KONG COLIN CHUNG PING AND ANOTHER v. KONG WING ON AND OTHERS

CACV 69/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 69 OF 2015

(ON APPEAL FROM HCMP NO. 2045 OF 2012)

________________________

________________________

________________________

REASONS FOR JUDGMENT
________________________

Hon Kwan JA (giving the reasons for judgment of the court):

Introduction

1. The court is concerned with another appeal brought by the 1^st and 3^rd defendants against a decision made by Deputy High Court Judge Le Pichon in respect of an originating summons issued by the 1^st and 2^nd plaintiffs who are the residuary beneficiaries of the estate of their deceased grandfather, Kong Wing Hong (“the testator”).  The 1^st defendant, Kong Wing On, is the testator’s brother, the former executor of the estate and the entire beneficial owner of the 3^rd defendant, On Hong Ning Drug Company, Limited.  The 2^nd defendant is a professional accountant and was appointed by the court to replace the 1^st defendant as the executor when the latter was removed in November 2013.

2. On 10 March 2014, the judge gave judgment on one of the reliefs sought in the originating summons ([2014] 2 HKLRD 517; “the 1^st Judgment”) and made a declaration that the two tenancy agreements exhibited as “KWO-7” to the 1^st affidavit of the 1^st defendant filed on 5 December 2012 are void and unenforceable.  The 1^st and 3^rd defendants appealed against the 1^st Judgment (in CACV 72/2014) and this court dismissed their appeal on 24 April 2015, with reasons handed down on 8 May 2015 (“the CA Judgment”).

3. On 24 February 2015, the judge gave judgment (“the 2^nd Judgment”) in respect of the outstanding reliefs in the originating summons and ordered an account to be taken before a Master from the 1^st defendant for 50% of the market rental of certain premises from 9 June 2003 occupied by the business of the 1^st defendant, with simple interest at 1% per annum above the best lending rate of HSBC prevailing from time to time on the amount found due on the taking of the account to the date of judgment and thereafter at judgment rate until payment, and payment by the 1^st defendant to the 2^nd defendant of the sum found due on the taking of the account with interest to be held as part of the residuary estate.

4. On 28 May 2015, the judge gave her decision on costs (“the Costs Ruling”) and ordered the costs of the proceedings with all costs reserved be paid by the 1^st defendant to the plaintiffs and to the 2^nd defendant on a party and party basis.  She also made an order nisi that the difference between party and party costs and full indemnity be paid to the plaintiffs out of the estate.  On 31 August 2015, the order nisi was made absolute in that the difference between party and party costs and full indemnity be payable to the plaintiffs out of the estate after the sum found due on the taking of the account together with interest as per the order dated 24 February 2015 have been paid by the 1^st defendant to the estate and all current liabilities of the estate have been settled.

5. The 1^st and 3^rd defendants brought the present appeal against the 2^nd Judgment and the Costs Ruling.  We dismissed the appeal at the conclusion of the hearing and ordered the 1^st defendant to pay the costs of the plaintiffs and the 2^nd defendant of this appeal.  These are the reasons for our judgment.

The background

6. To a very large extent, the background has already been set out in the CA Judgment.  The relevant paragraphs are repeated here and the same nomenclature is adopted in this judgment for ease of reference.

“4. The testator died on 9 June 2003. Probate was granted to the 1^st defendant as the sole executor on 6 March 2006. The plaintiffs are the grandchildren of the testator and two of the beneficiaries of his estate. The other two beneficiaries are Madam Tam Wai Fong and the 1^st defendant, who is the younger brother of the testator. The 1^st defendant was removed as the executor of the testator and replaced by the 2^nd defendant, a professional accountant, by an order of the judge on 13 November 2013. The 1^st defendant is over 90 years old and in poor health. On 30 January 2015, an order was made by a master appointing the 1^st defendant’s wife his guardian ad litem in these proceedings. The 3^rd defendant is a company wholly owned and controlled by the 1^st defendant.

5. Since about 1950, the testator and the 1^st defendant had operated in partnership a pharmaceutical and related business under the trade name of On Hong Ning Drug Company (“the Business”) from two premises (collectively “the Premises”): (1) the basement, ground floor, 1^st, 2^nd, 14^th floors and roof of 792 Nathan Road (“the Nathan Road premises”), being part of a building that comprises 16 floors in total (“the Prince Edward Building”); and (2) the basement, ground floor and 1^st floor of 313 Nathan Road (“the Jordan premises”).

6. The brothers were also equal shareholders and permanent directors for life of two companies (collectively “the Companies”) – On Hong Ning Drug Company Ltd (the 3^rd defendant herein) and On Hong Ning Drug Company (Mongkok) Ltd. The former has never been in operation and the latter has been dormant since 1993.

