CELESTIAL SHUN TOK LTD. v. DIALBRIGHT CO. LTD. AND OTHERS

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J U D G M E N T

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Kempster, JA:

1. On the identical terms of three deeds, each dated 1 January 1990, Celestial Shun Tok Limited ("the plaintiffs") agreed with Dialbright Co Ltd ("the first defendant"), who provided the monies, to stand possessed of sums of US$78,083.69 in trust for Victor Wai-man Tsui ("the second defendant"), Quan Vinh Can (" the third defendant") and Cora Yan Yuet Sau ("the fourth defendant") respectively. The beneficiaries, being the second, third and fourth defendants, were the valued employees of the grantor, being the first defendant, in its business of designing, manufacturing, assembling and distributing cameras worldwide.

2. In the recitals the trust created by each deed was expressed to be irrevocable and it was stated that the first defendant would contemporaneously enter into an employment agreement ("the Agreement") with the beneficiary.

3. Clauses 2 and 3 of each deed read:

"2. The Trustee shall HOLD the investments specified in the Schedule hereto ... and the income thereof upon trust for the Beneficiary and subject to Clause 3 hereof to pay thereout the following annual gratuity to the Beneficiary: -

(a) USD22,500.00 on 30th June 1990

(b) USD22,500.00 on 30th June 1991

(c) USD22,500.00 on 30th June 1992

(d) USD22,500.00 on 30th June 1993

3.    (a) Provided that the Beneficiary is in the employ of the Grantor on the payment dates mentioned in clause 2 hereof, the Trustee shall pay the Beneficiary accordingly.

(b)    Shall the Beneficiary give notice to the Grantor under Clause 1(b)(i) of the Agreement to terminate the Beneficiary's employment or the Grantor exercise its rights to terminate the Agreement under Clause 9 of the Agreement, then the Trustee's obligation to pay the Beneficiary under clause 2 hereof shall cease forthwith and the Trust Fund together with accrued income shall be held by the Trustee on resulting trust for the Grantor. For the avoidance of doubt, if the expiration date of the notice period served by the Beneficiary under clause 1(b)(i) of the Agreement falls on or encompasses a payment date and the Beneficiary is still in the employ of the Grantor, then the Trustee shall pay the Beneficiary his entitlement on that payment date only.

...."

4. The Agreements were also in identical terms and clause 1(b) provided that:

"... the Employee's employment under this Agreement shall continue until terminated by

(i)    either party giving the other 6 month's written notice or payment of 6 month's salary in lieu thereof or

(ii)    in accordance with Clause 9 hereof."

By Clause 9:

"If at any time during the continuance of this Agreement the Employee shall

(a)    in-the opinion of Roland Kohl, General Manager of the company have committed any serious misconduct or any substantial or persistent breach of his/her obligations hereunder ...

then ... the Employer acting through Roland Kohl shall be entitled forthwith by notice in writing to the Employee to terminate this Agreement with immediate effect but without prejudice to the rights of either party in respect of any antecedent act or omission or any other right hereunder."

5. The happy relationship between employer and employee which these documents suggest was short-lived. By letters dated 11 April following, solicitors for the first defendant purported to determine the,employment of the second and third defendants on the grounds of serious misconduct pursuant to clause 9(a) of their Agreements, albeit not bv reference to the opinion of or through Mr Kohl, and so informed the plaintiffs, by their solicitors; claiming that the funds held in trust for such employees were now held on a resulting trust for the first defendant. On 3 May the employment of the fourth defendant was purportedly determined in like manner.

6. The plaintiffs received conflicting claims to the three trust funds; from the first defendant on the one hand and from the second, third and fourth defendants, who assert that their respective dismissals were unlawful, on the other. Initially as solicitors for the first defendant specifically declared in letters dated 17 May and 29 December 1990 the defendants agreed that the plaintiffs should continue to hold the funds pending the resolution of their disputes inter se or court order. Like terms were further agreed by letters passing between solicitors for the plaintiffs and for the first defendant on 27 April, 8 June and 11 July 1991 and between those acting for the first and fourth defendants and the plaintiffs dated 18, 20 and 29 December 1990 also agreeing that the plaintiffs should not be involved in litigation between those defendants. On 17 December 1991, however, the solicitors newly instructed on behalf of the first defendant renewed their client's demand that the funds should be paid over to them by the plaintiffs; subsequently reserving their position in relation to the costs of any proceedings. In consequence, on 23 January 1992, the plaintiffs commenced an action pursuant to RSC O85 r2(3)(c) seeking the directions of the court as to the future administration of the funds. The .originating summons came on for hearing before Deputy High Court Judge Jerome Chan on 17 March and, by order dated 24 April, he directed that the plaintiffs should continue to hold and invest the three funds in accordance with the trusts declared by the deeds dated 1 January 1990 until further order and that "the costs and expenses incidental to the application of the plaintiffs ... be taxed and allowed in accordance with RSC 062 r31 and be borne or paid by the three several trust funds in equal shares". The judge's reasons were handed down on 19 May.

