LEE CHARLES v. LEE YAN CHUN AND OTHERS

HCMP 1709/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1709 OF 2007

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DECISION ON COSTS

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1.  This is an application to vary the costs order nisi made on 30 September 2008 when I gave judgment on the plaintiff’s application for leave to amend the originating summons (“the OS”).  The amendments sought were to add additional defendants and to seek relief against the additional defendants as well as the existing defendants.  For the reasons given in my judgment of 30 September 2008 I gave leave to the plaintiff to amend the OS in the terms sought.  I made an order nisi that D1, D2 and D3 do pay the plaintiff the costs of the application in any event. 

2.  D1, D2 and D3 seek to vary the costs order nisi as follows :

“ (a)  The costs of and occasioned by the amendment to the originating summons shall be paid by the plaintiff to the Defendants in any event;

(b)  The costs of and occasioned by the hearing on 23 September 2008 be paid by the Defendants out of the Estate to the Plaintiff in any event;

(c)  The costs of and occasioned by the application for service out of the jurisdiction be costs in the cause; and

(d)  The Defendants’ own costs are to be borne by and paid out of the Estate to be taxed on a trustee basis if not agreed.”

The defendants there are D1, D2 and D3. 

3.  The plaintiff’s solicitors have indicated in their letter dated 23 October 2008 that there was no objection to the variation sought in (a) and (c) above.  However, the variation sought in (b) and (d) are opposed by the plaintiff.

4.  Mr Lin, for D1, D2 and D3, relies on section 32(2) of the Trustee Ordinance (Cap. 29) as well as the provision of O.62; r.6(2) of the RHC.  He submits that the costs of the plaintiff in respect of the hearing on 23 September 2008 should be paid by D1, D2 and D3 out of the Estate to the plaintiff in any event and that the defendants’ own costs should be paid out of the Estate to be taxed on a trustee basis if not agreed.  He submits that since D1, D2 and D3 had been sued in their capacity as the executors and trustees of the Will the costs should be paid out of the Estate. 

5.  It is, in my view, relevant to bear in mind that this is a case in which a beneficiary, the plaintiff, is making a hostile claim against the trustees or another beneficiary.  As stated at paragraph 87.34 of Underhill and Hayton Law Relating to Trusts and Trustees 17^th Edn, in such cases the unsuccessful party will usually be ordered to pay the costs of the successful party, as in ordinary litigation. 

6.  And at paragraph 87.39 of Underhill it is stated as follows :

“ Second, there are disputes (‘beneficiaries’ disputes’) with one or more of the beneficiaries as to the propriety of any action which the trustees have taken or omitted to take or may or may not take in the future, eg an action for breach of trust and removal of trustees.  Such a dispute is regarded as ordinary hostile litigation in which costs follow the event and do not come out of the trust estate.  This category covers the cases in category (2) of Re Buckton.”

7.  One of the matters sought by the application for leave to amend was for an order that D1, D2 and D3 be removed as executors and trustees.

8.  Mr Lin made the point that D1, D2 and D3 have maintained the position in respect of the validity of the Deed which he submitted was neutral.  I reiterate what I said at paragraph 27 of my judgment that :

“ Although Mr Lin stated that the position of the executors on the validity of the Deed has remained neutral, I would observe that despite being asked to confirm the Deed and agree to be bound thereby, D1 in her personal capacity has not done so.  Neither has D2 as the personal representative of Ng Ming Fun, deceased.”

9.  A useful authority which Ms Tong relies on is Singh v. Bhasin and another (unreported, Chancery Division, 24 July 1998) before Mr. Alan Boyle QC sitting as a Deputy Judge of the Chancery Division.  In considering the equivalent of O.62; r.6(2) of the RHC the judge said that the court was entitled to examine the whole of the conduct of the trustee in defending the proceedings for the purposes of assessing the reasonableness or otherwise of that conduct.  And one factor of importance will be whether the court considers that it would have been prepared to grant the protection of an order under Re Beddoe [1893] 1 Ch 547. 

10.  In this case D1, D2 and D3 did not apply for a Re Beddoe order. 

11.  And as the judge said in Singh v. Bhasin :

“ If the trustee omits to apply for a Re Beddoe order, he defends the action at his own risk as to costs, and may find at the conclusion of the proceedings that the court adjudges that his conduct was unreasonable.  If the court considers that it would have authorized the defence of the proceedings at the expense of the trust fund had such an application been made, it may in the exercise of its discretion permit the costs to be taken out of the trust fund.  But if the court considers that it would not have given authority to defend the proceedings, it will not generally allow the costs out of the estate.  In the latter case, the fact that the trustee was advised by counsel that he had a good defence may not be sufficient to persuade the court not to visit the costs on the trustee personally.” 

12.  I would also refer to what Lindley LJ said in Re Beddoe at page 557 :

“ ... a trustee who, without the sanction of the Court, commences an action or defends an action unsuccessfully, does so at his own risk as regards the costs, even if he acts on counsel’s opinion; and when the trustee seeks to obtain such costs out of his trust estate, he ought not to be allowed to charge them against his cestui que trust unless under very exceptional circumstances.  If, indeed, the Judge comes to the conclusion that he would have authorised the action or defence had he been applied to, he might, in the exercise of his discretion, allow the costs incurred by the trustee out of the estate; but I cannot image any other circumstances under which the costs of an unauthorised and unsuccessful action brought or defended by a trustee could be properly thrown on the estate.”

13.  And at page 558, he said :

“The words ‘properly incurred’ in the ordinary form of order are equivalent to ‘not improperly incurred’.”

14.  I have already held at paragraph 41 of my judgement that one of the matters raised in the OS as it stood before the amendment was the validity and enforceability of the Deed and its effect on the executors D1, D2 and D3.  And I came to the view that it was a complete waste of time, resources and costs to require the plaintiff to bring a separate action against the additional defendants where D1, D2 and D3 would, in any event, have to be parties in that action.  At paragraph 45 of my judgement I said that proper and effective case management strongly militates against such a course. 

15.  It must be remembered that D1, D2 and D3 did not simply come to court and ask for directions.  They actively opposed the application for amendment.  It was, in my view, unreasonable to do so even though they may have acted under legal advice.  It was a complete waste of time, resources and costs, as I have said, to require the plaintiff to bring a separate action.  And, in my view, it was a complete waste of time, resources and costs to oppose the application for leave to amend.  Such costs were not, in my view, properly incurred. 

16.  In my view, it would be unfair to burden the estate with the costs of opposing the amendment which should be visited upon D1, D2 and D3 personally.

17.  Save for (a) and (c) in paragraph 1 of the summons dated 13 October 2008 I do not propose to vary the order nisi as to costs.  However, I should make it clear that the costs of and occasioned by the hearing on 23 September should be paid by the defendants personally rather than out of the estate so that there is no further dispute on this matter.

[After hearing further submissions]

18.  As regards (a), I order that the costs of and occasioned by the amendment to the OS shall be paid by the plaintiff to D1, D2 and D3 in any event save that the costs of the plaintiff incurred after 6 March 2008 be paid by D1, D2 and D3 to the plaintiff in any event personally and not out of the estate.  The costs of the summons dated 23 July 2008 are to be paid by the plaintiff to D1, D2 and D3 in any event.

19.  The costs of today’s hearing are to be paid by D1, D2 and D3 in any event personally and not out of the estate.