7. The brothers were tenants in common of the Prince Edward Building and the Jordan premises. During the testator’s life time and while the Business occupied the Premises, there was no lease and no payment was made in respect of the occupation.

8. The plaintiffs issued the originating summons in these proceedings in September 2012, seeking the removal of the 1^st defendant as the executor and consequential relief, including an account by him of his dealings with the estate and any assets therein. One of their complaints was that by occupying the Premises and not accounting for rental income, the 1^st defendant put himself in a conflict of interest situation and was in breach of his fiduciary duties.

9. It was in opposing the originating summons that the 1^st defendant made his 1^st affidavit in December 2012 exhibiting as “KWO-7” the two tenancy agreements, one for the Nathan Road premises and the other for the Jordan premises. In each instance, the testator and the 1^st defendant were the landlord and the 3^rd defendant was the tenant. The 1^st defendant deposed that there had always been consensus between him and the testator that the Business should continue to be operated with least interruptions upon the death of either of them and for this reason, they entered into those tenancy agreements on 10 January 1996 with the intention that they could live on the earnings of the Business “for at least 20 years” in the event that either one died.

10. The tenancy agreements were drafted by the brothers’ long standing solicitors, Philip K H Wong, Kennedy Y H Wong & Co (“PWKWC”). PWKWC prepared other documents which were executed by the brothers in March 1996. There was a deed dated 11 March 1996 (“the Deed”), by which they agreed to execute mutual wills under which each bequeathed to the other his share and interest in the Business and the Companies conditional on the other surviving him, failing which such gift would lapse and fall into his residuary estate. Mutual wills dated 11 March 1996 were executed by the brothers. Each also executed a codicil to his own will that dealt with bequests of other assets. In the testator’s case, the codicil he executed on 11 March 1996 was revoked by the codicil in 1997.

11. Significantly, unlike his share in the Business and the Companies, the testator did not bequeath his half share in the Premises to the 1^st defendant. He had other testamentary provisions in mind. By the 1997 codicil, the testator’s share of the Jordan premises and the Prince Edward Building was to form part of his residuary estate.

12. The tenancy agreements were in identical terms save for the description of the leased property. The term was for five years but the commencement date was left blank. The rent was $3 per month exclusive of rates. The tenant (i.e. the 3^rd defendant) was given the right to “sub-let or to authorise use of the Premises by way of Licence to [the testator and the 1^st defendant] or any one of them trading as ON HONG NING DRUG COMPANY (安康寧大藥房)”. There was an option for the tenant to renew the tenancy four times, each time for a term of five years on the same terms but without the option clause. The tenancy agreements were executed by the testator and the 1^st defendant as the landlord. But even at the date of the testator’s death on 9 June 2003, the agreements were undated and had not been executed by the 3^rd defendant as the tenant.

13. The 1^st defendant said this in §48 of his 1^st affidavit:

“In order to facilitate our consensus that the Business should continue to be operated with least interruptions upon the death of either the [testator] or myself, the [testator] and I, as landlords, and [the Company], as tenant, entered into two tenancy agreements in 1996 whereby [the Company] is entitled to occupy the [Premises] at a rent of HK$3 per month (exclusive of Rates) and with the right to sub-let or to authorize use of the [Premises] by way of licence to the [testator] and myself and any one of us trading as On Hong Ning Drug Co (安康寧藥房) (“the Tenancy Agreements”) (see KWO-7). Furthermore, there was a mutual agreement between the [testator] and I that the term of the tenancies under the Tenancy Agreements were to be left blank and were to be filled in by the [testator] or myself upon the death [of] either one of us. Both of the Tenancy Agreements provide for an option to renew for 4 times, each time for a term of 5 years. The intention was that either of us could carry on the Business with least interruption for at least 20 years, so that we can live on the earnings of the Business, upon the death of either of us”.

14. The plaintiffs amended their originating summons on 20 May 2013 by adding §1A seeking an order in these terms: “A declaratory order that the Tenancy Agreements as exhibited as KWO-7 under the 1^st Affidavit of Kong Wing On are invalid, void and/or not enforceable”.

15. On 13 July 2013, the 1^st defendant filed his 2^nd affidavit in these proceedings and exhibited copies of the tenancy agreements as “KWO-11”, from which it can be seen that (1) the commencement date of the five-year term of the tenancy was filled in as “09-06-2003”, being the date of death of the testator; (2) the rubber stamp of the 3^rd defendant was affixed in the space for signature of the tenant and the 1^st defendant signed on its behalf as “Chairman”; (3) the date of “18-04-2013” was written next to the signature on behalf of the tenant; and (4) the tenancy agreements were stamped and stamp duty was paid on 19 April 2013.”

