FOK LAI LOR NORA v. FOK CHUN WAN IAN AND OTHERS

HCA 275/2016

[2022] HKCFI 2050

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 275 OF 2016

________________________

________________________

________________________

REASONS FOR JUDGMENT

AND DECISION ON COSTS

________________________

1.  This is a mega trial involving a dispute within the family of the late Mr Fok Ying Tung Henry (“the Deceased”)  who made tremendous contribution to the modernization of China and the development of Nansha prior to his death on 28 October 2006. He also made substantial investment in a development project in Nansha (“the Nansha Project”).

2.  This case is ordered to be tried together with HCA 92/2016 and HCA 274/2016 involving similar claims brought by other family members.

Background

3.  The case has attracted enormous publicity and the background of this case has been widely reported in the press.  In any event, since substantial part of the case has been settled and the remaining dispute only relates to the counterclaim (“the Counterclaim”)  brought by the second and third families of the Deceased (“the 2^nd and 3^rd Families”)  against the Plaintiff Ms Nora Fok (“Nora”)  who is a member of the first family of the Deceased (“the 1^st Family”), I do not propose to go into the facts of the case in any great details here.

4.  In short, the Deceased had three branches of families with different wives.  After the Deceased’s death in 2006, the probate of the Deceased’s last will was granted to Ms Fok Mo Kan (the Deceased’s sister, referred to as “the Aunt”), Mr Ian Fok (“Ian”)  and Mr Benjamin Fok (“Ben”)  as the surviving co-executors.  After that, there was a dispute about the management and distribution of the estate of the Deceased (“the Estate”).  In 2011, Ben commenced HCA 2155/2011 to remove Ian and the Aunt as co-executors and to claim certain disputed assets in the Estate.  With much assistance from certain prominent members of the community, the family members were able to reach an agreement dated 3 August 2012 to settle their dispute (“the Settlement Agreement”).

5.  After the making of the Settlement Agreement, there was a serious dispute between the members of the 1^st Family about an option (“the Yau Wing Option”)  granted to one of the family companies, Yau Wing Co Ltd (“Yau Wing”), to repurchase from Fok Ying Tung Foundation Limited (“FYTF”)  one share of Panyu Development Co Ltd (“the One Share”).  For present purposes, it is not necessary to go into details of the corporate structure, but the One Share would represent half of the interests of the whole Nansha Project.

6.  The 1^st Family was divided into two camps: Ben, Ms Patricia Fok (“Pat”)  and Nora on the one camp and Mr Timothy Fok (“Tim”)  and Ian on the other.

7.  Ben, Nora and Pat (collectively referred to as “BNP”)  claimed that Ian, Tim and Henry Fok Estates Ltd (“HFE”)  were under Clause 19(e)  of the Settlement Agreement to transfer the Yau Wing Option to a new designated company (“the Designated Company”)  for the benefit of certain beneficiaries of the Estate.  However, Ian and Tim alleged that since the Yau Wing Option had expired, they were not in a position to transfer the Yau Wing Option to the Designated Company.  As the Yau Wing Option involved half of the interest of the Nansha Project, it is not surprising that the parties fought again in various legal battles relating to such matter.

8.  By reason of such dispute and the failure of Ian and Tim to transfer the Yau Wing Option, Ben sought to revive the claim in HCA 2155/2011.  Ian applied to stay the proceedings on the basis of the Settlement Agreement (“the Stay Application”).  On 3 January 2014, Poon J (as he then was)  handed down the decision allowing the Stay Application.  The judge construed the meaning of Clause 19(e)  and found that Ian and Tim were not in breach of the Settlement Agreement.  As the Settlement Agreement was still binding on the parties, he made an order to stay the proceedings except for the purpose of perfecting and implementing the Settlement Agreement.[1]

9.  Ben appealed to the Court of Appeal.  The Court of Appeal held that Ben’s claim on the breach of the Settlement Agreement and the construction of Clause 19(e)  could not be determined summarily.  Ben’s complaint should be determined in fresh actions.  The Court of Appeal therefore allowed the appeal and granted a temporary stay pending the resolution of the disputes over the Settlement Agreement in fresh actions.[2]

10.  The present actions are the fresh actions commenced after the handing down of the Court of Appeal decision: HCA 92/2016 was commenced by Ben, HCA 274/2016 was commenced by Pat and HCA 275/2016 was commenced by Nora.  The 2^nd and 3^rd Families were only joined as parties in HCA 275/2016.  The other Defendants in HCA 275/2016 are the various family companies and the charitable foundations whose interests may be affected by the decision of the court as to whether the Yau Wing Option remains exercisable, or whether certain of them are holding the Yau Wing Option on trust for the Estate or the group of family companies referred to as “the HFE Group”.

