BERMUDA TRUST (HONG KONG) LTD v. CAI GUO XIANG AND OTHERS

CACV 143/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 143 OF 2006

(ON APPEAL FROM HCMP NO. 2953 OF 2002)

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______________________

JUDGMENT

______________________

Hon Tang VP:

Introduction

1.  On 10 March 2006, Yam J ordered the 3^rd and 4^th defendants to pay the costs of the proceedings on an indemnity basis.  Leave to appeal was given on 18 April 2006.  This is their appeal.

Background

2.  Mr Choy Ching Ming (“the deceased”), died on 28 August 1996.  His assets exceeded $180 million.

3.  There were three contenders for his assets:

1)	his surviving brother, Cai Guo-xiang (the 1st defendant) and the sons and daughters of the deceased’s other brother(s) and sister(s), one of whom was the intended 5th defendant (“the statutory beneficiaries”).  The statutory beneficiaries resided in the Mainland.
2)	Madam Ng Kwan-ying alias Wong Siu-mui, who claimed to have been the deceased’s kit fat wife.  She cohabited with the deceased between October 1962 and May 1974 when she left Hong Kong for the USA.  There was no children out of this union.
3)	Mok Hang-won Elsa (“Elsa Mok”), the 2nd defendant, who was cohabiting with the deceased at the time of his death.  The 2nd defendant claimed to be the sole beneficiary under a will of the deceased.  She also claimed to be entitled to the bulk of the deceased’s assets by virtue of the gift to her of a key to a safe deposit box at the Po Sang Bank (“the safe deposit box”).

4.  There was a probate action, HCAP 13/1997, between the 1^st defendant by his lawful attorney Lam Fong as plaintiff and the 2^nd defendant as defendant.  There the 1^st defendant sought letters of administration on the basis that the deceased had died intestate.  The 2^nd defendant sought probate of what purported to be a will of the deceased.  She also claimed that she was entitled to the contents of the safe deposit box by donatio mortis causa.

5.  By a judgment dated 26 March 2001, Yam J refused to propound the will put forward by the 2^nd defendant.  However, he found that the 2^nd defendant had proved on a balance of probabilities that the deceased had effected a valid gift of the contents of the safe deposit box (mainly, share certificates and bank deposit slips) by way of donatio mortis causa (“DMC”), by delivery to the 2^nd defendant of a key to the safe deposit box.  On the basis of the judgment, effectively, the estate of the deceased was reduced to approximately $9 million since the bulk of the deceased’s assets would have been the subject of the DMC.  I express no view on the correctness of that judgment.  For the present purpose, the estate of the deceased, inclusive of the assets covered by the DMC could be taken to be HK$181,191,400.00.

6.  There was an appeal and cross-appeal.  On 13 June 2001, Yam J appointed the plaintiff, Bermuda Trust (Hong Kong) Limited (“Bermuda Trust”) to be the administrator of the estate of the deceased as well as the properties the subject of the DMC.  In the appeal, the 1^st defendant was represented by Messrs Fong & Ng (“Fong & Ng”).

7.  The appeal was compromised and a Tomlin order was made on 28 May 2002, the schedule of which directed Bermuda Trust:

“

(2)

to realize the other assets in the estate of the Deceased and, after deduction of estate duty, administration and testamentary expenses, proved just debts and liabilities of his estate (i.e. proved to the satisfaction of the Estate Duty Office), to distribute the same equally between [the 1st defendant] and the [2nd] Defendant.”

The language of the Tomlin Order was consistent with the view that the estate of the deceased was regarded to be inclusive of the assets covered by the DMC.

8.  Earlier, in order to facilitate the application for letters of administration, the 1^st defendant applied to the 4^th defendant, Shanghai City Xuhui District Notary Public Office for notarial certificates in order to prove his relationship with the deceased and his right to a grant.

9.  He had also entered into a Deed of Family Arrangement dated 10 June 1997 (“DFA”).  The parties to the DFA were the statutory beneficiaries, Madam Ng, and the 3^rd defendant, the Nanyang Commercial Bank Trustee Limited.  Under the DFA, it was agreed that the estate of the deceased should be divided as follows:

“	(a)	the said CAI GUO XIANG (the 1st defendant) shall have 20% thereof;
	(b)	the said CAI XIU CHU shall have 20% thereof;
	(c)	the said ZHANG WEN JING, the said ZHANG WEN XIAN, the said ZHANG WEN QI, the said ZHANG YUAN CEN and the said ZHANG YUAN GANG shall jointly have 20% thereof in their respective equal share; and
	(d)	the said NG KWAN YING shall have the remaining 40% thereof.”

