KU CAMEY v. KU SCARLET, the executrix of the estate of CHEN ELSIE, deceased AND ANOTHER

HCA 1482/2022

[2025] HKCFI 1564

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1482 OF 2022

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D E C I S I O N

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INTRODUCTION

1.  On 25 November 2024, I handed down the decision in this action: see [2024] HKCFI 3316.

2.  I shall adopt below the defined terms used in that decision.

3.  I granted summary judgment to Camey and ordered, among other things, that Scarlet be removed as the executrix of the estate.  As summary judgment was granted and the entire action was disposed of, I dismissed Scarlet’s application for security for costs.  

4.  I made the following costs order nisi:

“Scarlet personally pay Camey’s costs in this action, the summary judgment application and the security for costs application, including reserved costs, such costs to be taxed if not agreed.”

5.  Scarlet took out two summonses on 9 December 2024.  She applies for:

(1)  a variation of the costs order nisi to the effect that all parties’ costs of the action, the summary judgment application and the security for costs application be paid out of the estate on a common fund basis or, alternatively, on a party and party basis; and

(2)  a stay of execution pending appeal.

6.  On 23 January 2025, I granted an interim stay of execution pending disposal of the stay application.

7.  By consent of the parties, the two summonses are dealt with by paper disposal.

THE COSTS VARIATION APPLICATION

8.  Scarlet puts forward four grounds for varying the costs order nisi.

Scarlet’s grounds for variation

9.  First, Scarlet contends that Camey’s case in her summary judgment application, which was accepted by the court, was Scarlet’s failure to render proper accounts.  Hence the present case is a case where the trustee has at most committed a breach of their duty to account to the beneficiary by providing appropriate information.  The present case is not a case of breach of trust where loss has been caused to the trust fund or trust assets have been converted to the personal use of the trustee.  The court did not make any finding as to “misconduct”, “breach of trust” or “breach of trust causing loss to the estate” on the part of Scarlet.

10.  Ms Chantel Lin, together with Mr Axis Yu representing Scarlet, submits that absent improper conduct, the costs of the trustee and of the beneficiary should be paid out of the trust fund, citing in support Davies v Watkins [2012] EWCA Civ 1570 at para 26; and that in the absence of a finding of breach of duty or misconduct, the executors should not be deprived of their usual indemnity out of the estate, citing in support Price v Saundry [2019] EWCA Civ 2261 at paras 31 to 33.  Ms Lin further submits that the present case is similar to the situation in Blades v Issac [2016] WTLR 589.  In that case, the costs of the claimant and the trustees were ordered to be paid out of the trust fund.

11.  In this application, the focus, Ms Lin contends, should be on whether the 1^st, 2^nd and 3^rd Calculations and the Revised Estate Account amounted to “misconduct” or “unreasonable conduct” on the part of Scarlet.  She submits that the defects identified by the court should be categorised as “a mere neglect” rather than “a wholly indefensible one”.

12.  Secondly, Scarlet complains that the action was commenced by writ of summons rather than by originating summons under Order 85, rule 2.  Camey’s case is predominantly premised on the alleged conversation between her and the deceased in 2017 that the latter had cash of about HK$20 million.  As a result, the parties spent unnecessary time and costs on, eg, pleadings and discovery.  It would be unfair to require Scarlet to personally bear such costs, whether her own or Camey’s.

13.  Thirdly, Camey’s case is premised on the above alleged conversation.  If it is the deceased who was responsible for the creation of the doubt to be resolved, it should be the estate on which the costs of the application should fall.

14.  Fourthly, relying on the correspondence exchanged between ILL and FLY from April to July 2024 concerning mediation, Scarlet says that Camey was unwilling and reluctant to attempt mediation.  In fact, regrettably, Camey adopted a hostile approach in the discussion regarding mediation as if the parties were dealing in a commercial context.

Discussion

15.  There are two sets of costs here, namely Camey’s costs and Scarlet’s costs.

16.  I shall first deal with Camey’s costs.  Under the nisi order, those costs should be paid by Scarlet personally. By Scarlet’s summons, she asks for them to be paid out of the estate.