11.  It is the claim of BNP that under the Settlement Agreement, HFE, Ian and Tim are obligated to procure the transfer by FYTF to the Designated Company of whatever interest the HFE Group has in the One Share and irrespective of the lapse of the Yau Wing Option.  Ben and Nora further argue FYTF (a charitable company)  holds the One Share as nominee for Yau Wing.

12.  BNP argue the Settlement Agreement imposes the obligation as a matter of proper contractual construction.  Alternatively, the Settlement Agreement should be rectified to impose the obligation on the ground of common or unilateral mistake.  Alternatively, BNP seeks to rescind the Settlement Agreement on ground of misrepresentation.  Alternatively, if they fail on all the above, they argue Ian owes them a duty of full and frank disclosure (by reason of the Settlement Agreement being a family arrangement, or Ian being a fiduciary, or Ian owing them a duty of care), and had Ian done so, they would not have agreed to sign the Settlement Agreement as is but would have bargained for more (including to account for HFE Group’s potential claim against Ian for not exercising the option before expiry, and against FYTF to recover the One Share).

13.  Rescission of the Settlement Agreement would affect not just the 1^st Family but also the 2^nd and 3^rd Families.

14.  Ian and Tim deny the claim and counterclaim for specific performance of the Settlement Agreement against BNP.

15.  The case was scheduled for trial with an estimated length of 60 days.  After a lengthy and perhaps painful negotiation, the parties were eventually able to reach a new settlement agreement (“the New Settlement Agreement”)  on the 13^th day of the trial.  The terms of the New Settlement Agreement have not been disclosed to the court, but they agreed that nearly all the claims and counterclaims in these three actions would be dismissed with no order as to costs.

16.  Quite unexpectedly, Nora and the 2^nd and 3^rd Families could not reach an agreement on the Counterclaim.   It is clear that the main dispute in this case concerns the claims between members of the 1^st Family, and that is why I cannot quite understand why they would not be able to settle the Counterclaim which is quite insignificant in the overall scheme of events.  In particular, the Counterclaim is directed against only one member of the 1^st Family, i.e. Nora.

17.  I was therefore given to understand that the court would still have to conduct the trial on the Counterclaim.  As the court had all along focused on the disputes between the two camps of the 1^st Family, I asked the parties to clarify the issues for determination in respect of the Counterclaim.  In the course of clarification, I found that the 2^nd and 3^rd Families might not have a reasonable cause of action on the Counterclaim.  I therefore invited submissions as to why the court could not deal with the matter summarily.  After hearing such submissions, I made an order dismissing the Counterclaim.  I now give my reasons.  As I have ordered the costs of the main claim vis-à-vis Nora and the 2^nd and 3^rd Families (“the Main Claim”)  to be dealt with on paper, I also hand down my Decision on Costs on the Main Claim.

The reasons for dismissing the Counterclaim

18.  I agree with the various reasons put forward by Mr Yu, SC, counsel for Nora, as to why the Counterclaim is defective and totally without substance.

19.  First, it is not clear what is the exact basis for the Counterclaim against Nora.

20.  According to the 2^nd and 3^rd Families’ Re-Amended Defence and Counterclaim (“the Defence and Counterclaim”), it seems that the Counterclaim is one based on breach of the Settlement Agreement.  However, the pleading contains no allegation of breach against Nora.  Instead, the 2^nd and 3^rd Families focus on Nora’s alternative non-disclosure claim and plead that: (i)  if Nora succeeds on such claim, they should have the benefit of the same and reserve their right to seek recourse presumably against Ian[3]; and (ii)  Nora is not entitled to rescission even if she succeeds on the non-disclosure claim by reason of various bar (substantial performance, third party rights, etc)[4].  If anything, the only allegation of non-performance of the Settlement Agreement is against the executors of the Estate (“the Executors”)  for failure to make further distribution under clause 12(c).[5]

21.  Nora has actually pointed out such defect in §11 of the Amended Reply and Defence to Counterclaim of the 2^nd and 3^rd Families, and yet the latter are unable to offer any meaningful reply to such allegation.  Hence, the Counterclaim is defective and must fail in limine.