10.  As a result of the Tomlin order, 50% of the estate of the deceased was to be divided in accordance with the DFA.

11.  It appeared from a notice issued by the Finance Ministry that the 4^th defendant could charge up to 5% on the value of the estate for the notarial certificates:

“	…国家物价局、财政部一九九一年十一月十九日（1991）价费字第549号《关于发布司法系统行政事业性收费项目和标准的通知》”.

12.  I believe the involvement of the 3^rd defendant could be explained by a notice from the Justice Department dated 29 May 1991 (（91）司公字第98號) which provided that:

“	据了解，近年来继承香港地区遗产的当事人少报或隐暪遗产数额，少交公证费的情况时有发生。为保证公证费的收取，我部（80）司发公字第96号《摘要转发中国银行有关征收公证费问题的建议》已作出明确规定，现再通知如下：
	一、	香港同胞为继承遗产要在内地办理公证书的，可建议其委托香港南洋商业银行信托有限公司或新华银行信托有限公司办理遗产继承手续，或委托上述信托有限公司向国内公证处申办公证。
	二、	为掌握死者遗产数额、价值，保证公证费的收取，公证处可请继承人或其境外受托人迳与南商银行信托有限公司遗产部公证书组人员联系。公证书办好领事认证后，公证处应将公证书直接寄南商银行信托有限公司，由该公司核实死者遗产，并按规定向境外继承人或其受托人收取公证费和手续费后，将公证书发给当事人。公证处不应将公证书直接寄给境外当事人或交给内地申办人。”

13.  Presumably it was as a result of (91) 司公字第98號 that the 3^rd defendant became a party to the DFA.  The Recital to the DFA read:

“

(9)

The Beneficiaries and the said NG KWAN YING have irrevocably agreed that the Trust Corporation, in its capacity as the lawful attorney of the said CAI GUO XIANG, shall apply to High Court of the Supreme Court of Hong Kong in its Probate Jurisdiction under the provisions of Section 26(1)(b) of the Probate and Administration Ordinance, Chapter 10 and Rule 30 of the Non-Contentious Probate Rules, Chapter 10, for a grant of Letters of Administration to the estate of the Deceased (‘the said Grant’).”

14.  Further, clause 7 of the DFA provided:

“

(7)

The Trust Corporation shall pay out of the estate of the Deceased all necessary expenses as more particularly set out in the Schedule hereto.”

The particulars of the expenses in the schedule referred to in the DFA included the following:

“	6.	Notarial fees at 5% on the gross estate value and all other expenses and disbursements in relation to the Notarial Certificates so applied;
		……
	8.	Remuneration of the Trust Corporation (acceptance fee of 3% on the gross market value of the estate and administration fee of 1% per annum accruing from November 1996) as set out in clause 15 hereof;”

15.  Following the Tomlin order made on 28 May 2002, by a letter dated 6 June 2002 from the 4^th defendant to the 3^rd defendant, the 4^th defendant asked the 3^rd defendant to obtain the sum of HK$9,059,570.00 being 5% on HK$181,191,400.00 from Bermuda Trust.  In that letter the 4^th defendant claimed that the notarial fees were payable pursuant to the notice referred to in para. 11 above.

16.  The 3^rd defendant in turn wrote to Fong & Ng on 12 June 2002, requesting that Fong & Ng should request Bermuda Trust to pay out of the estate of the deceased HK$9,059,570.00 as notarial fees as well as 1% handling fees in the sum of HK$1,811,914.00 for the 3^rd defendant.  It seemed that the 3^rd defendant’s claim for payment was based on the fact that authenticated copies of notarial certificates had been used by Bermuda Trust in obtaining letters of administration.  The basis upon which the 1% handling fees was claimed was not made clear.

17.  On 13 June 2002, Fong & Ng wrote to Bermuda Trust, enclosing a copy of the Tomlin order, the letter from the 3^rd defendant dated 12 June 2002 together with its enclosures.  The letter went on to say:

“

We are instructed that [the 1st defendant] and the other statutory beneficiaries have no objection for the notarial fee and the fee of [the 3rd defendant] to be deducted from the estate of the deceased.  We should, therefore, be grateful if you could let us have a cheque in favour of ‘Nanyang Commercial Bank Trustee Limited’ for the sum of HK$10,871,484.00 in settlement of the notarial fee and the fee of [the 3rd defendant] at your earliest convenience.”