Camey’s costs

17.  In the decision, I found that it was clear that Scarlet had failed to fulfil her duty to render proper accounts to Camey, notwithstanding the persistent demands made by the latter’s solicitors. Before the action was commenced, Scarlet did not provide any supporting document to Camey in relation to the 1^st, 2^nd and 3^rd Calculations. After the summary judgment application was taken out, Scarlet produced the Revised Estate Account together with supporting documents. However, I found that that account was still deficient and there were still missing supporting documents. Worse still, in the absence of a proper account, Scarlet had insisted that Camey agree to her calculations, otherwise distribution would be put on hold. I held that it was improper for Scarlet to impose such a condition on the final distribution as she did, as it was not possible for Camey to properly verify her entitlement in the estate in the absence of proper information. What Scarlet did was clearly prejudicial to the interests of Camey as a residuary beneficiary. For these reasons, I concluded that Scarlet’s conduct was such as that she should be removed as the executrix of the estate. See paras 61 to 71 of the decision.

18.  Contrary to Scarlet’s contention under the first ground, I consider that the more pertinent principle which applies to the present circumstances is the one applied in Re Estate of Lee Da Kor [2010] 1 HKLRD 415, a case cited by Mr Raymond Lau, counsel for Camey, at the substantive hearing. In that case, Poon J (as he then was)  ordered that the executors be removed and one of the reasons was that they had failed to render a full and proper account despite repeated requests from the plaintiff beneficiary: para 37. On costs, the applicable principle was stated at para 39:

“The general principles regarding costs in administration proceedings can be found in Re Buckton [1907] 2 Ch 406, summarised in Underhill and Hayton, Law Relating to Trusts and Trustees (17^th ed., 2007)  paras.87.30-87.34. The third category of cases is that when a beneficiary has made a hostile claim against the executors and other beneficiaries, the unsuccessful party will be ordered to pay the successful party costs. The present case fell within that category. Further, the first to third defendants had defaulted in discharging their duties as executors. They should be responsible for the costs of these proceedings personally. And I so ordered.”

19.  The present case is a hostile claim made by Camey against Scarlet based on the latter’s conduct which I have found to be prejudicial to the interests of Camey as a beneficiary. Unless there is any countervailing factor, Scarlet should personally bear Camey’s costs.

20.  The second ground is, in my view, not a valid one in support of Scarlet’s proposed order. Camey has succeeded on the merits to remove her as executrix. Insofar as Scarlet now contends that unnecessary costs have been spent because Camey proceeded by way of a writ action instead of under an originating summons and/or raised unnecessary pleas, the more proper course to take would be to apply a percentage deduction to Camey’s costs entitlement to reflect the alleged wasted costs, rather than to have the estate bear her entire costs.

21.  There is no merit in the third ground either. The alleged conversation about the sum of HK$20 million is a factual dispute which did not feature in the summary judgment application. The facts were assumed in Scarlet’s favour: see para 7 of the decision. This matter has no relevance insofar as Camey’s costs are concerned.

22.  As to the fourth ground, the correspondence between the solicitors shows that both parties made some efforts to attempt mediation from April to June 2024, in advance of the substantive hearing scheduled for August of the same year. The efforts, however, came to a stalemate in June:

(1)  By letter dated 14 June 2024, ILL informed FLY that Scarlet had recently undergone a shoulder surgery in the US and was not expected to fully recover until September. It was therefore proposed that the mediation should take place in September or October. ILL invited FLY to adjourn the substantive hearing in August to a date after the parties attempted mediation.

(2)  By letter dated 20 June 2024, FLY expressed doubt over whether it was the genuine intention of Scarlet to mediate. They said that the substantive hearing should not be delayed and suggested the mediation be conducted via Zoom.

(3)  By their mediation response dated 24 June 2024, ILL rejected the Zoom proposal “due to the time difference between Hong Kong, California and Texas”. They also raised the concern of there being interruptions and/or overlapping speeches during the mediation via Zoom. It was counter-proposed that the mediation be conducted physically in person in September or October.

(4)  By letter dated 28 July 2024, FLY disagreed with ILL’s counter-proposal.

(5)  Further letters were exchanged but to no avail. The matter then proceeded to substantive hearing in August 2024.

23.  For my part, I do not think there was anything unreasonable in FLY’s refusal to adjourn the hearing and I consider that their proposal to have the mediation conducted via Zoom to be a sensible and reasonable one. In the end, it was not accepted. On the whole, I do not agree with Ms Lin’s submission that Camey was acting in a hostile manner in the discussion regarding mediation. Therefore, for present purposes, I do not consider that Camey’s conduct in relation to mediation should have any bearing on the issue of costs.