7. The 1^st defendant also said this in §§4 and 5 of his 2^nd affidavit:

“4. In my 1^st Affidavit, I have explained the very close relationship between the Deceased my elder brother and me. … Our ownership and interest in the Business were joint irrespective of any formalities or legal niceties. Accordingly, over the years, there was never any accounting between us as to how much money had been drawn out and how much money had been put in by each of us. Because of that relationship and understanding, we had purposely entered into the Deed and the mutual will arrangement to ensure that the surviving brother would continue the Business and could securely continue to live on the Business in his remaining years, after the death of one of us. …

5. As I explained in Paragraph 48 of my 1^st Affidavit, the genesis of the two Tenancy Agreements could be traced back to the mutual agreement between the Deceased and me to ensure the Business could continue, and could continue to be run at [the Premises] on rent-free basis, for the benefit of the surviving brother after the prior demise of one of us. This was the same mutual agreement underlying the execution of the Deed and the mutual wills in 1996. The Tenancy Agreements were drafted by the same firm of solicitors who prepared the Deed and the mutual wills. They were also prepared in 1996 at the time when the Deed and mutual wills were executed. Pursuant to that mutual agreement, the Deceased and I pre-signed the Tenancy Agreements leaving blank and date and term, and agreed that the same should be filled upon the death of either one of us, by the surviving brother. Further, in order to ensure the arrangement could last through the life of the surviving brother, the Tenancy Agreement expressly provide for an option to renew for 4 times, each time for a term of 5 years. For the reasons given above, and pursuant to the mutual agreement, I therefore filled in the term of tenancies as a 5-year term commencing 9 June 2003 (being the date when the Deceased died). Further, upon legal advice, I caused the same to be dated and submitted for stamping in April this year. There are now produced and shown to me marked “KWO-11” copies of the said Tenancy Agreements duly dated and stamped. My understanding is that the Tenancy Agreements could be renewed for another 5 years at the end of the first 5-year term.”

8. By the 1^st Judgment, the judge held that the tenancy agreements, first exhibited as “KWO-7” with certain parts left blank and later completed and exhibited as “KWO-11”, are invalid.

9. In the 2^nd Judgment, the judge dealt with the remaining issues in the originating summons.  The case advanced by the plaintiffs was that the 1^st defendant had acted in breach of fiduciary duty and/or duty of care by occupying property forming part of the estate (being the testator’s half share in the Premises) for the purpose of his own business to the exclusion of the estate and paying only nominal rather than market rent.  The plaintiffs sought an order that he should account to the estate for the difference or make equitable compensation.  The 2^nd defendant supported the plaintiffs’ position.

10. The 1^st defendant raised a number of defences, including estoppel by convention, proprietary estoppel and promissory estoppel.  They were all rejected by the judge.  The judge also declined to relieve him from personal liability under section 60 of the Trustee Ordinance, Cap 29.

The issues in this appeal

11. Ms Teresa Wu, who appeared with Mr Kerby Lau for the 1^st and 3^rd defendants here and below, raised four broad grounds of appeal in the appeal against the 2^nd Judgment.

12. First, it was contended that the judge erred in misapplying the legal principles of estoppel by convention, proprietary estoppel and promissory estoppel (“the estoppel ground”).

13. Second, the judge erred in failing to appreciate it was the testator who put the 1^st defendant in a position of conflict (“the conflict ground”).

14. Third, the judge erred in refusing to accept that in the event the 1^st defendant was liable for breach of trust, he should be exempted from liability under section 60 of the Trustee Ordinance (“the exemption ground”).

15. Fourth, in any event, the judge should not have ordered the 1^st defendant to account and pay for 50% of the market rental of the Premises (“the assessment ground”).

16. As regards the Costs Ruling, in the event that his substantive appeal should be dismissed, the 1^st and 3^rd defendants contended that the costs below should be varied in that all costs, including the costs of these defendants, should be paid out of the estate.  Alternatively, insofar as the 1^st defendant is required to pay any costs of the plaintiffs and the 2^nd defendant without being able to be indemnified, the 1^st defendant should pay no more than 50% of such costs.

The estoppel ground

17. The judge held against the 1^st defendant on his arguments of estoppel by convention, proprietary and promissory estoppel due to (a) lack of certainty of the common assumption or representation; (b) lack of detriment; and (c) lack of a causal link between the common assumption or representation and the detriment.

