DARACH E. HAUGHEY AND ANOTHER v. LAM MUI AND OTHERS

HCMP 1593/2014

[2021] HKCFI 1843

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1593 OF 2014

____________

____________

_______________________________________________

REASONS FOR DECISION AND RULING ON COSTS

_______________________________________________

1.  This is an application by Chiu Hiu Hung (administratrix of D2, the sole beneficiary) to compel the Administrators to comply with a court order and distribute the Estate to her.

Background to the court order

2.  On 8 June 2017, this Court handed down judgment and made an Order, insofar as relevant to the present Summons, that:

(1) The cash (about $39 million) then in the hands of the Administrators should be distributed to D2 solely (§1);

(2) If any other beneficiary still wanted the Administrators to pursue investigation of properties in South Vietnam, North Vietnam, and/or administration of properties in Mainland China, he/she shall inform the Administrators within 2 months, failing which the investigation on Vietnam properties shall cease and/or the beneficiary would be regarded as giving up his rights and claims to the Mainland China properties (§§2-3);

(3) There be an order nisi that the Administrators shall have their costs out of the Estate before distribution (§5);

(4) There be an order nisi that the Defendants’ costs on common fund basis should be borne out of the Estate (§6);

(5) There be an order that Chiu Hiu Hung's costs should be indemnified by the Estate (§7); and

(6) D2 had to pay back $1,470,600 to the Estate (§8); and if an amount of $3 million had been paid from the Estate to D2, it should also form part of the Estate.

3.  The Order made reference to funds of “about HK$39 million” in the hands of the Administrators at the time of the Order. In fact, the correct amount was $36,310,263.03.

Steps taken by the Administrators after the Order

4.  No beneficiary had invoked §§2-3 of the Order.  D1 had passed away and no costs were claimed.  Save for an amount of $22,730 paid to D2 on 5 September 2018 for costs for the time when she acted in person, the Administrators had not complied with those parts of the Order dealing with costs before D2 issued the Summons.

5.  On 12 July 2017, D4-D6 lodged an appeal to the Court of Appeal against the Order in paragraph 2(1) above (“the Appeal”).  There was no stay of execution in the meantime. The Appeal (CACV 157/2017) was heard on 9 October 2018.  The Administrators incurred costs.

6.  Chan, Lau & Wai (“CLW”) came on record for Chiu Hiu Hung in July 2018.  After numerous requests, the Administrators made an interim distribution to Chiu Hiu Hung of $26,310,583.19 on 2 August 2018, withholding $10 million.  That was already 14 months after the Order.

7.  CLW took out the present Summons on 30 June 2020 (amended without objection from the Administrators on the day of this hearing).  The Amended Summons seeks to compel the Administrators (i) to distribute $6 million to Chiu Hiu Hung out of the funds in their hands; (ii) settle the Defendants’ costs under the Order; (iii) distribute the cash in the Estate to Chiu Hiu Hung; and (iv) to personally bear costs of the Amended Summons on indemnity basis.

8.  On 17 July 2000, the Court of Appeal handed down judgment, dismissing the appeal, save to reduce the amount which D2 had to pay back to the Estate by $3 million.

9.  After the Court of Appeal’s Judgment, the Administrators:

(i) Distributed another $6 million to Chiu Hiu Hung on 24 August 2020;

(ii) Paid $105,935 to D3 for costs under the Order on 2 September 2020; and

(iii)    Paid $275,000 to D4-D6 for costs under the Order on May 2021.

10.  Although all the party-and-party costs under the Order had been dealt with, the costs of the Appeal, the stay application and what was known as the new evidence application, have not been settled by the time of this hearing.

11.  Meanwhile, the Courts have also made orders disallowing the costs of the Administrators and their solicitors (“SFKS”) out of the Estate or otherwise required them to personally bear costs, ie the order of Master Phoebe Man dated 23 April 2021 (concerning taxation) and this Court’s order dated 22 February 2021 (concerning relief against sanction).  It was not clear if the Administrators and SFKS needed to or had repaid the Estate accordingly.

12.  After the affirmations in relation to the Amended Summons were filed, this Court wrote to the parties, asking the Administrators to produce a Checklist of the outstanding steps to be taken before final distribution:

“(1) The deceased had died for 65 years. Administration of the estate is pathetically slow having regard to the fact that the Trustees were appointed in 2003. Even after my Judgment dated 8 June 2017 and the Court of Appeal’s decision, one still cannot see the end of the road to the administration.

(2) It is of little use for the Trustees to only explain why, in the past 3 odd years, they have not distributed the estate to D2 and eg how many letters have been written to whom. What concerns the Court is that the way the estate has been administered since the Judgment dated 8 June 2017 appears to lack direction, proper management and common sense.