24.  In summary, none of the grounds put forward by Scarlet for varying the costs order nisi as far as Camey’s costs are concerned are valid or relevant. The order should be made absolute.

Scarlet’s costs

25.  I now turn to the costs incurred by Scarlet herself. In her summons, Scarlet asks for those costs to be paid out of the estate. Camey’s position is that Scarlet should not be indemnified out of the estate in respect of her own costs. This position is put forward in Mr Lau’s written submissions.

26.  The relevant rule is Order 62, rule 6(2), which reads:

“Where a person is or has been a party to any proceedings in the capacity of trustee, personal representative or mortgagee, he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by the trustee or personal representative or the mortgaged property, as the case may be; and the Court may otherwise order only on the ground that the trustee, personal representative or mortgagee has acted unreasonably or, in the case of a trustee or personal representative, has in substance acted for his own benefit rather than for the benefit of the fund.”

27.  In the costs order nisi, I did not make any order under the above rule to deprive Scarlet of the indemnity for her own costs. The position is therefore that if the nisi order is to stand, Scarlet is entitled to have her costs paid out of the estate.  It means that it is unnecessary for her to apply to vary the nisi order in the first place.

28.  On the other hand, if Camey wishes to seek an order to disapply the indemnity under Order 62, rule 6(2), it is incumbent on her to make a proper application to vary the costs order nisi to that effect. Under Order 42, rule 5B(6), she should do so within 14 days of the handing down of the decision. No such application was taken out. It is only in Mr Lau’s written submissions that the order was asked for. By then, the 14-day period had long expired.

29.  An application made by submissions should not be entertained. Worse still, it is a late application for which no leave to extend time is sought. For these reasons, I decline to make the order now sought by Camey.

30.  If I am wrong about this procedural point and if I ought to deal with Camey’s request to deprive Scarlet of her indemnity, I would still not accede to the request.

31.  Mr Lau refers me to the English case of Lane v Lane [2024] Costs LR 605 in which it was said that a trustee or executor who is removed on the grounds of their conduct and unsuccessfully resists the claim until judgment will normally bear personally their own costs and those of the claimant, because they will not have properly incurred their costs or their liability to the claimant: para 46.

32.  While this may be the normal result as a matter of logic, each case must depend on its own facts.  In the present case, I would not disallow the indemnity. I take into account two matters.

33.  First, in this action, one of the allegations, as pleaded, which Scarlet had to meet was the alleged existence of the sum of HK$20 million in the estate. In the discharge of her duty as executrix, she needed to deal with this plea. In the end, the entire action was disposed of with the dispute over this allegation remaining unresolved in light of the stance taken by Camey at the substantive hearing: see para 43.

34.  Second, in the course of resisting the summary judgment application, Scarlet produced the Revised Estate Account, which was accompanied by some supporting documents. Notwithstanding its deficiencies, the account was compiled in an attempt to discharge her duties as the executrix.

35.  I am therefore of the view that Scarlet was not acting unreasonably in incurring the costs in defending the action for the purpose of Order 62, rule 6(2).  She should be entitled to the usual indemnity provided under that rule.

THE STAY OF EXECUTION APPLICATION

36.  I now turn to the stay of execution application.

Scarlet’s grounds

37.  Scarlet has three grounds of appeal.  The first two grounds relate to the summary judgment application and the last one concerns the security for costs application.

38.  Ms Lin submits that the appeal would be rendered nugatory without a stay of execution. She makes three points. First, the remaining assets of the estate does not justify the appointment of a professional administrator. The administration is at its tail and. The estate is of the modest value of HK$1.84 million. Second, Camey’s allegation of the existence of HK$20 million would necessitate extensive investigation of the assets of the estate by the professional administrator. As a result, substantial costs are expected to be incurred. Third, there is no conceivable prejudice to Camey if the stay is granted because Camey is not seeking the relief for distribution and there is no urgency to make distribution to the residuary beneficiaries.

Legal principles

39.  The principles governing applications for stay of execution pending appeal are well-established: see Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at paras 6 to 10.  I would highlight the following points which are presently material.

