LEE GOO LYNETTE SIU YIN AND OTHERS v. CHEUNG WAI MING DAISY in her capacity as executor of the estate of LI SING KUI AND OTHERS

HCMP 1836/2017

[2019] HKCFI 1957

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1836 OF 2017

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D E C I S I O N
(On Costs)

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Introduction

1.  On 26 April 2019, this Court handed down a judgment in this matter directing that the matter of costs be dealt with on paper and the parties to lodge written submissions in relation thereto (“Judgment”). I shall follow the definitions in the Judgment, save where otherwise indicated. 

2.  As seen in the Judgment, Ps essentially sought 3 orders in the originating summons issued on 29 August 2017 (“Originating Summons”) namely (1) an order to remove the 1^st defendant Daisy as the executrix of the Estate and for an independent professional administrator to be appointed in her place (“Removal Application”), (2) an order for the sale of the Family Property (“Sale Application”) and (3) an order for Daisy to give a full inventory and account of the Estate (“Estate Account Application”).

3.  Briefly, pursuant to the Judgment, this Court ordered that :

(1)  Daisy be removed as executrix and an independent administrator be appointed in her place;

(2)  The Sale Application be adjourned sine die with liberty to restore for a directions hearing after the appointment of the professional administrator;

(3)  As for the Estate Account Application, this was also adjourned sine die with liberty to restore.

4.  The Originating Summons was issued by Ps under Order 85 of RHC.  The costs order Ps had originally sought in the Originating Summons were as follows:

(i)   Ps’ costs of and incidental to these proceedings be raised and paid out of the Estate on the trustee basis in the due course of administration;

(ii)  Such orders as may be appropriate in respect of the costs of Ds of and incidental to these proceedings.

5.  However, in relation to the Removal Application, namely paragraphs 1 and 4 of the Originating Summons, Ps now seek orders as follows :

(1)  Daisy to personally pay Ps’ costs of and incidental to paragraphs 1 and 4 of the Originating Summons on an indemnity basis forthwith to be taxed if not agreed, with certificate for 2 counsel. Daisy’s own costs shall be borne by her personally and without being indemnified for those costs out of the Estate.  Insofar as any funds of the Estate have already been used to pay such of Daisy’s costs, she to personally reimburse the Estate for such costs forthwith.

(2)  D2 to D7 do personally pay Ps’ costs of and incidental to paragraphs 1 and 4 of the Originating Summons on a party and party basis forthwith, to be taxed if not agreed, with certificate for 2 counsel.  D2 to D7’s own costs shall be borne by D2 to D7 personally and without being indemnified for those costs out of the Estate.

6.  The position of Daisy and D4-D7 is that their own costs and P’s costs should all be borne out of the Estate, rather than by Daisy personally; alternatively, there should be at least an apportionment as to costs.

7.  The position of Pak Huen (on behalf of D2 and D3) is that there should be no order as to costs against Pak Huen (ie D2 and D3) in respect of the Removal Application.  Pak Huen does not object to an order that all the parties’ costs be payable out of the Estate. 

8.  So far as the costs of the Sale Application and Estate Account Application, namely paragraphs 2, 3, 5 and 6 of the Originating Summons, as these applications have been adjourned sine die, such costs should be reserved.  I understand that there was no objection to this and I will so order.  This Decision is only in relation to costs of the Removal Application.

The legal principles

9.  As set out in Cheung Pui Yuen v Worldcup Investments Inc (2009) 12 HKCFAR 31, where proceedings have been properly instituted for the benefit of a deceased’s estate, the court may, in an appropriate case, make an order for the costs of the proceedings to be borne by the estate, and the principle was explained by Kekewich J in Re Buckton [1907] 2 Ch 406[1].

10.  There are 3 classes of cases referred to in Re Buckton.  It was not disputed by the parties that Ps’ present claim for costs against Ds was made under the 3^rd class, a class where the application to the court is made by a beneficiary but is, in substance although not in form, an adverse claim made in hostile litigation, and in such a case, the rule applicable to hostile litigation should be applied and the unsuccessful party ordered to pay the costs.

