THE SECRETARY FOR JUSTICE v. JOSEPH LO KIN CHING AND OTHERS

CACV 44/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 44 OF 2013

(ON APPEAL FROM FCMP NO. 853 OF 2012)

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BETWEEN

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DECISION ON COSTS

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Hon Lam VP (giving the Decision on Costs of the Court):

1.  On 11 April 2014, we handed down our judgment dismissing the appeal by the Foundation. Since then, we have received written submissions on costs from all parties. We now give our decision on costs of the appeal.

2.  As far as the costs of the 1^st Defendants are concerned, it is not controversial that they should have their costs in this appeal to be paid on a trustee basis.  The Secretary for Justice [“the Secretary”] submitted that the Foundation should bear the costs of the 1^st Defendant instead of having it paid out of the estate.

3.  The real controversy is whether the Foundation should have its own costs out of the estate and whether it should pay the costs of this appeal.  The Foundation asked for its own costs from the estate whilst the Secretary asked for its costs (and, as mentioned above, the costs of the 1^st Defendant) to be paid by the Foundation.

4.  The Foundation submitted that this is a case falling within Buckton^[1]category 2, raising points on construction of the Will or some other question of law arising in the administration of the estate, as such costs of the litigation should be borne by the estate.  The underlying premise is that the litigation is for the benefit of the estate.  The Foundation also prayed in aid the principle that the estate should pay for litigation brought about by the deceased in having homemade will with uncertain features and concepts introduced into it, citing Cheung Pui Yuen v Worldcup Investments Inc (2009) 12 HKCFAR 31 at para 58; Re Hall-Dare [1916] 1 Ch 272 at p.277-8; Nina Kung v Wang Din Shin (No 2) (2006) 9 HKCFAR 800 para 22.

5.  Even though this is an appeal, the Foundation submitted it is appropriate for it to test the judgment below by an appeal in view of the size of the estate, the issues in question and the intended operation of the provisions in the Will until eternity.  Mr Hinks QC relied on Law Shuk Hoi v Lo Lok Fung Kenneth [2011] 5 HKLRD 23 and Re Stuart [1940] 4 All ER 80 in advancing his contention that in such circumstances, the costs of the appeal should be borne by the estate.  He also submitted that the appeal did resolve some practical problems which the judgment below may have occasioned to the administration of the estate.  In this connection, he said at para 25 of his submissions on costs:

“Success in resolving practical problems inherent in Poon J’s judgment

24. Poon J’s judgment gave rise to severe practical problems in relation to which the Foundation acted appropriately in seeking the opinion of the Court of Appeal. These problems are set out in paragraphs 22 to 25 of the Foundation’s primary skeleton argument and include the following:

24.1 A very restrictive view was taken by Poon J of the Chinese Prize Provision requiring the Foundation to administer a trust ultra vires its memorandum;

24.2 The judgment left it unclear how the Foundation could administer the Clause 4 trust powers without again acting ultra vires its memorandum; and

24.3 Poon J took a restrictive view of Clause 3 introducing a restraint on alienation.

25. By judgment of the Court of Appeal all three such problems have either been resolved in the Foundation’s favour or at least amelirorated:

25.1 At paragraphs 121 to 126 the Court of Appeal concluded that Poon J applied an unduly rigid approach in relation to the Chinese Prize Provision and that in administering this trust (as held by Poon J and affirmed by this Court) the Foundation did not have to act ultra vires;

25.2 At paragraph 128 the Court of Appeal explained why the Foundation could administer the Clause 4 trust powers without acting ultra vires its memorandum; and

25.3  At paragraph 74 the Court of Appeal made clear that Clause 3 did not introduce a restraint on alienation and in that regard (insofar as Poon J perhaps unwittingly went too far) respectfully differed from him.”

6.  On the other hand, Mr Taube QC submitted on behalf of the Secretary that it is only in exceptional cases where, despite an appellant being unsuccessful, the court will order the costs of an appeal to be borne by the estate.  Counsel submitted there is no justification in the present case to do so.  He contended that in substance, the appeal was brought by the Foundation as an adverse application in asserting that it is the absolute legatee under the Will.  As such, it is a case within or analogous to Buckton category 3.

7.  It was further submitted by Mr Taube that the appeal does not bring about any benefit to the estate or the charity.  The large size of the estate by itself cannot be a sufficient reason for the bringing of an appeal to have a second opinion.  In the present case, regardless of whether the estate is held by the Foundation on trust or given to it absolutely, it has to be applied ultimately for charity.  It was suggested that the real purpose of the Foundation in pursuing the appeal was to seek to maximise the extent of the discretion available to the governors of the Foundation.

8.  With regard to the difference in the reasoning between the judgment below and our judgment, Mr Taube submitted that those are matters that could be canvassed at stage 2 of the originating summons instead of incurring the costs of the appeal.

9.  If costs were ordered against the Foundation, in view of the charity status of the Foundation, the Secretary reserved the right to apply to join the governors as parties for the purpose of seeking an order they should be personally liable to bear the costs to the extent that it is not recoverable from the Foundation and to reimburse the Foundation for the costs it had to pay.

Our views

10.  Though it is correct that, subject to the provisions in Clause 4, the estate should be applied for charitable purposes, there are practical differences in how it would be administered if the bequest to the Foundation is an absolute one as compared with the bequest being passed to it as trustee.  We are of the view that it is in the interest of the estate that the issue should be resolved.  Thus, no-one would dispute the order of Poon J below on costs, viz costs of all the parties be borne by the estate, as it is a Buckton category 2 situation.

11.  Was the position different on appeal? As observed by Clauson LJ in Re Stuart [1940] 4 All ER 80 at p.81, whilst there is no doubt that the court does have the power to make a similar costs order on appeal, such power is only to be exercised in the proper cases. Clauson LJ went on to observe that such cases would be exceptional.  We prefer to say that the making of such order must be the exception rather than the general rule.  The reason for so saying can be found in Lewin on Trusts 18th Edn para 21-84:

“…The reason for this is that the order made at first instance operates to protect and indemnify the trustee and there is no need for him to appeal.”

12.  In our view, the crucial issue in the present context is whether the appeal can be said to be brought properly for seeking the guidance of this court notwithstanding the judgment below.  Though it is fair to say that we do not differ from Poon J on the main issue as to the nature of the bequest, we agree with Mr Hinks that this is a proper case for the parties to seek further clarifications from this court on various aspects of the case which we have discussed in our main judgment.  We say so not only because of the size of the estate (which is also a significant factor), but also because some of the issues we discussed in our main judgment have not been fully canvassed in the judgment below (perhaps due to the fact that arguments from counsel were not as well developed at that stage as those advanced before us) and some really difficult points are involved.  By way of example, the nature and effect of the powers under Clause 4 are by no means straightforward questions.

13.  Further, though the issues identified at para 25 of Mr Hinks’ submission were not at the centre of the appeal, they did present problems to the Foundation if it were to administer the estate as trustee and the Foundation was entitled to come to this court to seek guidance.  We do not agree that the Foundation should leave those issues to stage 2 as there could be issue estoppel implications.

14.  In our judgment, the Foundation was justified in seeking a second opinion from this court on the various issues decided in our main judgment and in that sense the guidance provided by this court is of benefit to the estate.

15.  In the circumstances, we order that the costs of the Foundation, the Secretary and the 1^st Defendant be borne by the estate, to be taxed on trustee basis.  There will be certificate for three counsel for the Secretary and certificate for four counsel for the Foundation.