18. Ms Wu took issue with all these holdings.

(a) Lack of certainty

19. The common assumption required for estoppel by convention resembles the representation required to give rise to other forms of estoppel to the extent that it must be unambiguous and unequivocal (Chitty on Contracts (31^st ed), vol 1, §§3-107 and 3-090).

20. Ms Wu referred the court to Unruh v Seeberger (2007) 10 HKCFAR 31 at §§138 to 139, and submitted all that is required of such common assumption is that it must be “sufficiently certain to enable the court to give effect to it” and it does not require a concluded agreement to operate.  Insofar as a lesser degree of certainty is suggested, this must be understood in the proper context of the relevant quotations cited by Ribeiro PJ in Unruh v Seeberger.  The above words in quotation were taken from the judgment of Morritt V-C in Baird Textiles Holdings Ltd v Marks & Spencer Plc [2001] 1 All ER (Comm) 737 at §38.  But as Ribeiro PJ pointed out in §138, the Vice-Chancellor indicated that he was applying the same test for estoppel by convention as established in Woodhouse AC Israel Cocoa Ltd SA v Nigerian Produce Marketing Co Ltd [1972] AC 741 at 755, 761 and 771 for promissory estoppel, namely, that the promise relied on must be “clear and unequivocal”.  The Vice-Chancellor also referred to the judgment of Ralph Gibson LJ in Troop v Gibson [1986] 1 EGLR 1.  Whilst Ralph Gibson LJ had suggested a lesser test of certainty might be appropriate for estoppel by convention as compared to a concluded agreement, he nevertheless concluded that “the extent to which the importance of clear and unequivocal statements is reduced in cases of estoppel by convention is probably small” and emphasised that “in all cases the representation or statement must be sufficiently clear”.

21. Ms Wu contended before us, as she did before the judge, that the common assumption between the testator and the 1^st defendant was that upon the death of either of them, the survivor would be able to continue to operate the Business at the Premises as before, with the least disruption as possible, that support for the common assumption would be found in §48 of the 1^st defendant’s 1^st affidavit and §5 of his 2^nd affidavit, and his position was as set out in §30 of the 2^nd Judgment:

“(1) the common assumption was formed between the parties prior to the tenancy agreements and the death of the testator;

(2) the common assumption is supported or evidenced by the terms found in the tenancy agreements;

(3) such terms had been communicated through the tenancy agreements signed by both the brothers; and

(4)  the contents of the common assumption are sufficiently certain.”

22. As the judge had noted in §32 of the 2^nd Judgment, the common assumption as formulated above is uncertain in that nothing was said about the duration of the alleged arrangement.  Ms Wu submitted before us that the duration would be until the death of the surviving brother.

23. This would not help the 1^st defendant to overcome the lack of certainty.  As the judge had analysed at §§72, 74 to 77 of the 1^st Judgment, there were inconsistencies and discrepancies arising as regards the duration of the arrangement.  Three different versions were put forward by the 1^st defendant in his two affidavits: (1) for the remaining years of the surviving brother; (2) for at least 20 years; and (3) for 25 years. Further, there was a mismatch between the alleged objective (which was to ensure the arrangement could last through the life of the surviving brother) and the identity of the tenant in the tenancy agreements, which was a limited company, namely, the 3^rd defendant and not the surviving brother.  The judge did not think the mismatch could be attributed to the fact that the brothers were laymen and untrained in the law, given that the tenancy agreements were prepared by their solicitors PWKWC.

24. Ms Wu submitted that the judge erred in confusing the requirements of a valid tenancy agreement with those of a common assumption for estoppel by convention or a representation for proprietary or promissory estoppel.  She contended that although the inconsistencies and discrepancies as regards duration had rendered the tenancy agreements invalid, they would not render the common assumption uncertain.  She relied on the fact that there was a mutual will arrangement between the testator and the 1^st defendant that whoever survived the other would obtain the Business and the Companies.  The survivor would require the Premises for the continuous operation of the Business.  Prior to the death of the testator and the execution of the tenancy agreements, the Business had been operated at the Premises rent-free.  The tenancy agreements provided the best objective evidence to illustrate the common assumption or representation, as both the testator and the 1^st defendant had signed on the agreements.  Although the tenancy agreements did not provide that the term of the tenancy was to last for the lifetime of the surviving brother, since the agreements could last for 25 years with four renewals, that should be long enough to cover the remaining years of the survivor as both brothers were in their seventies when they signed the agreements.

