LAU YUE KUI v. LAU SAI TUNG, FRANCIS AND OTHERS

HCMP 1025/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1025 OF 2004

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DECISION ON COSTS

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Introduction

1.  This is the administrator’s application concerning his own costs in (a) HCAP 10/2001 (“HCAP 10”), CACV 58/2004 and 59/2004 (“the case management appeals”) and CACV 141/2006 (“CACV 141”) and (b) those in HCMP 1025/2004 (“HCMP 1025”).

2.  The administrator was the 1^st defendant in the proceedings set out in para. 1(a) above, and the plaintiff in HCMP 1025.

3.  The orders sought in this application include:-

(a)	he be indemnified for his own costs in HCAP 10 and CACV 141 which are to be paid out of the estate (of which he is the administrator) on trustee basis;
(b)	there be no order as to costs in HCMP 1025 save that there be a similar indemnity costs order as above as between him and the estate;
(c)	he be indemnified by, and be paid out of, the estate those costs which were (1) ordered to be paid in the case management appeals (including those in HCAP 10 and HCMP 1025) and (2) reserved to the trial judge in HCAP 10;
(d)	subject to (c) above, HCMP 1025 be stayed with liberty to apply.

4.  The orders set out in para. 3(b) (except the indemnity costs order) and (d) above are unopposed.

5.  Save as aforesaid, this application is opposed by the 3^rd to 7^th defendants (“the Five Fongs”) in HCMP 1025 (the 5^th and 7^th defendants therein are the two plaintiffs in HCAP 10 and they also oppose this application in that capacity).  For convenience, they are collectively called “the opposing parties”.

Background

6.  The background leading to this application is in short as follows.

7.  HCAP 10 was an action brought against the administrator (and another individual) for alleged breach of fiduciary duty, breach of duty of reasonable diligence and negligence.  The action was dismissed by this court on 10 March 2006 with costs to the administrator.

8.  CACV 141 was an appeal against the dismissal of HCAP 10.  When it came before the Court of Appeal, the parties reached settlement.  By consent, the appeal was permanently stayed.  The appellants were also to pay 50% of the costs of the appeal to the administrator.

9.  HCMP 1025 was brought by the administrator to seek directions as to the conduct and administration of the estate which he administers.  The net result of the agreement referred to in para. 3(d) and 4 above is that it is now stayed.

10.  The case management appeals were lodged by the opposing parties.  The first instance court ordered a speedy trial of HCMP 1025.  The Court of Appeal allowed the appeals and ordered that:-

“	[HCMP 1025] be adjourned to be considered by the judge hearing [HCAP 10] after he has heard [HCAP 10]” (para. 5, judgment).

11.  The Court of Appeal also ordered that:-

“	the costs here and below should be to [the opposing parties], and the question as to whether the administrator can recoup his costs out of the estate will have to be left to the trial judge in [HCAP 10]” (para. 8, judgment).

Legal Principles

12.  The applicable legal principles regarding when an administrator is entitled to be indemnified by the estate for his costs are undisputed.  They are summed up in the administrator’s written submissions.  The relevant passages are:-

“	… trustees (administrator, in this case) may be involved in 3 broad kinds of ‘disputes’ –‘a Trust Dispute’; ‘a Beneficiaries Dispute’; ‘a Third Party Dispute’;
	… ‘for a trust dispute, the modern view is that where there is hostile litigation between rival claimants to the trust estate, the trustee should remain neutral and if he does so, he will have his proper and necessary costs indemnified.  If the trustee should take an active part in litigation, and if he is successful, he may be entitled to costs out of the estate, for he has preserved the interests of the beneficiaries under the trust.  But if he should lose, he is not entitled to be indemnified for his costs, as the costs have been incurred in an unsuccessful attempt to prefer one class of beneficiaries to another’ [Re Kennedy (No. 3) [2005] 2 HKC 73 at 76F-G]
	… ‘Successful defence by trustee – A beneficiary who unsuccessfully sues trustees for breach of trust will normally be ordered to pay the costs of the trustees.  But costs may prove to be irrecoverable from the beneficiary, for example because he is impecunious or legally aided, or the costs recovered, assessed on the standard basis, may be less than the costs actually incurred by the trustees which would be allowed on the indemnity basis.  In such cases, the question arises whether the trustees must suffer the burden of their costs personally, so far as not recovered from the unsuccessful claimant.  Early cases suggest that trustees who successfully defend a claim against them for breach of trust are entitled to indemnity out of the trust fund in respect of such costs only if it can be shown that their defence is for the benefit of the trust.  Later cases show that this is too narrow a view and trustees in these circumstances, being guilty neither of breach of trust nor misconduct, are entitled to such costs by way of indemnity as incident to their administration of the trust, though in view of Part 48, rule 48.3 of the Civil Procedure Rules the court may in such a case order an assessment on the standard rather than indemnity basis’ [§21-89 Lewin on Trusts (17th Edn. 2000); cited with approval in Re Kennedy (No. 3) [2005] 2 HKC 73 at 77H-78D]” (para. 10 thereof).

