CHIU PAK WO v. CHIU YIM KAM, the Administratrix of the Estate of Chiu Sin Kow also known as Chiu Kau, deceased AND OTHERS

HCMP 1967/2018

[2019] HKCFI 2517

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1967 OF 2018

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BETWEEN

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DECISION ON COSTS

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1.  On 5 June 2019, I made substantial orders in favour of the Plaintiff in the present action. The 1^st Defendant basically did not object to the orders made therein. However, the parties have disagreements on the issue of costs. I therefore directed that written submissions to be filed and the issue of costs would be determined on paper without further oral submissions.

2.  Parties have since filed detailed written submissions and I have carefully considered the same. Having reviewed the evidence and the submissions, I now make the following costs order:

“ The Plaintiff’s costs in this action including the costs of the hearing on 5 June 2019 and the costs relating to written submissions on costs, to be paid by the 1^st Defendant personally to the Plaintiff (and not be to be borne out of the Estate of Chiu Sin Kow also known as Chiu Kau, Deceased (‘the Estate’), on a party to party basis, to be taxed if not agreed.”

3.  I consider the above costs order to be just and reasonable because first, the 1^st Defendant has not properly administered the Estate for about 12 years which is, by any standard, a very substantial delay. Further, after the Originating Summons in the present proceedings was issued on 8 November 2018, the 1^st Defendant chose not to consent to the terms of the Originating Summons sensibly.  Instead, by reason of the 1^st Defendant’s conduct, the parties spent substantial legal resource including instructing counsel to appear before this Court on 5 June 2019. I also agree with Ms Law for the Plaintiff that the Plaintiff has substantially prevailed in his application and there is no good reason to depart from the general rule that costs should follow the event.

4.  Additionally, I also agree that the present proceedings are necessitated by the 1^st Defendant’s default in discharging her duties as the administratrix of the Estate.  As a matter of general principle, it would not be right and fair that other beneficiaries, including the Plaintiff, would have had to shoulder the costs occasioned and incurred by reason of the 1^st Defendant’s conduct in resisting the Plaintiff’s application.

Applicable legal principles

5.  The starting point is the relevant rules of the High Court which governs this area of the law.  Order 62, rule 3(2) provides:

“ If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings …, the Court shall … order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

6.  Order 62, rule 6(2) provides:

“ 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.”

(emphasis added)

7.  The normal rule is that, absent improper conduct, the costs of the trustee and of the beneficiary defendants should be paid out of the trust fund. (See Davies v Watkins [2013] CP Rep 10; [2012] EWCA Civ 1570 at §26 per Lloyd LJ.)

8.  This test can be traced back as far as Re Beddoe [1893] 1 Ch 547.  Lindley LJ at p 558 said:

“ I entirely agree that a trustee is entitled as of right to full indemnity out of his trust estate against all his costs, charges, and expenses properly incurred: such an indemnity is the price paid by cestuis que trust for the gratuitous and onerous services of trustees; and in all cases of doubt, costs incurred by a trustee ought to be borne by the trust estate and not by him personally. The words ‘properly incurred’ in the ordinary form of order are equivalent to ‘not improperly incurred.’”

(emphasis added)

9.  Relevantly, Bowen LJ at p 562 said:

“ The principle of law to be applied appears unmistakeably clear. A trustee can only be indemnified out of the pockets of his cestuis que trust against costs, charges, and expenses properly incurred for the benefit of a trust—a proposition in which the word ‘properly’ means reasonably as well as honestly incurred. While I agree that trustees ought not to be visited with personal loss on account of mere errors in judgment which fall short of negligence or unreasonableness, it is on the other hand essential to recollect that mere bona fides is not the test, and that it is no answer in the mouth of a trustee who has embarked in idle litigation to say that he honestly believed what his solicitor told him, if his solicitor has been wrong-headed and perverse. Costs, charges, and expenses which in fact have been unreasonably incurred, do not assume in the eye of the law the character of reasonableness simply because the solicitor is the person who was in fault. No more disastrous or delusive doctrine could be invented in a Court of Equity than the dangerous idea that a trustee himself might recover over from his own cestuis que trust costs which his own solicitor has unreasonably and perversely incurred merely because he had acted as his solicitors told him.”

(emphasis added)

10.  In Re the Estate of Jimmy Savile [2015] BPIR 450, Patten LJ, after discussing the general rule that a trustee or personal representative is entitled to an indemnity out of trust fund or estate for costs properly incurred as described in Re Buckton, at §§109 and 110 said:

“ 109. There can, of course, be exceptions to this general rule. Even in the context of an application which is necessary for the proper administration of the estate, the court retains the power to disallow particular items of costs where the party in question has, for example, launched an unjustified personal attack on one of the other parties or has raised issued which make its conduct of the litigation deserving of moral condemnation: see Grender v Dresden [2009] EWHC 500 (Ch). The court has in such cases to distinguish between genuine points pursued in argument which are germane to the issue under consideration but which ultimately fail and points taken or applications made for no good or proper reason or which are motivated out of animosity towards the other parties. Applications for directions in relation to the administration of a trust or an estate should be critical but also constructive.