25. We do not think Ms Wu could overcome the difficulties as to the inconsistencies and discrepancies of the alleged assumption or representation as analysed by the judge.  The burden is on the 1^st defendant to make good his case, and his burden is heightened in respect of his claims against the estate of the testator, where the only or principal evidence came from him and the testator could not give his own version of what took place.  The court has always approached such claims with some suspicion, and would look for clear and reliable evidence of when, where and what the deceased had said in respect of the alleged transaction (Yung Shu Wu v Vivienne Sung Wu (2011) 14 HKCFAR 39 at §§73 and 76).

26. It is pertinent to bear in mind what Lord Collins of Mapesbury said in First Laser Ltd v Fujian Enterprises (Holdings) Co Ltd (2012) 15 HKCFAR 569 at §§85 and 86, that estoppel by convention cannot normally be used in effect to validate an agreement  which by statute would otherwise be invalid or unenforceable.

27. As submitted by Mr Andrew Lynn for the plaintiffs, the affidavit evidence of the 1^st defendant came nowhere near to satisfying the court specifically of when, where and what the deceased had said in respect of the alleged common assumption or representation.  In §79 of the 1^st Judgment, the judge expressed the view that as the alleged oral agreement would not have presented drafting difficulties, “if it did exist, it is simply not plausible that PWKWC would have left the commencement date blank”.

28. Ms Wu relied on the judgment of Lord Neuberger of Abbotsbury in Thorner v Major [2009] 1 WLR 776 at §§84 to 86, in which he made three qualifications to the proposition that there must be a “clear and unequivocal” assurance to found an estoppel: first, the effect of words or actions must be assessed in their context; second, it would be quite wrong to be “unrealistically rigorous” when applying the “clear and unambiguous” test; and third, where the assurance relied on could reasonably be understood as having more than one possible meaning, if the facts otherwise satisfy all the requirements of an estoppel, normally the ambiguity should not deprive a person who reasonably relied on the assurance of all relief, it may well be right he should be accorded relief on the basis of the interpretation least beneficial to him.

29. We do not think the judge had embarked on any exercise to search for ambiguity or uncertainty.  In our view, the judge had, in the words of Lord Neuberger at §85, “[assessed] the question of clarity and certainty practically and sensibly, as well as contextually”.  There was no question of the assumption or representation being reasonably understood as having more than one possible meaning.  Quite simply, the 1^st defendant had deposed to inconsistent things in his affidavits.  So at the end of the day, one is still left with this rhetorical question: if the court were to give effect to the common assumption or representation as deposed to by him, should he be allowed to operate the Business at the Premises rent-free for the rest of his life, for 20 years or for 25 years.

30. Ms Wu tried to make something out of the fact that at the hearing below the other parties did not apply to cross-examine the 1^st defendant on his affidavits.  We do not think this is relevant.  The reality of the situation was that by the time the judge came to deal with the remaining reliefs in the originating summons in February 2015, an order had been made appointing his wife his guardian ad litem in these proceedings on account of his poor health.  This merely confirmed what the other parties would have known for some time.  It was plainly not feasible to cross-examine the 1^st defendant in view of the deterioration in his physical and mental condition.

31. It does not assist his case to contend that the common assumption or representation was supported or evidenced by the terms in the tenancy agreements in view of the inconsistencies mentioned earlier.  As the judge had said in §33 of the 2^nd Judgment, reliance on the tenancy agreements is equally misplaced and runs into the same difficulties.  Moreover, as the tenant stated in the agreements was the 3^rd defendant, even if the surviving brother should pass away during the 25 year period, his successor who is to inherit the shares of the 3^rd defendant from him could renew the tenancy up to 25 years at a nominal rent.  That could not be said to give effect to the common assumption or representation as alleged.

32. And reliance on the mutual will arrangement would not have helped the 1^st defendant either.  The Deed, the mutual wills and codicils were executed after the common assumption was formed and the tenancy agreements were signed as alleged.  The testator’s will did not deal with his interest in the Premises, and only his share in the Companies, which included the 3^rd defendant, and his interest in the Business were bequeathed to the 1^st defendant.  The testator’s 1997 codicil, which revoked the codicil in March 1996, provided that the 1^st defendant shall hold the residuary estate (which included the testator’s half share in the Premises) upon trust for sale with full discretion to postpone sale and for the time the residuary estate shall remain unsold, the rental income within the residuary estate shall be used to pay a monthly sum not less than $40,000 to Madam Tam during her life time and an annual sum of $100,000 to the 1^st defendant during his life time, and the rest shall be held on trust for the plaintiffs.

33. Mr Patrick Siu for the 2^nd defendant made the valid point that if there had been the common assumption or representation as alleged, the testator and the 1^st defendant would have reasonably been expected to implement it through the subsequent will or the codicil, or at least refer to it in those documents.  One would not find the will or the codicil to be at odds with the alleged assumption or representation.