(3) Some of the questions that spring to mind are: what are the outstanding steps to be taken before distribution? What is the time needed to complete each of these steps? What are the estimated costs of each party or the Trustees or the Trustee’s legal representatives? What is the estimated date for completing administration of this estate? I expect a positive proposal from the Trustees.

(4) The Court proactively manages a case and expects the Trustees and their solicitors to do the same.  Dilatoriness will end up with a direction by the judge to the taxing master to cut down the costs of the Trustees, the relevant party or their legal representatives.”

13.  The Administrators produced the Checklist.  By this hearing, the Administrators had about $2,237,522.36 in their hands.  Subject to the following payments, this amount can be released to Chiu Hiu Hung:

(1) Fees of the Administrators and costs of SFKS, if any, that have not been paid under the Order;

(2) Fees of the Administrators and costs of SFKS in respect of the costs of the Appeal on trustee basis which could not be recovered from D4‑D6; and

(3) Repayment of fees of the Administrators and costs of SFKS, if any, to the Estate pursuant to paragraph 11 above.

Issues

14.  By this hearing, the outstanding issues were therefore: the way forward that could lead to final distribution of the Estate to Chiu Hiu Hung and costs of the Amended Summons.  After hearing the parties and based on the Checklist, I gave the directions in the Annex to this Decision. Here are my reasons.

Directions in the Annex

15.  The overall scheme depicted in the Annex is to enable the administration of the estate to be completed by September 2021. 

16.  §1 in the Annex was to ensure that the Administrators/SFKS do pay back fees/costs to the Estate pursuant to the Court orders in paragraph 10 above.

17.  §§2 and 3 in the Annex was to enable Chiu Hiu Hung to obtain the cash as soon as possible; but CLW should stakehold $500,000 to cater for fees/costs that need to be paid to the Administrators and SFKS.  This direction would give incentive to the Administrators to work out the amounts due to them and SFKS in order to get paid and complete administration as soon as possible.

18.  The $500,000 to be stakeheld, together with the $325,000 sanctioned payment made by D4-D6 shall provide sufficient security for the Administrator’s outstanding costs and remuneration.

19.  §4 was to have the party-and-party costs of the Appeal dealt with as soon as possible.

20.  §§5 and 6 were included at the reasonable request of Chiu Hiu Hung who wished to know the breakdown of the Administrators’ remuneration and SFKS’s fees before deciding whether to agree the quantum.

21.  §§7-10 were to ensure that outstanding fees and remuneration that needed to be paid would be computed and that the final accounts would be delivered in a timely manner.

22.  §§11-12 laid down some caveats as some issues have been raised in the submissions that have not been covered by the Amended Summons. If those issues are not resolved, the interested party could come back to Court under the liberty to apply provision.

Costs of the Amended Summons

23.  One needs to consider the rationale behind the Summons and the Administrators’ explanations for the delay in implementing the Order.

24.  Under Order 45, rule 6(2) of the Rules of the High Court (“RHC”):

“Where … an order requiring a person to do an act does not specify a time within which the act is to be done, the Court shall have power subsequently to make an order requiring the act to be done within such specific time after service of that order, or such other time, as may be specified therein.”

25.  The purpose of this rule is to enable the court to give the respondent one last chance to comply with its order before the applicant may invoke contempt proceedings.  The burden is on the applicant to prove that an order had been made requiring the respondent to perform an act within a specified time and the respondent failed to do so.  Once that is proved, the burden then shifts to the respondent to show why he should not be required to comply with the order to perform the act, upon being given a second chance. The obligation to perform the act required has been determined and made an order of the court.  Thus, in considering whether to exercise the discretion under this rule, there is no need for the court to revisit the appropriateness or otherwise of its previous order.  The question is simply whether in all the circumstances the respondent should be excused from performing the act under its previous order.  As the court’s orders are made to be complied with, such circumstances must be very rare indeed.  A possible example would be impossibility of performance as a result of a change of circumstances”.  See Ip Pui Lam Arthur v Alan Chung Wah Tang and ors [2015] 2 HKLRD 603, a case about enforcement under O.45, r.6(1), §19, To J; Dr Q v The Health Committee of the Medical Council of Hong Kong [2014] 2 HKLRD 57, §§31, 35-37, Au‑Yeung J (re an application for committal for contempt).