110. Sales J in a separate costs judgment ([2014] EWHC 1683 (Ch)) accepted that the Re Buckton principles continue to apply subject to the court’s power to make specific costs orders in accordance with the CPR.  No one on this appeal challenges that or suggests that the Re Buckton categories are intended to be exhaustive.  This court has made it clear that they are not: see Singapore Airlines Ltd v Buck Consultants Ltd [2011] EWCA Civ 1542 at [75].”

11.  In Lewin on Trusts (19^th ed) at §§27-112 and 27-113, the learned editors stated:

“ The right of a trustee to indemnity in respect of costs extends only to costs properly incurred in the execution of the trust. By this is meant costs which have been both honestly and reasonably incurred. A doubt is to be resolved in favour of the trustee, and so the right is sometimes expressed in terms of a double negative, that is, the trustee is entitled to costs not improperly incurred. The right of indemnity can be lost or curtailed by such inequitable conduct on the part of the trustee as amounts to a violation or culpable neglect of his duty as trustee. Thus if breach of trust causing loss to the trust fund or misconduct is established against the trustee, the trustee may be deprived of his right of indemnity and further ordered to pay costs of other parties. The word ‘misconduct’ is a strong one, yet it is clear that conduct that might be characterised by milder terms such as caprice and obstinacy, or neglect, negligence or carelessness, suffice to deprive a trustee of the right of indemnity, or justify an order for costs against him. While the mere fact that the trustee has made a mistake is not enough, it is equally clear that dishonesty is not requisite. Consequently, either ‘misconduct’ should be widely construed so as to cover unreasonable conduct, or in the alternative the ‘inequitable conduct’ on the part of a trustee which causes his right of indemnity to be lost or curtailed includes both misconduct in the sense of dishonesty and unreasonable conduct. We will here use ‘misconduct’ in the wider sense.

A trustee may be deprived of costs, or ordered to pay costs, not only by reason of his conduct in bringing unnecessary trust proceedings, or his conduct in the proceedings themselves, for example by taking procedural steps which needlessly increase costs, by acting in a partisan manner to some beneficiaries against others, by adopting an excessive role in trust proceedings by contesting claims which ought to be contested by others, not the trustees, or which ought not to be contested at all. If the court, upon the question of costs being drawn to its attention, makes an order that the judge does not think fit to make any order as to costs, that is an order depriving the trustee of costs and disentitling him from indemnity, and so preventing him from claiming a right of indemnity under the general law.” (emphasis added)

12.  In Cheung Pui Yuen v Worldcup Investments Inc (2009) 12 HKCFAR 31, Lord Scott of Foscote NPJ at §§56 – 59 said:

“ 56. The case on costs, as explained by Mr Thomas, is based on the principle that where proceedings have been properly instituted for the benefit of a trust fund, or 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 fund or estate, as the case may be. The principle was explained by Kekewich J in Re Buckton [1907] 2 Ch 406 at pp.414/415 … the general rule would be that the costs of all necessary parties would be taxed as between solicitor and client and paid out of the estate. He then referred to a second class of case in which the question for determination by the court is raised not by the trustees but by some of the beneficiaries. In such a case, if the question raised would have justified an application by the trustees but for some reason or other the application has been made by the beneficiaries, the same costs consequences, he said, should follow:

The application is necessary for the administration of the trust, and the costs of all parties are necessarily incurred for the benefit of the estate as a whole. (p.415)

Kekewich J distinguished, however, the first and second classes of case from the third 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. In such a case, said the judge, the rule applicable to hostile litigation should be applied and the unsuccessful party ordered to pay the costs.

57. Kekewich J pointed out, at p.415, the difficulty in many cases in deciding whether the particular case falls within the second class or the third class he had described but, subject to that difficulty, the distinction is a legitimate and well recognized one. It is relied on by Mr Thomas. He is entitled, in my opinion, to do so. The events regarding the gift of the Worldcup and Profit-taking shares in 1985 were known at first hand only to the deceased and Madam Chin and the probative weight proper to be given to the 1996 declarations, critical to the success of Four Pillars and Megabest, was a matter that cried out for judicial evaluation and determination. The executors’ conflict of interest (see para.49 above) made it reasonable for beneficiaries to initiate the proceedings.

58. There is, moreover, a further principle regarding litigation to resolve questions arising in the administration of a deceased’s estate that needs to be borne in mind. If it is the deceased who is responsible for the creation of the doubts that have necessitated an application to the court for the doubts to be resolved, it is the deceased’s estate on which the costs of the application should fall. The principle is a well known one: ‘where the difficulty is occasioned by the … conduct of the testator … the costs are costs of administration’ (Williams, Mortimer & Sunnucks’ Executors, Administrator & Probate (19th ed., 2008) at para.66-25; see also Re Hall-Dare [1916] 1 Ch 272 at p.277 and, in Hong Kong, Nina Kung v Wang Din Shin (No 2) (2006) 9 HKCFAR 800 at p.811).