22.  This would have been sufficient to dismiss the Counterclaim.  But even on the facts, it is obvious that Nora has not committed any breaches of the Settlement Agreement.  Neither can the 2^nd and 3^rd Families show any causation between Nora’s alleged and yet unidentified breaches of the Settlement Agreement and the non-performance of the Settlement Agreement.

23.  First, the only clauses in the Settlement Agreement that affect the 2^nd and 3^rd Families expressly provide that the obligation to perform falls on the Executors.  These clauses can be grouped into 4 categories: (i)  for cash payment under Clause 12; (ii)  for distribution of jewellery under Clauses 31 to 34; (iii)  for management and distribution of the “Residuary Estate” under Clause 17; and (iv)  for payment of legal costs of the parties under Clause 49.  These responsibilities fall on the Executors and not Nora.

24.  Second, Nora has all along made clear in the correspondence that she wishes the Executors to perform those clauses of the Settlement Agreement that affect the 2^nd and 3^rd Families.[6]  Nora proposed that a separate and stand-alone agreement be made (without affecting the dispute concerning the Settlement Agreement)  to make provisions for the 2^nd and 3^rd Families, and it was Ian and Tim who did not agree insisting that the provisions should be made under the Settlement Agreement.  Indeed, if the court were to grant the rescission as a relief to the non-disclosure claim, Nora’s pleaded case is that it should be properly tailored to achieve a practically just result vis-à-vis the 2^nd and 3^rd Families.

25.  Third, at no time were the Executors under any legal restraint from implementing the Settlement Agreement in favour of the 2^nd and 3^rd Families.  Although the Court of Appeal had overturned the decision of Poon J on the Stay Application[7], there was no stay imposed by the court over the implementation of the Settlement Agreement which remained the duty of the Executors.

26.  Fourth, it is clear from the pleadings that the position of Ian[8] and the 2^nd and 3^rd Families[9] has always been that the court should not grant the relief of rescission of the Settlement Agreement.  Hence, even on their own case, the fact that Nora has sought such relief is no impediment to continued performance of the Settlement Agreement vis-à-vis the 2^nd and 3^rd Families.

27.  Fifth, as a matter of fact, the Executors had continued to implement the Settlement Agreement notwithstanding Nora’s rescission claim:

(i)  In the hearing of the Stay Application, Nora had already tabled her draft Statement of Claim and made known she would seek rescission on the basis of non-disclosure which is substantially the same sought in the pleading in the present action.

(ii)  Following that, on 29 April 2014, Hobson & Ma (solicitors for Ian)  stated in its letter that the Executors verbally agreed to make further distribution of $12,500,000 to all the beneficiaries.  This was accepted by the 2^nd and 3^rd Families who chased for payment on 13 May 2014.

(iii)  Thereafter, on or around 26 May 2014, the Executors made the further distribution of $12,500,000 to each of the beneficiaries.  Nora did not accept this distribution but the 2^nd and 3^rd Families had.

(iv)  Thus, the Executors plainly did not consider that Nora’s claim for rescission to be an impediment to their continued performance of the Settlement Agreement.  Nor has Nora attempted to restrain the Executors from proceeding with the further distribution to the members of the 2^nd and 3^rd Families.

28.  In the course of argument, Mr Samuel Wong, counsel for the 2^nd and 3^rd Families, cannot provide any satisfactory or indeed any answers to the points made by Mr Yu.  Unfortunately, the legal term for the 2^nd and 3^rd Defendants have not given a lot of thought in the formulation of the Counterclaim.  It is even more surprising that they are insisting to continue the trial with such unmeritorious claim.

29.  For these reasons, there is clearly no merit in the Counterclaim and the same should be dismissed summarily without going through an unnecessary trial.  Costs should follow the event and I therefore ordered that the costs of the Counterclaim be to Nora.

Costs of the Main Claim

30.  In the hearing, I ordered that the costs of the Main Claim be dealt with on paper.  Both sides have filed written submissions pursuant to the directions given in the hearing.

31.  Mr Wong argues that since Nora has withdrawn the Main Claim, the 2^nd and 3^rd Families should get their costs.  He also asks for such costs to be taxed on an indemnity basis.

32.  Mr Wong makes the following submissions in support of his contention:

(i)  It is usual to order the party who withdraws the proceedings to pay for the costs.

(ii)  Mr Wong relies on the dicta made by Poon J[10] and the Court of Appeal[11] in deciding the issue of costs in the Stay Application.  As the 2^nd and 3^rd Families had been dragged into the dispute between the members of the 1^st Family, the Court of Appeal ordered that, for the costs of the Stay Application in the court below, Ian, Tim, Ben and Nora shall jointly and severally bear the costs of the 2^nd and 3^rd Families on an indemnity basis.