7. The order of 24 April 1992 also required the first defendant to pay the costs of the second, third and fourth defendants on an indemnity basis and, within seven days.of a written demand by the plaintiffs, to pay them a sum equivalent to their taxed costs to be appropriated as between the three funds in equal shares. Liberty was granted to the plaintiffs and to the second, third and fourth defendants to apply to enforce these terms. By leave of the judge the first defendant appeals against these orders. It seeks to have them set aside; substituting therefor an order that the costs of all parties to the action, save those of the plaintiffs, be costs in the cause or reserved to the judge in action A2310 of 1990. It also challenges its liability, at least at this stage to reimburse the trust funds. In action A2310 of 1990 the actions which have been brought by the first defendant against the second, third and fourth defendants and Mr Kohl for damages for conspiracy and by the second, third and fourth defendants against the first defendant for damages for wrongful dismissal have been consolidated. In the further alternative the first defendant seeks s an order that costs other than those in favour of the plaintiffs be reserved to the court below pending the outcome of the consolidated action.

8. An arguable case for a resulting trust in its favour, even if the dismissals are found wrongful, is available to the first defendant. Likewise an arguable case is available for a resulting trust in favour of the second, third and fourth defendants in that eventuality. The judge so found and I would not wish to say more. I agree with him that any decision on the ultimate destination of the trust funds should be determined in the consolidated action; perhaps after an amendment of the pleadings of the first, third and fourth defendants to make appropriate claims. The first defendant's claim to the funds is on any view premature.

9. The judge was influenced in his approach to costs by the representation made by the first defendant, in an endorsement by its solicitors to a letter sent by the solicitors for the second defendant - the plaintiff in action A8825 of 1990 therein referred to - to the solicitors for the plaintiffs in the instant action - the second defendants in the action A8825 of 1990 - on or about 3 February 1991. It was a representation of agreement to the plaintiffs continuing to hold and administer the trust funds until and unless an order to the contrary was made by the court "in the proceedings". "The proceedings" were the action bearing the distinctive number A8825 of 1990; now consolidated with action 2310 of 1990. These terms were specifically agreed on 8 June 1991. There has been no change in material circumstances since and the third and fourth defendants have also been content that the status quo in relation to the trust funds should be maintained pending the outcome of the consolidated action.

10. In the circumstances the judge found that the first defendant had acted so unreasonably in renewing and, in these proceedings, maintaining its claim to the trust funds as to constitute an abuse of the process. The order for indemnity costs in favour of the second, third and fourth defendants and for the recoupment from the first'defendant of the costs payable from the trust funds to the plaintiffs after taxation, a provision which could redound to the first defendant's.advantage, reflected that opinion.

11. I cannot accept that persistence in an unsustainable claim constitutes an abuse of the process. The judge erred in so finding. We are entitled to exercise our own discretion. I am, nonetheless, satisfied that but for the misconceived attitude adopted by the first defendant these unnecessary proceedings, which called for the resolution of issues already expressly or implicitly joined in the consolidated action, would not have been instituted or the related costs have been incurred. These are unusual and special circumstances but, in my opinion, they do not warrant the taxation of the second, third and fourth defendants' costs on an indemnity basis. No more does the justice of the case require such a direction. I would exercise the discretion of this court to substitute an immediate order for the first defendant to pay the costs of the second, third and fourth defendants to be taxed on a common fund basis and to that extent allow the appeal. I would not interfere with the order for recoupment. The diminution of the funds is attributable solely to the first defendant's unfortunate demand.

12. It would not be appropriate, even assuming we have the power, to confer upon a judge dealing with another action the jurisdiction to deal with the costs of these proceedings.

Sir Derek Cons, V-P:

13. I agree with my Lord and with the orders that he has suggested.

Litton, JA:

14. The plaintiffs in these proceedings are trustees. They hold funds upon the trusts stated in three trust deeds which are in identical terms. They are all dated 1 January 1990. The first defendant, Dialbright, is the settlor and Mr Tsui, Mr Quan and Miss Yan are the beneficiaries of the trusts. I shall refer to them respectively as D2, D3 and D4.

15. At the time when the trusts were created D2, D3 and D4 were employees of Dialbright. Each of the trust deeds recited the fact that the employees had been in the service of Dialbright for several years and Dialbright, in its own best interests, and to assure of itself of the continued availability of the services of the employees in the long term, were creating the trusts in their favour.

