items 6, 7, 8 related to those expenses and the rate of charge thereof.  Fong & Ng took the view, as explained by their letters to Cai dated 11 June and 8 November 2003, that unless D3 and D4’s charges relating to the Notarial Certificates (totalling 5% + 1% the gross estate value) were characterised as testamentary and administration expenses within the meaning of the Settlement Order, (in which case 50% thereof would be shouldered by Mok) the burden of paying the 5% and 1% charges fell on the shoulders of the statutory beneficiaries (including Cai and Zhang).

60. Mr Shieh, counsel for Fong & Ng further submitted that D3/D4 could first deduct 5% from the statutory beneficiaries’ entitlement (i.e. 5% of $49,857,420) to the estate but that does not mean that D3/D4 had no claim to the difference between 5% of the gross estate value (GEV) and 5% of the beneficiaries’ entitlement (BE).  It was submitted that the Schedule to the DFA plainly drew a distinction between gross estate value (meaning the whole estate) under item 6, on one hand, and the beneficiaries’ entitlement on the other, under item 7.

61. However a closer analysis of how D3/D4 charged the statutory beneficiaries and Wong Siu Mui as revealed in the interim account given to the statutory beneficiaries and Wong at the meeting in Shanghai on 28 August 2002 did not tally with this distinction nor with Fong & Ng’s contention that Mok’s half share would have to be shouldered by the signatories.

62. It is now set out herein below the provision and the method of calculation of the charges as follows :

The Schedule	The Account
Item 6 Notarial fees at 5% on the gross estate value and all other expenses and disbursements in relation to the Notarial Certificates so applied. Thus 5% was on $83,095,700, i.e. ½ of the total value $181,191,400 after deduction of $15,000,000 due to Rosa Yam Chan, i.e. D3/D4 took $83,095,700 as the gross estate value for the statutory beneficiaries and Wong.	Notarial fee: 1. for statutory beneficiaries 5% of $49,857,420          $2,492,871 2. for Wong 5% of $33,238,280          $1,661,914
Item 7 Service charge at 3% on the beneficiaries entitlements chargeable by the Bank of China, Shanghai Branch	3% of $49,857,420          $1,495,722.6 Since only the statutory beneficiaries received services from BOC Shanghai, thus only they were charged but not Wong Siu Mui.
Item 8 Remuneration of the Trust Corporation (i.e. D3) (acceptance fee of 3% on the gross market value of the estate and administration fee of 1% per annum accruing from November 1996) as set out in clause 15 hereof	D3's acceptance fee (“我司手續費”) 3% of $83,095,700          $2,492,871 and administration fee (“我司管理費”) of 6% (1% p.a. for 6 years from 1996-2002) on $83,095,700          $4,985,742

63. Thus it is clear that D3 has always taken $83,095,700 as the gross estate value for the statutory beneficiaries and Madam Wong whereas 60% thereof, i.e. $49,857,420, as the beneficiaries’ entitlement.  It has never taken the gross value of Choy’s property at $181 million as the gross estate value.  Since Mr Fu was with D3/D4 at the Shanghai meeting, that must be his understanding of the basis of the calculation as well.

64. That is also in line with the rationale of charging the statutory beneficiaries and Wong, i.e. a percentage on what they are entitled to receive and not the total property value whereof.  Elsa Mok eventually received half after deduction of $15 million owed to her sister Rosa.  However D3/D4 could not charge Elsa because she is not a party to the DFA.

65. This understanding is also in line with the timing of the DFA in 1997 before Elsa’s claim of DMC.  Thus the statutory beneficiaries and Wong did not know the outcome of the case would not be an all-or-none situation.  However by August 2002, they knew the exact amount of the gross estate value for the statutory beneficiaries and Wong (parties to the DFA) and the statutory beneficiaries’ entitlement.  Charges were made on this value and entitlement only.

66. Finally, one should remember that the residuary estate as decided under my judgment was only $9 million.  If those expenses and charges were to be levied against all Choy’s properties as the gross estate value, the amount of charges at 5% and 1% (even without the 3% service charge of BOC and the 3% acceptance fee as aforesaid) would already be $10.8 million.  In the end the signatories would have to pay $1.8 million out of their pocket!  This cannot be the understanding of the parties to the DFA.

67. In short, if D3/D4’s charges of 5% and 1% were testamentary expenses, it would be levied on the gross sum of $166 million and Mok would have to pay half out of their share.  If not, Mok would not be liable to pay but the signatories would be liable under the DFA to pay out of the other half of $83 million they received which they did according to the Account.  There is simply no question that they would be liable to pay Mok’s half share.

68. As aforesaid, Mr Fu in his affirmation of 10 February 2003 made admission on behalf of the statutory beneficiaries that they would have to bear the sum of $10.8 million if Mok failed to pay the notarial fees.  However, before he made this affirmation, he had not contacted them nor informed them that he was going to agree on their behalf to pay these two sums of money.  The statutory beneficiaries believed that Mr Fu was actually representing NCB Trustee and NPO in the pursuit of these two sums of money.

69. Even by a letter to Cai dated 26 May 2003, NCB Trustee still said that these proceedings would only affect Mok’s interest and had nothing to do with Zhang.  That was in response to Cai’s letter of 19 May 2003 when he heard from Zhang that he agreed to pay those two said sums.

70. After several exchange of correspondences, Cai eventually wrote to the administrator on 9 August 2003 and informed them that they had never instructed Fong & Ng to represent them.  They had never agreed to pay those two sums if Mok did not or was not liable to pay them.