34. The judge is clearly right to hold that the alleged common assumption or representation failed to satisfy the requirement it must be clear and unequivocal.  On this ground alone, the reliance on estoppel by convention, proprietary or promissory estoppel must fail.

(b) Lack of detriment

35. The judge held against the 1^st defendant on this point as the detriment alleged to have been suffered as a result of the common assumption or representation is not identified.  When such a claim is made against the estate of a deceased person, the items of detriment relied on should be specifically alleged and proved and such detriment should not be too readily inferred, citing Jones v Watkins [1987] CA transcript no 1200 at p 11, per Slade LJ.  There was no suggestion here (much less evidence) for example that because of the assumption or representation the 1^st defendant incurred expenditure he would not otherwise have incurred or that he lost an opportunity he would otherwise not have lost resulting in monetary loss.

36. Ms Wu submitted that the 1^st defendant had acted in reliance on the common assumption or representation in that he paid the nominal rent under the tenancy agreements for the use of the Premises and he did not take steps to protect himself from the liability he would incur if the assumption or representation had not been made, namely, the liability to pay full rent for the use of the Premises and the costs of the present proceedings brought against him by the plaintiffs.  Counsel emphasised there was change of position in reliance of the assumption or representation.

37. We reject the 1^st defendant’s submissions. Change of position in itself is not sufficient.  There must be detriment as a result of the change of position, as explained in the frequently approved passage of Dixon J in Grundt v Great Boulder Pty Gold Mines Ltd (1937) 59 CLR 641 at 674 to 675: the basal purpose of the doctrine of estoppel is to “avoid or prevent a detriment to the party asserting the estoppel by compelling the opposite party to adhere to the assumption upon which the former acted or abstained from acting” and “this means that the real detriment or harm from which the law seeks to give protection is that which would flow from the change of position if the assumption were deserted that led to it”.

38. The payment of nominal rent for continuing to use the Premises is plainly not a detriment in any sense.  And there was nothing done by the 1^st defendant in relation to the Premises.  We agree with the judge that if the suggested detriment is the present claim against the 1^st defendant, the loss is dependent on the claim succeeding and it is just a circular argument.  As submitted by Mr Lynn and Mr Siu, if the bringing of a claim were in itself sufficient to constitute detriment, there would be no need for a defendant relying on estoppel to prove detriment at all.  There is simply no relevant detriment suffered by the 1^st defendant as a result of the alleged assumption or representation.

(c) Lack of causal link

39. The judge also found against the 1^st defendant on estoppel for want of a causal link between the assumption or representation relied on and the detriment asserted.  That must be right.  The alleged assumption or representation did not cause the loss of the 1^st defendant.  It is his failure to seek legal advice or to make the appropriate application to the court for directions that has caused the loss.

The conflict ground

40. The next broad ground of appeal is that the judge failed to appreciate that if there were any conflict of interest arising from the occupation and use of the Premises for the continuous operation of the Business by the 1^st defendant, this was caused entirely by the testator with his full knowledge and authorization.  It was contended that when the will and codicil were executed, the testator knew and understood that the Premises were being used and would be used for the continuous operation of the Business.  The testator created the conflict in that he allowed the Premises to be used for the continuation of the Business as per the oral mutual agreement and the tenancy agreements, and by appointing the 1^st defendant as the executor of his estate with full knowledge and understanding that the 1^st defendant was the co-owner of the Premises and was entitled to use the whole of the Premises free of rent.  Ms Wu submitted that the authorization for the conflict of interest may be necessarily implied from the circumstances, citing Underhill & Hayton on Law Relating to Trusts and Trustees (18^th ed) at §55.30.

41. The above contention is a new argument raised for the first time on appeal.  It is founded on assertions of full knowledge, understanding and authorization of the testator but with no or no proper evidential basis in support.  Quite apart from the lack of evidence, the 1^st defendant is plainly unable to satisfy the test in Flywin Co Ltd v Strong & Associates Ltd (2002) 5 HKCFAR 356 at 369B, namely, that where a party has omitted to take a point in the court below and seeks to raise it on appeal, he will be barred from doing so unless there is no reasonable possibility that the state of the evidence relevant to the point would have been materially more favourable to the other side if the point had been taken below.

42. We refuse to allow the 1^st defendant to run this new argument on appeal.  It is not necessary to deal with the other arguments raised by Mr Lynn and Mr Siu on this ground.

The exemption ground

43. Section 60 of the Trustee Ordinance provides:

“If it appears to the court that a trustee … is or may be personally liable for any breach of trust … but has acted honestly and reasonably, and ought fairly to be excused for the breach of trust and for omitting to obtain the directions of the court in the matter in which he committed such breach, then the court may relieve him either wholly or partly from personal liability for the same.”