HCAP 10

13.  It cannot be (and is not) disputed that the administrator was the successful party therein.  Further, he was already awarded his costs against the plaintiffs therein on party-and-party basis.  In fact, that the administrator was the successful party has been accepted in the opposing parties’ written submissions (at para. 2 thereof).

14.  The opposing parties argue that the administrator should only be awarded his costs against the estate also on party-and-party basis.  They contend that:-

(1)	had the administrator conducted his defence economically without asserting that the fee agreements he entered into for the estate were fair and reasonable; and
(2)	had he sought taxation of those fees earlier,

a lot of his costs would have been saved.

15.  It is unnecessary to go into the detailed history of HCAP 10 save to observe this.  The administrator (and the other defendant) did (albeit shortly before the commencement of the trial) offer to tax the fees charged under the fee agreements.  However, the plaintiffs therein decided to pursue their claims at to the end (unsuccessfully, as it turned out) irrespective of the offer.

16.  In these circumstances, there is no factual basis for believing that, even if the administrator had acted as contended for in para. 14 above, he would have saved a lot of the costs in defending HCAP 10.

17.  It has not been suggested the administrator has been guilty of any other “breach of trust” or “misconduct” (and I cannot find any).

18.  For these reasons, I agree with the administrator that an order should be made in his favour in relation to HCAP 10.  In exercise of my discretion, this is an appropriate case for those costs to be taxed on trustee basis if not agreed.

CACV 141

19.  The opposing parties claim that, because this appeal has been compromised, there is no clear winner or loser.

20.  I do not agree.  The net result of the compromise is that the first instance decision in HCAP 10 remains valid.  To that extent, the administrator is clearly a successful party.  The same can be said of the costs of HCAP 10.

21.  As regards the costs of the appeal itself, the administrator has been awarded half of those costs against the opposing parties.  But this does not alter the fact referred to in para. 20 above.

22.  There is no suggestion at all of “breach of trust” or “misconduct” on his part.  Thus, I do not see any valid reason not to order his costs be indemnified by the estate.  Similarly, this is an appropriate case for those costs to be taxed on trustee basis if not agreed.

HCMP 1025

23.  The opposing parties have not contended this action was commenced for improper motive.  In fact, it was argued in their written submissions used in the case management appeals that:-

“	The guiding principle in determining [HCMP 1025] … is to decide what is the most appropriate course to take in the best interest of the trust or estate as the case may be … ” ( para. 16 thereof).

24.  In these circumstances, the appropriate order as regards costs is to make an order in terms of that sought in para. 3(b) above.  Further, those costs should be taxed on trustee basis if not agreed.

The Case Management Appeals

25.  I agree with the opposing parties the administrator has not been successful in defending these appeals.

26.  I therefore do not think it right to make any order indemnifying him for any of the costs expressly awarded to the opposing parties by the Court of Appeal (see para. 11 above).

Conclusion

27.  By reason of the above, there will be an order in terms of para. 3(a) to (b) and (d) above.  However, the administrator should not be entitled to recoup his costs for defending the case management appeals.  To that extent, the part of this application set out in para. 3(c) above is dismissed.

Costs of this Application

28.  I have heard the parties’ submissions as regards costs and consider the administrator to have been substantially successful in this application.

29.  Accordingly, the costs of this application are to be paid by the opposing parties to be taxed if not agreed.

30.  Further, the administrator’s own costs are to be indemnified by, and be paid out of, the estate to be taxed on trustee basis if not agreed.