(iii)  Nora’s claim for rescission of the Settlement Agreement is devoid of merit and should not have been made in the first place.

(iv)  Shortly before the commencement of the trial, Nora sent a without-prejudice-save-as-to-costs letter dated 13 December 2021 (“the WP Letter”)  to the 2^nd and 3^rd Families, offering to discontinue the Main Claim and to pay for their costs on the condition that the Counterclaim be withdrawn.  This shows that Nora all along knew that her claim is hopeless.

(v)  The 2^nd and 3^rd Families have been acting reasonably in the conduct of their case reducing their costs to a minimum.

33.  On the other hand, Mr Yu asks for a no-order-as-to-costs order. If the court were to order costs against Nora, such costs should be taxed on a party-to-party basis up to 13 December 2021 which was the date of the WP Letter.

34.  First, I agree with Mr Wong that the 2^nd and 3^rd Families “are caught innocently in the cross-fire between the two warring camps of the [1^st Family] siblings”.  Adopting the observations made by the courts in the Stay Application, there should not be any reason as to why the 2^nd and 3^rd Families should not get their costs on an indemnity basis.  As observed by the Court of Appeal in the Stay Application, “they should not be out of pocket in terms of costs”[12].

35.  Without a trial and knowing the terms of the New Settlement Agreement, it would be difficult for the court to form even a preliminary view as to which camp should be responsible for the costs of the 2^nd and 3^rd Families.  In the Stay Application, even before the final determination of the fresh actions, the Court of Appeal ordered both camps of the 1^st Family jointly and severally to pay the costs of the 2^nd and 3^rd Families on an indemnity basis.  Now that both camps have settled the dispute between them, should I order Nora, who is the only plaintiff in this action, to pay for the costs of the 2^nd and 3^rd Families even if other members of the 1^st Family are not parties in this costs application?

36.  In my judgment, this is no reason why the court should not do so.  The indemnity costs order was made by the Court of Appeal in the Stay Application on a joint and several liability basis.  In other words, each of the paying parties was liable for all the costs of the 2^nd and 3^rd Families, and the latter were at liberty to enforce the costs order against any parties of the 1^st Family responsible for dragging them into the Stay Application.  That was the position vis-à-vis the 2^nd and 3^rd Families.  Adopting the same approach here, Nora should be ordered to pay for all the costs of the 2^nd and 3^rd Families on the Main claim even if the other members of the 1^st Family are missing here.  In particular, Nora is the only plaintiff in this action. 

37.  I agree with Mr Yu that Nora might have taken some steps with a view to “hive off” the 2^nd and 3^rd Families.  She proposed for a separate and standalone agreement to be made to protect the interests of the 2^nd and 3^rd Families.  Nevertheless, no matter what was the reason as to why such agreement did not materialize, it was the dispute between the two camps of the 1^st Family causing the 2^nd and 3^rd Families to stay in these proceedings.  As against the 2^nd and 3^rd Families, the parties responsible for dragging them into the dispute should be ordered to pay for their costs.

38.  Mr Yu also submits that the 2^nd and 3^rd Families had incurred some unnecessary costs in the conduct of the case.  Instead of just staying neutral as alleged by them at the outset, they filed the Counterclaim and some unnecessary witness statements.  Further, they made unnecessary amendments to their pleading after Nora was given leave to amend her Statement of Claim at the pre-trial review.

39.  I agree that the Counterclaim is defective.  For that, the 2^nd and 3^rd Families have already been ordered to pay Nora’s costs on the Counterclaim.  For the other alleged unnecessary costs, I would leave them for determination by the taxing master.  Even on an indemnity basis, costs incurred unreasonably would not be allowed.  Mr Yu’s complaints should be investigated in the taxation proceedings and not here.

40.  However, I agree with Mr Yu that Nora should only be asked to pay for the costs up to 13 December 2021 which was the date of the WP Letter.  As the 2^nd and 3^rd Families have failed to do better than the offer made in the WP Letter, no costs incurred after 13 December 2021 should be allowed in any event.

41.  For the above reasons, I order Nora to pay for the costs of the 2^nd and 3^rd Families on the Main Claim on an indemnity basis up to and including 13 December 2021.

42.  As the 2^nd and 3^rd Families have succeeded on all the issues in this costs application except for the costs of the Main Claim after the date of the WP Letter, I order Nora to pay 2/3 of the costs of this costs application on an indemnity basis.