44. Ms Wu repeated her submission before the judge that the 1^st defendant had acted honestly and reasonably in that his occupation of the Premises rent-free flowed from his mutual agreement with the testator regarding the Business after the death of one of them and his honest belief that the tenancy agreements, the Deed and the mutual wills, which were all prepared by professionals, were valid.  There was no basis for the 1^st defendant to challenge whether the tenancy agreements were legally valid and sufficient for the purpose for which they were entered into.

45. The judge declined to exercise her discretion to relieve the 1^st defendant from personal liability.  The judge found it a little surprising that a person in advanced years would take on the responsibility of the administration of the estate, which was not simple or straightforward and was likely to last for quite a number of years, without seeking legal advice.  There was no evidence as to whether and if so what advice the 1^st defendant obtained before deciding to accept the appointment as executor or whether he had sought any advice as to the duties that would be involved. It would appear that after the death of the testator, the 1^st defendant simply carried on as before.

46. Further, the tenancy agreements remained undated and had not been executed by the tenant for seven years after the testator’s death.  The judge took the view that at the very least, a reasonable person would have sought confirmation of the efficacy of the tenancy agreements.  There was no evidence of what professional advice was given and when it was given.  And it is advice at the date of the testator’s death that is relevant.

47. The judge concluded that it would not be desirable or fair to allow the 1^st defendant to retain profits that resulted from his breach of trust, leaving the beneficiaries to shoulder the loss, and excusing him from not seeking directions from the court.  Having regard to all the circumstances, the judge was not persuaded that the circumstances here would warrant relief under section 60.

48. This being an exercise of discretion of the judge, the appeal court would be reluctant to interfere with the conclusion whether a trustee ought fairly to be excused from personal liability for the breach of trust (Marsden v Regan [1954] 1 WLR 423 at 433 and 435).  We are not persuaded that the judge had in any way misdirected herself or had failed to take a relevant matter into account or had taken into account an irrelevant matter.  The 1^st defendant has not discharged his burden by showing that he acted honestly and reasonably.  There is nothing in Ms Wu’s contention that implicit in the tenancy agreements must be the lawyers’ advice that the agreements could safely be relied on and used.  No such inference could properly be drawn.  And the judge was right to have regard to the effect of the grant of relief not only upon the trustee but also upon the beneficiaries (Marsden v Regan at 434; Santander UK plc v RA Legal Solicitors [2014] EWCA Civ 183 at §33).  There is no basis to disturb the judge’s conclusion.

The assessment ground

49. The judge ordered the 1^st defendant to account for and to pay to the estate 50% of the market rental of the Premises occupied by the Business from the date of the testator’s death.  Ms Wu contended this was wrong because this would not have represented the profit made by the 1^st defendant from his position as executor, or the loss incurred by the estate.

50. Her submission that the 1^st defendant could not be regarded to have made a profit of 50% of the market rental was premised on his legal entitlement to use the whole of the Premises as a tenant in common without paying any rent, provided there was no ouster of the other co-owner, i.e. the estate.  She contended that the judge erred in finding there had been ouster of the estate arising from the fact that the 1^st defendant sought to rely on the tenancy agreements, which were held to be void and unenforceable by the 1^st Judgment.  Further, the plaintiffs’ interests in the Premises are merely by virtue of their rights to the residuary estate and no beneficiary to a residuary estate has any beneficial proprietary interest in the assets of an estate.

51. We reject the above submission.  As rightly held by the judge, the 1^st defendant did not purport to occupy the whole of the Premises by exercising his rights as a co-owner but on the basis of the tenancy agreements.  That the tenancy agreements were later held invalid would not alter the fact that the 1^st defendant had sought to occupy the Premises on an exclusive basis, with the necessary consequence of ousting the other co-owner.  We do not consider it relevant that the plaintiffs do not have any beneficial proprietary interest in the Premises.

52. As for the other contention that 50% of the market rental would not have represented the loss incurred by the estate, Ms Wu argued that even if an independent executor had been appointed, the 1^st defendant would still have been entitled to stay in the Premises as a tenant in common and this would have an adverse impact on any rental income which the estate could have obtained.  Hence, the Premises would not have been rented out at market rent.

53. Ms Wu referred the court to Dennis v McDonald [1982] Fam 63 and Biviano v Natoli (1998) 43 NSWLR 695.  In the Dennis v McDonald, it was held that the nature of the payment a tenant in common who had been excluded from occupation by the other tenant in common was that of some sort of compensation to be paid by a trustee to a beneficiary for an exclusive enjoyment of the trust property attributable to exclusion on the part of the payer inconsistent with the discharge in due order of the trust (at 80G to H).  In that case, half of the rental value was ordered by way of occupation fee.