59. But these principles do not constitute rules.  They provide a guide as to how, in probate or administration proceedings, judicial discretion regarding the costs of litigation should be exercised.  The answer to that may depend not only on the principles referred to but also upon the particular circumstances in which the litigation has been commenced and prosecuted.  So I must turn now to the litigation that has led to this appeal.”

Analysis

13.  First, as set out above, I am of the view that but for the Plaintiff’s issuance of the Originating Summons, it is unlikely that the 1^st Defendant would have consented to the substantive relief as set out in the Originating Summons.

14.  From the parties’ pre-action correspondence, it is clear that the Plaintiff’s requests have always been (1) disclosure of proper Estate accounts supported by underlying documents, (2) the time frame for distribution of the Estate and (3) payment and distribution of the Plaintiff’s rightful share.

15.  I accept that although the 1^st Defendant engaged Messrs Y T Szeto by March 2018, none of the three requests were met despite the Plaintiff’s efforts to engage in a meaningful dialogue with the 1^st Defendant over the past one and a half years.  This then resulted in the present proceedings being issued in November 2018.

16.  Where an application for orders of account and removal of a personal representative is necessitated by his inaction, his failure to respond to reasonable requests over pre-action correspondence, and his defaults in discharging his duty, the Court is in the position to order him to personally bear costs of the applicant on an indemnity basis. (See Mak Mei Ki Angela v Chan Wai Fong [2017] 2 HKLRD 515 at §20 per Queeny Au-Yeung J; also Re Estate of Mak Peng Hoon, Deceased HCMP 2619/2016, unreported, 4 August 2017 at §§53 – 54 per B Chu J.)

17.  I accept that as a matter of fact, no meaningful progress had been made until the Plaintiff commenced these proceedings.  This should not have been the situation.  On this ground alone, the 1^st Defendant should be ordered to pay the costs of the Plaintiff personally.

18.  Secondly, I agree that these proceedings should be viewed as hostile litigation between the Plaintiff and the 1^st Defendant in her capacity as the sole administratrix because the Plaintiff was dissatisfied with her administration of the Estate. One of the main relief is to remove the 1^st Defendant as the administratrix of the Estate to which the 1^st Defendant resisted.  Hence, I am of the view that it falls within the third class of cases discussed by Kekewich J in Re Buckton [1907] 2 Ch 406.

19.  Ms Law for the Plaintiff submitted that it is clear from the affidavit evidence filed by the parties that their contents are primarily devoted to addressing the 1^st Defendant’s delay in furnishing Estate accounts and making distributions to the beneficiaries.  I agree.  Indeed, at the hearing, I stressed the importance of closing the administration of the Estate as expeditiously as possible in the best interests of the beneficiaries.

20.  Mr Lo for the 1^st Defendant submitted that the beneficiaries suffered no prejudice by the delay in the administration of the Estate because property price increased during the period of 12 years.  I have no difficulty in dismissing this submission.  Whilst it is correct that property price increased during the 12 years’ period, it does not mean that the beneficiaries suffered no prejudice.  On the contrary, the beneficiaries are entitled to invest in whatever way they see fit after getting their rightful shares.  I also note that Ms Law for the Plaintiff has submitted some of the properties of the Estate were not leased out in the market for a substantial period and thereby caused loss to the Estate.

21.  Mr Lo for the 1^st Defendant also submitted that the 1^st Defendant very sensibly did not contest the application.  However, I am of the view that it is an irrelevant consideration.  Had the 1^st Defendant unreasonably contested the hearing and lost, she would be exposed to a costs order on an indemnity basis.  The fact remains that she did not consent to the relief as set out in the Originating Summons until the hearing on 5 June 2019.

22.  I have also duly considered all the other grounds as advanced by Mr Lo in his Skeleton Submissions including the submission that the 1^st Defendant was acting in effect pro bono, she did not commit any acts which are prejudicial to the Estate and she agreed to the views of the 2^nd Defendant to which the 3^rd and 5^th Defendants supported. However, I am of the view that none of the submissions as set out in the 1^st Defendant’s Skeleton Submissions merit a departure from the normal rule that costs should the event.

23.  There is also one important policy consideration.  An administrator or adminsitratrix should administer the estate of a deceased as expeditiously as possible.  In the present case, there is a 12 years’ delay. Administrator or adminsitratrix should know that any unreasonable delay or dereliction of duties on his or her part would attract an adverse personal costs order.  All the costs incurred in these proceedings are not costs incurred for the purpose of administering the Estate but to remedy the defaults caused by the 1^st Defendant.  There is no good reason why the Estate should bear the costs of and occasioned by the 1^st Defendant’s defaults.

Disposition

24.  For all the reasons set out above, I make an order in terms as set out in paragraph 2 above.

25.  Finally, it remains for me to thank Ms Law for the Plaintiff and Mr Lo for the 1^st Defendant for their helpful submissions.