The statutory beneficiaries, in particular, the 1^st and 5^th defendants have since asserted that Fong & Ng were not authorised to say that they had no objection for the deduction to be made and that insofar as Fong & Ng had purported to do so they acted in the interest of the 3^rd and 4^th defendants only.  This dispute became important in the O.62 r.8 proceedings against Fong & Ng which the learned judge initiated and which I will deal with below.

18.  On 25 June 2002, the 4^th defendant gave a power of attorney to the 3^rd defendant to pursue Bermuda Trust and the 2^nd defendant for the notarial fees.

19.  There was a hearing before Yam J on 27 June 2002, resulting in certain Joint Instructions to Bermuda Trust.  Those Joint Instructions were given on behalf of the 1^st and 2^nd defendants.  The Joint Instructions where relevant provided as follows:

“	10.	After retaining the sum of HK$25,000,000.00 as referred to in paragraph 3 herein and after making payment of HK$15,000,000.00 to Rosa Chan Yam as aforesaid, you shall divide the remaining cash balance of the estate equally between the Plaintiff (On behalf of himself and all statutory beneficiaries who have or may have an interest upon the intestacy of the deceased) and the Defendant and make payments to them (or through their respective solicitors) accordingly as interim distribution.
	11.	You shall promptly make a decision as to whether the total sum of HK$10,871,484.00 are payable out of the estate to Nanyang Commercial Bank Trustee Limited as part of the administration and testamentary expenses.  In case you are unable to make a determination, you shall then with due expedition issue an Originating Summons pursuant to Order 85 to determine whether the total sum of HK$10,871,484.00 shall be payable out of the estate to Nanyang Commercial Bank Trustee Limited as part of the administration and testamentary expenses.”

20.  By a letter signed on 1 and 5 July 2002, the statutory beneficiaries including the 1^st and 5^th defendants, instructed the 3^rd defendant to sue in respect of the 2^nd defendant’s refusal to pay the notarial fees:

“	对方要我方全数负担公证费，我们不会接受，对于对方的不合理以及专横的态度，请贵司经法律途径解决。”

This letter was probably written as a result of a letter dated 21 June 2002, by the 3^rd defendant to the Bank of China, Shanghai Branch, stating:

“	（五）	另外，對方又無理提出：
		a.	公證費要由我方受益人全數負擔。
			……
		現請你行詢問內地當事人，對對方的上述無理要求有何意見。若也認為不能接受的話，是否也和黃翠珍、王小妹一樣同意以法律手段解決。請蔡國祥先生來函指示。”

One complaint by the statutory beneficiaries was that even if, which they denied, they had consented to the 3^rd defendant suing for the notarial fees, it was not informed consent.

21.  On 17 July 2002, Bermuda Trust rendered its decision on notarial fees and refused to pay on two grounds.  First, the notarial fees were not testamentary/administrative expenses.  Secondly, on quantum, that the estate did not include the DMC assets.

22.  Bermuda Trust, however, agreed to pay half of the amount claimed for the statutory beneficiaries’ share out of the retained sum of $25 million.  On 26 July 2006, Bermuda Trust’s cheque in the sum of $5,435,742 was provided to the 3^rd defendant.  As will be seen below, the statutory beneficiaries and Madam Ng agreed to the distribution of this sum to the 3^rd and 4^th defendants respectively.

23.  On 29 July 2002, Bermuda Trust started the present action  (HCMP 2953/2002) under O.85 r.2 under which, Bermuda Trust:

“	… seeks the determination of the Court on the following questions and/or the following relief:-
	1.	Whether the following claims made by Nanyang Commercial Bank Trustee Limited for a total sum of HK$10,871,484.00 and/or interest thereon form a testamentary and administration expense of the estate and/or assets of the Donatio Mortis Causa of the Deceased:
		(a)	Public Notary fee of HK$9,059,570.00 claimed by Shanghai City Xuhui District Notary Public Office stated to relate to a total of 33 notarial certificates, including certificates of proof of death of the Deceased’s parents and certificates of proof of birth of the Deceased and the Deceased’s other brother;
		(b)	Administration fee of HK$1,811,914.00 claimed by Nanyang Commercial Bank Trustee Limited …”

24.  By a letter dated 17 August 2002, Messrs Liu, Chan and Lam (“LCL”), acting for the 3^rd and 4^th defendants, wrote to Messrs Denton Wilde Sapte (“DWS”), then solicitors for Bermuda Trust, and demanded payment of the sum of HK$10,871,484.00.  The letter concluded by stating:

“	… Should we fail to receive your positive response within the next 7 days, we shall advise our clients to join in as interested parties in the Originating Summons (HCMP 2953/2002) and/or resort to appropriate legal action against your client without further notice.”