11.  It was however submitted by Mr Lam SC that in exercising its discretion as to costs, the Court shall take into account, as set out under Order 62 rule 5(1) of RHC and amongst other things, (i) the underlying objectives set out in Order 1A rule 1 of RHC, (ii) the conduct of the parties, and (iii) whether a party has succeeded on part of his case, even if he has not been wholly successful.

12.  As set out in Order 62 rule 5 (2) of RHC, the conduct of the parties includes: (i) whether it was reasonable for him or her to raise, pursue or contest a particular allegation or issue; (ii) the manner in which he has pursued or defended his case or a particular allegation or issue; (iii) whether he who has succeeded in his claim, in whole or in part, exaggerated his claim; and (iv) his conduct before, as well as during, the proceeding.

13.  Mr Lam SC further referred to Re Estate of Choi Kim Kwong [2015] HKCFI 870 (HCMP 1997/2014, unrep, 27 May 2015) and submitted that if a plaintiff beneficiary “cast too wide a net and drag in a host of matters” that ought not have been raised, the scope of the proceedings would be extended improperly with much costs to be incurred by both sides unnecessarily. It would be unfair to require the defendant administrator to personally bear his own costs and the costs of the plaintiff, even if the plaintiff is held to be entitled to commence the proceedings in the first place[2].

Ps’ case

14.  Ps seeks costs of the Removal Application against D1 personally on indemnity basis based on this Court’s following findings[3]:

“(1) Even on D1’s own case, the Estate Accounts prior to 2014 were not in the proper format and were not proper estate accounts (Judgment §48).

(2) Notwithstanding D1’s offer at the 1^st hearing, by the time of the 2^nd hearing, D1 still failed to arrange for inspection of documents listed by Ps and, as such, proper Estate Accounts with supporting documents had not yet been rendered at the end of the 2^nd hearing (Judgment §69).

(3) There was unjustified delay on the part of D1 to provide Ps with proper Estate Accounts (Judgment §90).

(4) There was significant delay in the administration and distribution of the Estate. It was only in early December 2018, two years after probate was granted and with the hearing before this Court approaching, that the interim dividends cheques were sent out by D1 and letters were sent to the beneficiaries regarding the shares in publicly listed companies and private companies. There was no reason as to why all these could not have been done earlier (Judgment §103).

(5) For a year after grant of probate and before D2 had raised the issue of the Family Arrangement/Promissory Estoppel, D1 had done little or nothing to bring about a sale of the Family Property and/or otherwise to wind up the Estate (Judgment §118).

(6) Notwithstanding that D1 is fully aware of her duty, apart from collecting in all the assets, she had not taken any pro-active step to try and achieve a final distribution and/or otherwise to wind up the Estate prior to the issue of the present proceedings and it took her over two years after grant of probate to make an interim distribution and to write to the beneficiaries regarding the disposition of shares in listed companies and private companies (Judgment §119).

(7) There has been continuing unjustified delay on D1’s part towards administration and distribution (Judgment §120).

(8) D1 herself and her children did not see an urgent or immediate need to move out of the Family Property. There was no evidence that D1 herself had tried to secure an agreement, at least as between her (and her 4 children) and Ps, in relation to moving out or vacating the Family Property for the purpose of a sale.

(9) Notwithstanding D1’s own statements and her last minute undertaking through Senior Counsel, her inconsistent stance and the lack of positive and/or concrete actions on her part as an executrix in relation to a sale plus her attitude that there is no urgent or immediate need to change the present status quo would result in delay in winding up the Estate and such a delay would in effect mean that she and her children can continue to reside in the Family Property free of rent and with utilities and various expenses paid by the Estate. There is a serious conflict of interest between D1 as executrix and the Estate in relation to the matter of a sale of the Family Property (Judgment §135).”

Daisy’s case

15.  On the other hand, it was submitted on behalf of Daisy that Ps’ own litigation conduct should be taken into account by the Court, such conduct being:

(1)  raising and pursuing initial complaints that did not ground in the removal of Daisy;

(2)  repeated introduction of new complaints that were not made out;

(3)  raising complaints only within the four corners of this litigation.