16. By about April or May 1990 the parties had fallen out. A number of proceedings were then instituted in which in essence the employees made two claims:

(1)    sums payable by Dialbright arising from wrongful dismissal; and

(2)    payment out of the trust funds held by the trustees under the trust deeds.

17. Initially, the first claim was made by D2 alone. Subsequently a similar claim was made by D4 but in essence there can be no difference in the positions of any of the defendants.

18. Dialbright on its side claimed against the employees for damages for conspiracy and it was Dialbright's case that the trustees were under no obligation to pay the beneficiaries because of their wrongful conduct as employees.

19. The trustees were caught in the cross-fire and subsequently an arrangement was made, presumably for the purpose of saving costs, that the trustees should continue to invest the trust fund and they undertook not to dispose of it except in such manner as might be ordered by the court. Although this arrangement was made by solicitors representing the trustees, Dialbright and D2 alone, it has never been suggested that the position regarding D3 or D4 should be any different. The litigation then continued for some time on this footing.

20. On 17 December 1991, perhaps consequent upon a change of solicitors, Dialbright made a formal demand on the trustees that the trust funds should be paid out to them forthwith, upon the basis that they were entitled to the entire fund whether the employment of D2, D3 and D4 was lawfully terminated or not. This result, it was contended, was achieved upon a proper construction of the trust deeds. D2, D3 and D4 all opposed this course. In these circumstances the trustees took out an originating summons pursuant to Order 85 rule 2(3)(c) of the Rules of the Supreme Court to seek the court's direction.

21. At the hearing Dialbright persisted in its claim that they were entitled to immediate payment out of the trust fees. Demand having been made the trustees were said to hold the assets on a resulting trust in favour of Dialbright. The judge concluded that it was more than arguable that a resulting trust would not arise in favour of Dialbright in the event that the employment of the beneficiaries was unlawfully terminated. As to this conclusion of the judge there is no appeal. For the purpose of these proceedings it must now be accepted that Dialbright was wrong to press the judge for a determination of that issue in the court below.

22. There were on foot legal proceedings in the consolidated action in which the employees were making claims as beneficiaries under the trusts. If it be Dialbright's contention that the trust money should be paid out to them irrespective of whether the employment was lawfully terminated or not that could and should be raised as an issue in those proceedings. Assuming that Dialbright had started fresh proceedings against the trustees pursuant to its demand of 17 December 1991, requiring the trustees forthwith to pay over to them the trust funds, I have no doubt that those proceedings would have been stayed as an abuse of process.

23. Here what happened was this. In response to Dialbright's demand the trustees on 22 January 1992 wrote to Dialbright's solicitors saying that all the beneficiaries opposed the payment out to Dialbright of the trust funds and said that counsel had been instructed to draw up papers for an application under Order 85 rule 2. This was followed the next day by the issue of the originating summons which was plainly precipitated by Dialbright's demand.

24. In my judgment the judge below was in error in treating the matter before him as if it was Dialbright's application. It was of course the trustees' application necessitated by Dialbright's demand. Should the trustees have, perhaps, acted more robustly and waited to see if Dialbright would actually bring legal proceedings? There are, in my view, arguments both ways. However, given the nature of the proceedings which were in fact instituted and were before the learned judge, I do not think that the action of Dialbright, taken in the course of the trustee's proceedings, can be categorised as an abuse of process. Dialbright initiated no process. There is a difference between a party initiating legal proceedings and a party taking a point in existing proceedings. As to the former, that is to say a party starting proceedings, that is not within the control of the court. But as to the latter, that is, what points can properly be taken by a party, what are the issues which the court should deal with, these are matters within the control of the court. If a party should take a bad point, as Dialbright did in the proceedings before the judge, that, in my view, cannot be categorised as an abuse of process. To this extent I, too, think that the judge was in error. In my judgment there can be no doubt at all that the costs of D2, D3 and D4 should be paid by Dialbright and likewise that Dialbright should be ordered to reimburse the trusts in relation to the costs incurred by the trustees. As to the latter it was the judge's order that the costs should be reimbursed in accordance with the provisions of Order 62 rule 31. But as between Dialbright and D2, D3 and D4, should the costs be on the basis of an indemnity or should it be on some lower scale? Indemnity costs are the highest which a court can award and would only be justified where there is something exceptional or where there is, for example, an affront to the court as in contempt. Here costs have been unnecessarily incurred and they should never have been incurred. In my view, however, the judge had over-reacted to what he considered rightly to have been unwarranted conduct in the litigation. The judge however being in error in the way I have indicated, it is open to us to exercise a discretion afresh and I, too, would order that the costs be on a lower scale, that is to say on a common fund basis. I therefore concur with the order that my Lord has proposed.