It is important to note that the 3^rd and 4^th defendants’ were asserting their own claims to the payment of HK$10,871,484.00.

25.  On 5 November 2002, the 3^rd and 4^th defendants were joined as defendants by consent of the plaintiff, the 1^st and 2^nd defendants.  The Originating Summons was amended accordingly.

26.  By letter dated 11 January 2003, Messrs Louis K Y Pau & Co. (“LKYP”), solicitors acting for the 2^nd defendant, wrote to the plaintiff’s solicitors, as well as all the other parties:

“	… to seek clarification of the nature of these proceedings and the basis of the claims by Nanyang Commercial Bank Trustee Ltd. (Nanyang) and Shanghai City Xuhui District Notary Public Office (Shanghai City), and against whom Nanyang and Shanhai City are claiming?”

27.  As LKYP pointed out in their letter dated 17 January 2003:

“

It is precisely because the facts as to who is to make what claim(s) against whom, and the basis thereof, are entirely unclear, and until these questions are answered by Nanyang and Shanghai City stating the basis of their claims, any action on the part of the Administrator is in our respectful opinion premature. Depending on whether the claims are for debts or testamentary expenses, and the basis for making such claims, the role, if any, of the Administrator may be wholly different.”

28.  That the 3^rd and 4^th defendants intended to assert a direct claim against Bermuda Trust was again made clear in paras. 26 and 38 of the affirmation of Ip Yiu filed on their behalf on 10 February 2003.

29.  In the meantime, on 28 August 2002, there was a meeting between the 1^st defendant and Mr Fu Chi-kai (“Mr Fu”), an assistant solicitor of Fong & Ng in Shanghai.  According to Mr Fu, he advised the 1^st defendant that he could be liable for notarial fees.  That has been denied by the 1^st defendant.

30.  It is important to note that on the same date, 28 August 2002, a Deed of Release and Indemnity was entered into between the parties to the DFA, following which distribution was made in accordance with a Statement of Account in Chinese prepared by the 3^rd defendant:

“

(13)

… which the Beneficiaries and the said NG KWAN YING have carefully examined and approved the same to be true and correct in all respect”.

31.  Under that Statement of Account, notarial fees at 5% on the statutory beneficiaries’ and Madam Ng’s respective shares of the estate of the deceased were agreed to be deducted and paid to the 4^th defendant.  In addition, the fees of the 3^rd defendant were also deducted and paid out of the shares of the statutory beneficiaries and Madam Ng.  It is to be noted that by a Chinese document dated 1 July 2002, called the Collection Agreement, signed by the 1^st and 5^th defendants and 2 officers on behalf of the 3^rd defendant, it was agreed that the fees of the 3^rd defendant should be capped, presumably, at the amounts eventually paid to the 3^rd defendant pursuant to the Deed of Release and Indemnity.

32.  Thus, as DWS stated in their letter of 19 February 2003 to LCL since it was clear that the 3^rd and 4^th defendants were claiming directly against Bermuda Trust, which claims were based on disputed facts and amounted to hostile litigation:

“	We propose that the following orders should be made:
	1.	the 3rd and 4th Defendants shall forthwith cease to be parties to the proceedings;
	2.	the proceedings be stayed pending determination of claims asserted by the 3rd and 4th Defendants such claims to be determined in separate proceedings to be commenced by those parties as plaintiffs;
	3.	no order for costs inter partes; …”

33.  By letter dated 21 March 2003, the 3^rd and 4^th defendants did not agree to cease to be a party but agreed to a stay with liberty to restore and asked that “our clients’ costs up to the stay be paid by the estate to be taxed if not agreed.”