Discussion

Raising complaints that did not ground in the removal

16.  The Originating Summons was issued on 29 August 2017, about 9½ months after Daisy was granted Probate of the Estate.  This was supported by Lynette’s affidavit of 16 August 2017.  As seen therein, Lynette had said she was told by her solicitors that Clause 5(2) of the Will became operative at the very latest on the death of Madam Chau in 2002 and that by February 2014, Lynette realised that settling of the Estate was an open issue that she needed to address and she first consulted solicitors in April 2014 when she failed to obtain updated information on the Estate from Bernard who was at that time the executor of the Estate.

17.  As pointed out by Mr Lam SC on behalf of Daisy, it would thus appear from Lynette’s 1^st affidavit that there was dissatisfaction with the administration of the Estate since when Bernard became sole executor of the Estate.  However, as pointed out by Mr Lam, there had been no serious complaint or formal request for Estate Accounts or disclosure of documents made by Lynette or Ps during Bernard’s lifetime and further some of Lynette’s complaints were not seriously argued during the hearing, and that Daisy had incurred costs in dealing with those complaints.

18.  As seen in her 1^st affidavit, Lynette had made various complaints against Daisy or her predecessor Bernard, such as lack of proper record/registration of the Estate’s interests in the Family Property after a failed fraudulent transaction by unrelated persons in 1996, missing art and fine china which were removed from the common area of the Family Property, and a lack of upkeep and maintenance of the Family Property. 

19.  However, notwithstanding Lynette had made quite a number of complaints at that time, her main reasons in wanting Daisy replaced by a professional independent administrator were ultimately summarised by her to be (i) Daisy’s failure to communicate with the beneficiaries; (ii) Daisy’s failure to administer the Estate; (iii) Daisy’s inherent conflict of interest given Daisy was residing in the Family Property[4].

20.  Although some of Lynette’s complaints did not ground in Daisy’s removal and notwithstanding Mr Wong describing such submissions as being “nit-picking”, I accept that Daisy had to meet those allegations and costs had been incurred by her in dealing with those allegations.

Ps’ introduction of new complaints

21.  As for Mr Lam’s submissions that Ps had repeatedly introduced new complaints, it was submitted on behalf of Ps that no accounts or any information on the assets of the Estate were provided to Lynette until August 2017 and that had Ps been provided with all the information and accounts at the very outset, Ps would not have to raise their complaints on a piecemeal basis. 

22.  It is true that it was only in August 2017 that the financial statements of the Estate/information on the assets of the Estate were first provided to Ps by Daisy even though Daisy was aware that Lynette had been seeking such information in April 2014 from Bernard, before he passed away.  

23.  As said in the Judgment, Daisy subsequently decided to instruct BDO in October 2017 to prepare the proper Estate Accounts and the draft BDO Estate Accounts were first sent to Ps by D1 in February 2018 and the finalised version in late April 2018.  

24.  As pointed out by Mr Lam at the substantive hearing, after receipt of the BDO Estate Accounts, Ps did not request Daisy to provide the primary supporting documentary evidence to “verify” the truth and accuracy of the BDO Estate Accounts, nor did Lynette complain in her 4^th affidavit (filed on 12 June 2018) about the BDO Estate Accounts being inadequate because of lack of supporting documents.  

25.  In her 4^th affidavit, Lynette’s complaints about Daisy and the BDO Estate Accounts were mainly as follows:

(i)    Excessive accounting costs and no discussion with any of the beneficiaries as to the appropriateness or costs of instructing BDO or the manner in which BDO was to be instructed, and BDO failed to prepare the accounts on an assurance basis and instead included an express disclaimer to the Estate Accounts;

(ii)   There were missing bank accounts at BEA, in particular the account 514-10-409787-1 and that it was suspected that Daisy improperly mingled her assets with those belonging to the Estate;

(iii)  There were missing and delayed dividend deposits;

(iv)  There was undervaluation of assets of the Estate, including the Family Property as well as chattels and antiques not being valued by an expert.

26.  Then after Daisy filed her 3^rd affirmation to explain some of the above matters, Ps raised further complaints shortly before the first day of the substantive hearing including lack of disclosure of supporting documents of the BDO Estate Account.