71. Further on 19 November 2003 Ms Shum of NCB Trustee met Cai and Cai Xiu Zhu at the Bank of China Shanghai Branch.  She said everything done by Mr Fu was proper and correct.  She requested the two Cais to sign a declaration to that effect in exchange for their written undertaking not to charge them again.  However the two Cais refused to sign such a declaration since they had never instructed Mr Fu to represent them in the way he did or at all.  It is very odd that the claimant, NCB Trustee, requested the Cais (against whom the claim was made) to agree that their own solicitors were doing the proper and correct thing.  Ms Shum of NCB Trustee obviously was trying to protect Mr Fu.

72. By November 2003 the Cais were informed by Fong & Ng that Mr Fu had left their firm.  They were further informed by Ms Ruby Hon of Fong & Ng on 9 December 2003 that they had ceased to act for the Cais.

Causation

73. Counsel for Fong & Ng submitted that what they did or did not do has not caused the alleged wastage of costs, i.e. there is no casual connection between their acts/omissions and the alleged wastage of costs in these proceedings.

74. However, Fu did not take instructions directly from the statutory beneficiaries upon the claims of D3/D4 at the outset in June 2002.  He accepted instructions from one of the claimants D3, knowing it was just based on a power of attorney.  There was clear conflict between D3 and the statutory beneficiaries.  In spite of that Fu forwarded the letter of claim from D3/D4 to the administrator.  He further stated the position of the statutory beneficiaries, saying that they would pay the two sums out of their entitlement when he had no direct instructions.

75. If Fu took instructions directly from the statutory beneficiaries, which he could on 28 August 2002 in the Shanghai meeting, he would be told by the statutory beneficiaries and Wong that that was not their understanding of the way they would be charged.  Their understanding would be in line with the way they were actually charged under the interim account.

76. Thus, Fu at the outset could state clearly the position of his clients.  If D3/D4 wanted to claim against Mok, it would be an action by D3/D4 against Mok when the administrator decided that those fees were not testamentary expenses.  In fact, eventually, if these proceedings were not discontinued by consent, the court would direct D3/D4 to be the plaintiffs against the same D1 and D2.

77. Accordingly, if Fu had not acted as he did, these proceedings would not have been commenced by the administrator in July 2002 and the same would not have continued until the end of 2003.

Costs of these proceedings

78. Who should be responsible for these proceedings?  I answer this question by considering how these proceedings were commenced and conducted.

79. As I have said, it all started with Fong & Ng’s letter of 13 June 2002, claiming :

(1)     NCB Trustee and NPO were claiming $10.8 million from the estate;

(2)     they are testamentary expenses;

(3)     all the statutory beneficiaries had agreed to make such a payment; and

(4)     the administrator should pay NCB Trustee out of the estate and the assets.

80. In fact, Mr Fu only received instructions from the donee of power of attorney, i.e. NCB Trustee, who in turn was given such a general power for the donors, i.e. the statutory beneficiaries.

81. Mr Fu, in such a situation, should have noticed the dire conflict of interest between the donor and the donee.  The donee is doing something to the detriment of the donors.  He should in the circumstances refused to receive instructions from NCB Trustee and should seek direct instructions from the donors instead.  There was no lack of means of communication between them.  In fact they had a meeting on 28 August 2002 in Shanghai.  The matter could be clearly explained to the statutory beneficiaries, and in particular the basis of D3/D4’s claim of $10.8 million and their way of calculation on the whole properties of Choy.

82. In fact Mr Fu continued to act, purportedly for the statutory beneficiaries’ knowing full well they were not informed of the whole situation.  He then file an affirmation and said that if Elsa Mok would not pay for such notorial and handling fees, they would have to be borne by his clients.

83. Such an admission of liability was only made to the benefit of NCB Trustee and NPO from whom he had been receiving instructions.  It could not be a genuine mistake of him just because he had a different view of the effect of the DFA.  If he had such a mistaken understanding, there was no reason why he did not mention such a version of liability :

(1)     in answer to the Administrator’s notice for liability to be stated;

(2)     at the conference outside the Court of Appeal when the Administrator stated that there was no sufficient liability of the estate;

(3)     at the meeting with the administrator; and

(4)     at the meeting in Shanghai with the statutory beneficiaries.

84. If he held such a view only after receiving the letters of NCB Trustee and NPO, what had made him change his stand in such a matter.  Why he did not consider it necessary to refer the matter directly to all the statutory beneficiaries?  In fact when the administrator lightly enquired whether he had direct instructions from the statutory beneficiaries, he was very annoyed and agitated in his reply and stated that his instructions should not be doubted.

85. I therefore found that Mr Fu had put his clients in detriment and he had acted in favour of NCB Trustee and NPO instead.  NCB Trustee had also improperly relied on the power of attorney in instructing Mr Fu to act for the statutory beneficiaries.  They are also responsible for the instigation of these proceedings.  They were given a chance to sue D1 and D2 directly for their purported claim of these notarial fees.  But up to this day, they have not done so.

86. In the end, I found all three of them, Fong & Ng, NCB Trustee and NPO to be liable to pay the costs of these proceedings incurred by the administrator, Mr Cai, Ms Mok and Mr Zhang on indemnity basis, to be taxed if not agreed.

[1]    See my Judgment dated 26 March 2001.

[2]    She was called Jennifer Wong but she was previously known as Jennifer Choy.

[3]    See Appendix 1 — the spread sheet of his family tree.

[4]    Since Madam Wong had settled by this deed with the Cais, the question of whether she was the kit-fat wife of Mr Choy was not an issue in the previous probate action.

[5]    The name of each firm of solicitors acting for which party is quite relevant in this case and they are included to demonstrate the knowledge of various persons there and then at different material times.

[6]    It will be apparent from the 3^rd story hereof that the beneficiaries has settled this 1% and 5% based on their own entitlement to the properties of Mr Choy.

[7] Lord Hope of Craighead in Harley v. McDonald [2001] 2 AC 678 at 703 para.53.