26.  Orders of the court must be complied with strictly in accordance with their terms.  It is not sufficient, by way of answer to an allegation that a court order has not been complied with, for the person concerned to say that he “did his best”.  The only exception to that proposition is where the court order itself only orders the person concerned to ‘do his best’.  But if a court order requires a certain state of affairs to be achieved, the only way in which the order can be complied with is by achieving that state of affairs.  See Dr Q, at §32(4).

27.  The Order laid down a timetable for the Administrators to carry out investigation of assets and pay the costs of the Defendants with a view to completing the administration within a short time.  It was totally unacceptable that the simple steps on settlement of costs could not be dealt with for 3 years before the Summons was taken out.

28.  The Administrators’ defence for the delay can be summarised as follows:

(1) They were concerned that after distribution to D2 and yet D4-D6’s Appeal was successful, there might be an issue of recoverability from D2 and there might be some unknown future events (“recoverability defence”);

(2) They seemed to suggest that they had to wait for the outcome of the Appeal and yet the Court of Appeal took a long time to hand down judgment (“Appeal defence”);

(3) They had complied with the Order by paying out about 95% of the cash in hand to D2 and there was no flagrant flouting of the Order (“substantial compliance defence”); and

(4) The Appointment Order provided that the Administrators shall be paid their costs out of the estate before distribution (“Administrators’ costs defence”).

29.  The recoverability defence is unsustainable. SFKS had had discussions with D2 (then acting in person) as regards interim distribution. The concerns of the Administrators related to (i) the recovery of assets from D2 in the event the appeal was to reverse the Order; and (ii) the possibility of costs arising as a result of some unknown future events occurring.  Concern (i) was a legitimate one.  However, there was nothing to show that the Administrators had taken reasonable steps to ascertain the proper amount that should be set aside for D4-D6 to cater for success of the Appeal and costs necessary until CLW came on board.  In respect of concern (ii), the deceased had died for over 65 years.  Any unknown future events could hardly have been substantial as to justify keeping $36 million undistributed until 2018.

30.  The Appeal defence is unsustainable because:

(i) The payment of costs to the Defendants under the Order was not dependent on the outcome of the appeal;

(ii) D4-D6 had not appealed against the costs order;

(iii)    D4-D6 only applied for stay of execution on 11 May 2018, about a year after the Order, and no stay had ever been granted; and

(iv)    D3 and Chiu Hiu Hung had not appealed at all.

31.  The Administrators had not paid the costs to Chiu Hiu Hung (then acting in person) until 5 September 2018.  It was late but was still tolerable. However, there was simply no reasonable excuse for paying the other Defendants only in 2020 and even 2021.

32.  The substantial compliance defence is not sustainable.  The Administrators should have complied with the Order instead of just a substantial part of it: Dr Q.  Even if money should have been set aside for the Appeal (or even to the Court of Final Appeal), there was nothing to show that the Administrators had properly estimated the proper amount to retain.

33.  The Administrators did nothing to pay costs to the Defendants except to write a few letters to them asking for bills.  The Administrators neither laid down a timetable for the Defendants to come up with bills of costs nor applied under Order 62, rule 22 of the RHC to compel the Defendants to commence taxation.

34.  Chiu Hiu Hung was the sole beneficiary who had a say over the quantum of costs to be paid to the Defendants.  And yet CLW was only notified that D1 had no claim to costs on 25 February 2020.

35.  After being notified of the costs claimed by D3 and D4-D6, CLW participated in discussions which led to settlement of those costs under the Order.  From the time CLW was notified to such settlement, it was 4 months (in the case of D3’s costs) and 9 months (in the case of D4-D6’s).  Hence CLW only took months to do what could not achieve in 3 years.

36.  The Administrators’ costs defence is unsustainable.  It was not the Appointment Order but the Order which stated that the Administrators’ costs should be paid out of the Estate before distribution. 

37.  Even if the Administrators’ costs should be paid out first before distribution to Chiu Hiu Hung:

(1) It was not even clear if the Administrators and SFKS had got paid under the Order.

(2) Over 10 months had elapsed since the Court of Appeal’s Judgment and the costs to be paid by D4-D6 in respect of the Appeal have not been settled.

(3) The Administrators had no road map for complying with the Order and completing administration until this Court asked them to prepare the Checklist.

38.  Where the order has not specified a time for performance, the steps must be taken within reasonable time. In view of the way the Order was made and the fact that the deceased had died for 65 years at the time of the Order, Chiu Hiu Hung was all the more entitled to expect the Administrators to promptly comply with the Order.  And yet the evidence disclosed that CLW had to make repeated requests to push the Administrators into taking steps forward.  Chiu Hiu Hung had rightly taken out the Summons.

39.  The Court should mark its disapproval of the Administrators’ delay as in Dr Q.  The defences were unsustainable.  The analyses in this section confirmed this Court’s view that the Administrators’ administration “lacked direction, proper management and common sense”.