27.  As seen in paragraph 57 of the Judgment, on the 1^st day of the substantive hearing, this Court had pointed out to Mr Wong that it was not clear exactly what supporting documents Ps were seeking and over what period, and it was only in the afternoon of the 1^st day of the substantive hearing that Mr Wong produced the List of Documents, containing the documents which Ps sought from Daisy.

28.  Having considered the evidence, I accept what was submitted by Mr Lam, that Ps had repeatedly introduced new complaints, and that some of Ps’ complaints were raised shortly before the substantive hearing. 

Raising complaints only within the four corners of this litigation

29.  It was further submitted by Mr Lam that Ps’ complaints were only raised by way of their affidavit evidence or even by way of legal argument instead of raising any enquiries through correspondence or direct communications with Daisy.

30.  Mr Wong however pointed out prior to the issue of the Originating Summons, Lynette had engaged in a lengthy process negotiations and correspondence with Daisy and her solicitors but this was to no avail.  Further after the issue of the Originating Summons, it was Daisy herself who adopted the approach of providing information about the Estate only through the filing of affirmation evidence to oppose the Removal Application, eg (i) it was only in Daisy’s 1^st affirmation that she disclosed the inventory of unadministered assets of the Estate, details and progress of distribution of such assets and various correspondence with banks etc and (ii) it was only in D2’s 2^nd affirmation that the BDO Estate Accounts were provided. 

31.  In any event, from those letters produced during the substantive hearing, Ps’ solicitors did seek further information and update from Daisy after the issue of the Originating Summons and in a letter of 15 March 2018, Daisy’s had said that all the issues raised by Ps in their letters of 26 January 2018 and 20 February 2018 would be covered in Daisy’s 2^nd affirmation which was eventually filed on 2 May 2018.

32.  What is clear is that after the issue of the Originating Summons, there did not appear to be any attempts by Ps on the one side and Ds on the other to try to mediate or to discuss any settlement, and there were continuous complaints from Ps against Daisy.  

Conclusion

Costs Order against Daisy

33.  The grounds for the Removal Application set out in Ps’ Skeleton Arguments of 11 December 2018 were: (1) unjustified delay and refusal to sell the Family Property with conflict of interest; (2) inordinate and inexplicable delay in distribution of cash and shares; (3) unexplained accounting irregularities and failure to provide documentary evidence of a highly complicated estate.

34.  The conflict of interest was not set out as a separate ground by Mr Wong but only in relation to (1) where it was submitted on behalf of Ps that by reason of D1’s ongoing occupation of the Family Property, there was an inherent risk of conflict between her interests and those of the beneficiaries of the Estate.    

35.  During the hearing, there appeared to be a change of emphasis with new complains and Ps’ complaints were then summarised by this Court in paragraph 39 of the Judgment as follows:

(1)  Unjustifiable delay: (i) delay in rendering proper Estate Accounts and (ii) delay in administration and distribution of property, cash and securities of the Estate[5];

(2)  Failure to provide proper accounts of the Estate;

(3)  Accounting irregularities;

(4)  Conflict of interest: (i) D1 herself residing in the Family Property with her family members rent free and (ii) D1 has duty to investigate into conduct of previous executors of the Estate[6];

(5)  D1’s qualifications/suitability to act as executor.

36.  As seen in the Judgment, Ps had essentially failed in their complaints about the BDO Estate Accounts.  I did not find Ps’ complaint about the accounts being not on “assurance” basis was justified, nor were Ps’ complaints of there being inadequacies in the BDO Estate Accounts or there being accounting irregularities made out.

37.  In fact, in relation to Daisy’s failure/delay to provide the Estate Accounts, the detailed BDO Estate Accounts were provided and that Ps only raised the issue that “proper estate accounts” should include the supporting/ underlying documents shortly before or at the substantive hearing.  As said earlier, it was only on the 1^st day of the substantive hearing that the List of Documents was provided to Daisy.  Having said this, Daisy did fail to provide those for inspection by the time of the 2^nd day of the substantive hearing notwithstanding having undertaken to do so.