40.  It is for the applicant to justify a stay of execution.  He needs to show that there are good reasons for a stay: para 7.  The existence of an arguable appeal, that is one with a reasonable prospect of success, is the minimum requirement before a court would even consider granting a stay: para 9(6).  Conversely, the existence of a strong appeal or strong likelihood that the appeal would succeed will usually by itself enable a stay to be granted because this would constitute a good reason for a stay: para 9(7).

Discussion

41.  Under the first ground of appeal, Scarlet contends that I erred in law and in fact in ordering her removal as executrix. In the notice of appeal, there are eight sub-paragraphs under this ground which take up three pages. I do not propose to summarise or paraphrase the entire contents here.

42.  The more notable contentions are: (1)  I failed to give adequate reason why the Revised Estate Account was still deficient and there were still missing supporting documents and why this ground alone would justify removing Scarlet (para 1.2); (2)  I placed undue weight on Camey’s complaint over the estate account and failed to properly consider the welfare and interests of Miranda, who had made no complaint in respect of Scarlet’s administration (para 1.3); (3)  the existence of mistakes and inaccuracies did not justify the removal of Scarlet and I ought to have exercised my discretion with great caution and sparingly (paras 1.6 and 1.8).

43.  I do not consider that this ground of appeal has any reasonable prospect of success.

44.  As to sub-para (1), I stated in para 64 of the decision that I agreed with Mr Lau’s submission on the deficiency. His submission was set out in para 38. In any event, that was not the sole ground based on which I removed Scarlet as executrix. For the other grounds on which I relied, see para 17 above. As to sub-para (2), Ms Lin did not elaborate on why the weight I placed on Camey’s complaint was “undue”. As to sub-para (3), I took the view that what Scarlet did was clearly prejudicial to the interests of Camey as a residuary beneficiary. That was the basis on which I exercised my discretion to remove Scarlet.

45.  Under the second ground of appeal, Scarlet contends that I erred in law and in principle in “[giving] undue weight to the irrelevant matters, including the tacit acknowledgment of the existence of HK$20 million as alleged by [Camey] in arriving at the removal findings”. It is said that had I properly considered that the existence of HK$20 million was a factual dispute and that formed the very basis of Camey’s complaint, I would not have held that the Revised Estate Account was deficient and the supporting documents were inadequate. It is also said that I was “fundamentally and critically affected” by the alleged existence of HK$20 million.

46.  The second ground of appeal is not reasonably arguable.

47.  I made it plain at the beginning of the decision (at para 7)  that the factual dispute over the alleged existence of HK$20 million was not capable of being resolved in the summary judgment application. I therefore proceeded on the assumption that the deceased did not tell Camey that she had HK$20 million. There is therefore no ground for Scarlet to say that I had “tacit acknowledgment” of the existence of HK$20 million or that I was “fundamentally and critically affected” by that.

48.  As both grounds of appeal concerning the summary judgment application are not reasonably arguable, the third ground relating to the security for costs application becomes academic and does not need to be dealt with.

49.  In the present case, there being no reasonably arguable grounds of appeal, the minimum requirement for ordering a stay of execution pending appeal is not met.  I therefore decline to grant a stay.  It is therefore not necessary to proceed to consider whether the appeal would be rendered nugatory if a stay is not granted.

CONCLUSION

50.  For the above reasons, I dismiss both summonses (save for para 2 of the stay summons concerning interim stay).  I order that the costs order nisi be made absolute.  The interim stay which I previously granted ceases to have effect forthwith.

51.  On costs, I make a nisi order that Scarlet do personally pay Camey’s costs of the summonses, including all reserved costs, to be taxed if not agreed.

52.  Earlier, I made the following direction in relation to the paper disposal of the summonses:

“The hearing bundle and case authorities be lodged with the court in electronic format only.”

53.  Notwithstanding the express direction, hard copies of the hearing bundles (comprising six lever arch files)  were lodged with the court by Scarlet’s solicitors.  Hard copies of authorities were lodged by both sides (510 pages from Scarlet and 119 pages from Camey).

54.  These hard copies are of no use to me as I have been making use of the electronic copies only. The photocopying charges for the hard copies lodged with the court should therefore not be recoverable in taxation. Furthermore, the solicitors should not charge their clients with these costs. If they wish to do so, they should write to the court within three days explaining why they should be allowed to do that.