54. In Biviano v Natoli at 704A to D, Beazley JA made these statements about the determination of the occupation fee.  The starting point is that a co-tenant is entitled to the use and occupation of the whole of the premises and the ousted co-tenant is entitled to an occupation fee.  The occupation fee is mesne profits arising from the occupying co-tenant’s wrongful ouster, calculated on the open market value of the premises.  The measure is a reasonable sum in the nature of rent.  The onus of establishing the quantum of the occupation fee falls upon the ousted co-tenant.  Beasley JA also said at 704C to D:

“Notwithstanding that a co-tenant has a right to occupy the whole property, I do not consider that it is appropriate to merely take the rental value for the whole of the property. It would be inequitable to do so because an actual letting of the property where there is already a co-tenant in occupation would not attract a market rental based on full occupation. It may not even attract 50 per cent of the market rental.”

55. In Biviano v Natoli, the Court of Appeal of New South Wales ordered that the occupation fee should be half of the rental value of the property.

56. Mr Siu made the point that there is no principle which dictates that the court must apply a discount to the market rental in assessing the occupation fee in this kind of situation, and each case has to be decided on its own facts.  He also referred the court to French v Barcham [2009] 1 WLR 1126 at §46, in which Blackburne J determined the notional occupation rent as half of the letting value of the property.

57. We see no basis to interfere with the judge’s conclusion that to do broad justice between the parties, the 1^st defendant should be ordered to account for and pay the estate 50% of the market rental of the Premises.  As executor of the estate, the 1^st defendant owed a fiduciary duty to procure proper income from the use of the Premises and he was prevented by the rule against self-dealing from reaping benefit on account of his co-ownership.

The appeal against costs

58. There are two broad grounds of appeal against the Costs Ruling.

59. First, the 1^st defendant contended that all costs below should come out of the estate because the testator contributed to the doubt and uncertainty arising from the tenancy agreements which have necessitated the proceedings, and the determination of the question whether the 1^st defendant should pay nominal rent rather than market rent for continuing to occupy the Premises would be required for the proper administration of the estate.

60. The judge was of the view it is “beyond question” that these proceedings fall within the third class of cases discussed by Kekewich J in In re Buckton [1907] 2 Ch 406, and had “no hesitation” in ordering that the costs of the plaintiffs and of the 2^nd defendant be borne by the 1^st defendant on a party and party basis.  The judge rejected the 1^st defendant’s submission that as an executor he was entitled to be indemnified of his costs from the estate.  We agree with the judge.  And there was no finding of fact that the testator had been responsible for creating the alleged doubt or uncertainty relating to the tenancy agreements.

61. Second, it was contended that by reason of the plaintiffs raising a large number of unnecessary issues which were abandoned in the end, but to which the 1^st defendant had incurred significant costs in responding, the plaintiffs should be deprived of half of their costs.

62. This contention was raised before the judge, but the judge did not refer to the issues abandoned in the Costs Ruling.

63. To the extent that issues were raised by the plaintiffs and not pursued, what happened was that the judge had indicated at a directions hearing on 19 January 2015 she would prefer the issues to be further narrowed.  At the substantive hearing on 2 February 2015, the plaintiffs narrowed down the issues to five.  The parties later reached agreement as to how to deal with two more issues.  Eventually, the issues argued at the hearing were reduced to three.

64. The judge was fully aware of the history of the litigation.  In §11 of the Costs Ruling, the judge considered it relevant to take into account the history and how the 1^st defendant through his initial reluctance to provide information concerning the estate despite numerous requests caused these proceedings to be brought.  Added to this, the disclosure of the tenancy agreements some 9½ years after the testator’s death understandably engendered deep mistrust on the plaintiffs’ part and caused them to scrutinise and question the 1^st defendant’s dealings with the estate and to view them with a degree of suspicion.  In those circumstances, the judge considered it wholly inappropriate to deprive the plaintiffs of part of their costs in respect of an issue which the plaintiffs raised and failed.  The same could be said about the issues which were raised and not pursued for one reason or other and took up no time at the hearing.

65. The judge was in the best position to form a view whether the issues abandoned were reasonably raised, against the entire background of the litigation history, and whether there was any significant increase to costs attributable to the abandoned issues.  She declined to deprive the plaintiffs of any part of their costs for the abandoned issues.  It would not be appropriate to disturb the judge’s discretion on costs.