40.  Further, prior to the Summons, CLW had written to the Administrators to request for release of $6 million to Chiu Hiu Hung. Calderbank letters were issued shortly after the issue of the Summons.  Whilst not objecting to release of $6 million, the Administrators had counter-offered that CLW should withdraw the Summons and the Administrators should get costs out of the Estate (for their own default).

41.  The Court bears in mind the principle in Order 62, rule 6(2) of the RHC that where a person has been a party to any proceedings in the capacity of personal representative, he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by the personal representative, and the Court may otherwise order only on the ground that the personal representative has acted unreasonably or, in the case of a personal representative, has in substance acted for his own benefit rather than for the benefit of the fund.

42.  In my view, whilst this was not a situation of the Administrators acting for their personal benefit (save for the legitimate remuneration and costs) or acting partially or had committed misconduct, the Amended Summons was wholly necessitated by their unreasonable delay in implementing the Order and administration of the Estate.  The Administrators should not be remunerated by Estate for their own delay and they should personally bear the costs of Chiu Hiu Hung for the Amended Summons on indemnity basis.

43.  I summarily assess Chiu Hiu Hung’s costs of the Amended Summons at $650,000.

Conclusion

44.  For the reasons given, I gave the directions in the Annex.  I gave leave to amend the Summons at the hearing.

45.  I also order that costs of the Amended Summons be personally borne by the Administrators on indemnity basis, summarily assessed at $650,000.  The Administrators shall not be entitled to recover their remuneration and costs out of the Estate in respect of the Amended Summons.  This Order is, of course, without prejudice to the charging of remuneration and costs of the Administrators and SFKS in complying with the directions in the Annex.

Annex

1. The Administrators and SFKS shall verify if they have received money out of the Estate in respect of the relief from sanction summons dated 21 December 2020 and in respect of the taxation proceedings referred to in paragraph 1 of Master Phoebe Man’s Order dated 23 April 2021.  If they have received such costs, those costs shall be paid back to the Estate forthwith.

2. Within 7 days from today, the Administrators shall pay to CLW the money held by the Administrators for the Estate.

3. CLW shall stakehold $500,000 in an interest bearing account for the fees of the Administrators and costs of SFKS, which shall not be paid out without a court order.  The balance of the sum received from the Administrators shall be released by CLW to D2 forthwith.

Costs to be paid by D4-D6 to the Plaintiff in respect of the Order dated 17 July 2020 in CACV 157/2017

4. “Costs of the appeal” in this order shall mean costs of:

(a) The appeal itself;

(b) The stay application dated 11 May 2018; and

(c) The fresh evidence application dated 8 October 2018.

5. Within 28 days, the Administrators shall negotiate with D4-D6 with a view to agreeing the costs of the appeal, failing which the Administrators shall file a notice of commencement of taxation upon expiry of those 28 days.

Bills of costs of the Administrators and SFKS

6. Within 28 days, the Administrators shall provide to D2 (and where appropriate, to D4-D6) the breakdown of their fees for (i) the costs of the appeal; (ii) the costs of the underlying action in HCMP 1593 of 2014 which led up to the Judgment dated 8 June 2017; and (iii) the costs claimed arising from the Order of Yam J dated 27 October 2003.  Identify those fees if they have been included in the second and third bills of the Administrators.

7. Within 28 days, SFKS shall provide to D2 (and where appropriate, to D4-D6) the breakdown of their costs and disbursements for (i) the costs of the appeal; (ii) the costs of the underlying action in HCMP 1593 of 2014; and (iii) the costs claimed arising from the Order of Yam J dated 27 October 2003.  Identify those costs and disbursements if they have been included in any bill of SFKS.

8. Within 28 days, the Administrators shall provide to D2 their final bills for all steps up to and including completion of administration.

9. Within 28 days, SFKS shall provide to D2 their final bills for all steps up to and including completion of administration.

10. Any fees/costs not included in paragraph 8 or 9 shall not be recoverable from the Estate.

Final accounts

11. Final accounts shall be delivered by the Administrators within 28 days upon completion of all the above steps or by 30 September 2021, whichever is the earlier.

Savings

12. The above directions are made:

(1) On the basis that there is no need for party and party taxation between the Plaintiffs and D4-D6; and

(2) Without prejudice to D2’s challenge to the Administrators’ accounts, fees and costs incurred in respect of the Estate, and any argument that the statutory cap under Section 60 of the Probate and Administration Ordinance (Cap 10) shall apply to the fees and costs in this Estate.

13. There be liberty to apply.