38.  As for the conflict of interest complaint, it was based on the fact that Daisy and her family continuing to reside in the Family Property.  The other complaint that Daisy has a duty to investigate into conduct of previous executors of the Estate was again only raised at the substantive hearing and this Court found that there was no sufficient evidence that there was any need for investigation into conduct of past executors at this stage.

39.  As for Daisy’s qualification, this was again only raised at the substantive hearing.   Daisy only became the executrix of the Estate by reason of her being executrix of Bernard’s estate, by a chain of representation.  As submitted by Mr Wong, the Estate is a “highly complicated” one, and I have taken this into consideration when coming to the decision that there should be a professional administrator.

40.  Having considered the above and Ps’ own litigation conduct in continuing to raise new issues, I am of the view that Daisy should not be ordered to pay all of Ps’ costs personally. 

41.  Mr Lam has proposed an apportionment of 20% be paid by Daisy.   Having considered all the above, I am of the view that Daisy should pay personally 40% of Ps’ costs of and incidental to the Removal Application up to and including the handing down of the Judgment and the drawing up of the Order with certificate for two Counsel.

42.  As for Daisy’s own costs of and incidental to the Removal Application, such shall be borne by her personally and not be indemnified for such costs out of the Estate, and if paid already, Daisy to reimburse the Estate.  However, Daisy should be indemnified by the Estate for all costs incurred by her in carrying out the administration of the Estate.

43.  As to the basis of taxation of the 40% which Daisy has to pay personally, I am of the view that such costs should be taxed on party and party basis, if not agreed, with certificate for two counsel.  The circumstances in the present case are quite different from those in Mai Cuiting v Mak Chui Fong, unrep, HCMP 2619/2016 4 August 2017.  In that case, this Court had taken into account a number of factors including that the defendants only obtained letters of administration 7 years after the deceased’s death notwithstanding having given an undertaking in a connected Family Court action to do so as soon as practicable,  that there was no full disclosure of all the deceased’s assets in the schedule of assets and liabilities and there was no indication that the defendants agreed to render any estate accounts at all prior to the issue of the originating summons.

44.  Anyway, having considered paragraph 62/App/12 of the Hong Kong Civil Procedure 2019, I am of the view that Daisy’s conduct herein has not been oppressive or egregious or so unreasonable as to attract an order for costs on indemnity basis.  

Costs Order against D4 to D7

45.  As for D4 to D7, they have been joined as necessary parties in the Removal Application, and although they have expressed a view in favour of their mother, they did not put forward any reasons, nor did they express any objection to the orders sought by Ps.  I am of the view that there should be no order as to costs as between Ps and D4-D7.  I am of the view that D4-D7’s own costs should not be paid out of the Estate since all they needed to do if they wished to express a view was simply to write a letter to tell Ps and there was no need for them to instruct any lawyers or to file any affirmations.

Costs order against D2 and D3

46.  Although Pak Huen had filed an affirmation to oppose the Removal Application, his grounds were mainly because he considered Daisy had been doing a good job and that he was concerned over the costs of an independent administrator.  He had also set out in his affirmation the distributions from the Estate in the past.  Pak Huen’s main opposition is towards the Sale Application. 

47.  As costs were incurred by Ps in responding to Pak Huen’s affirmation, I am of the view that Pak Huen should contribute 5% of Ps’ costs of and incidental to the Removal Application up to and including the handing down of the Judgment and the drawing up of the Order on party and party basis with certificate for two Counsel.  Pak Huen’s own costs in relation to the Removal Application should not be paid out of the Estate and if paid already, then he will have to reimburse the Estate.  As to whether there should be a wasted costs order as Ps had insisted in proceeding with the Sale Application at the substantive hearing, this is a matter to be considered later in relation to the Sale Application.  

Costs of the Costs Submissions

48.  As no one has achieved the costs orders they seek as against each other, there should be no order as to costs in relation to the costs submissions.

Apportionment

49.  For the purpose of taxation, I would apportion that the time taken for the Removal Application at the substantive hearing was 80%.

Costs of and incidental to the appointment of the independent administrator

50.  I am of the view that all parties’ costs of and incidental to the appointment of the independent administrator should be part of administration costs and all such costs should come out of the Estate.