34.  On 25 April 2003, the intended 5^th defendant (the 5^th defendant) applied to be joined as a party.

35.  By letter dated 6 May 2003, the 3^rd and 4^th defendants informed the 5^th defendant’s solicitors that the claim was not against the 5^th defendant but against the 2^nd defendant only.

36.  We should note that Mr Fu in an affidavit dated 10 February 2003 filed on behalf of the 1^st defendant said:

“

99.

If the Plaintiff and the 2nd Defendant failed to pay the Notarial Fees, the whole amount of the Notarial Fees would naturally be borne by the 1st Defendant and the other statutory beneficiaries absolutely.”

A similar point was taken by Fong & Ng in their letter of 11 June 2003 to the 1^st defendant where they said if the notarial fees and the handling fees were adjudicated not to be testamentary/administrative expenses, the 3^rd and 4^th defendants could claim against the beneficiaries under the DFA, including the 5^th defendant, for payment of the share of such fees payable by the 2^nd defendant.  However in Mr Fu’s 2^nd affidavit filed on 9  November 2004 he said:

“

17

(B)

… The statutory beneficiaries only agreed to bear 50% of the Notarial Expenses.  It is true that they had not agreed to pay the remaining 50% and this was why they instructed Fong & Ng to act for them in these proceedings.”

37.  On 21 May 2003, there was a hearing of the 5^th defendant’s application before Deputy Judge Muttrie which was adjourned to Yam J.

38.  A letter dated 26 May 2003 from the 3^rd defendant to the Bank of China, Shanghai Branch which was copied to the 1^st defendant, stated that the result of the present proceedings would only affect the 2^nd defendant and had nothing to do with the 5^th defendant.

39.  In June 2003, the statutory beneficiaries claimed that they had just become aware of the Originating Summons.

40.  On 27 July 2003, Bermuda Trust’s solicitors proposed directions for the action to continue as if begun by writ and that in such proceedings the 3^rd and the 4^th defendants should become the 1^st and 2^nd plaintiffs.  On 22 September 2003, the 3^rd and 4^th defendants rejected this proposal.

41.  By letter dated 7 July 2003, the 4^th defendant informed the 1^st defendant that the statutory beneficiaries had settled charges in full and that no new charges would be raised as against them.

42.  On 8 August 2003, the 5^th defendant made serious allegations of misconduct against the 3^rd defendant, and threatened to report the matter to the Commercial Crimes Bureau.

43.  By letter dated 9 August 2003, the 1^st defendant wrote to Bermuda Trust, stating that he never agreed to pay the entirety of the notarial fees.

44.  On 19 November 2003, the 1^st defendant refused the 3^rd defendant’s request to sign a letter approving of Fong & Ng’s actions.

45.  On 10 December 2003, the 3^rd and 4^th defendants agreed to a discontinuance.  On 10 December 2003, their solicitors, LCL, wrote to all the parties, suggesting that a consent summons be filed as soon as possible for leave to discontinue the proceedings with costs to be reserved for argument at the said hearing.

46.  On 19 December 2003, Yam J gave leave to discontinue the Originating Summons, and he ordered that Bermuda Trust be at liberty to make a final distribution and be released from any liability “in respect of claims by the 3^rd and/or 4^th defendants unless one or both of those parties also commence an action against the Plaintiff and (if so advised) the 2^nd Defendant in order to seek to establish their claims on or before the 9^th January 2004 …”.  He also ordered written submissions on costs.

47.  After two rounds of written submissions, on 14 September 2004, Yam J ordered Fong & Ng to show cause under O.62 r.8.  Under O.62 r.8:

“	… the Court may make against any solicitor whom it considers to be responsible whether personally or through a servant or agent an order -
	(c)	directing the solicitor personally to indemnify such other parties against costs payable by them.”

48.  On 27 October 2004, Yam J further directed that:

“	2.	All parties are entitled to attend the O.62 r.8 hearing since all have asked Messrs Fong & Ng to bear costs personally. They are also at risk of Messrs Fong & Ng’s costs for the hearing.
	3.	After a decision is made in respect of the O.62 r.8 hearing, a decision shall be made in respect of the inter-parte costs.  Since all parties have already made written submissions thereon, no further hearing will be necessary unless the Court otherwise directs.”

The statement in para. 2 that “all have asked Messrs Fong & Ng to bear costs personally” was not correct.

49.  On 15 November 2005, clerk to Yam J wrote to the parties:

“	1.	Since all parties had made submissions on costs, the hearing on 17-18 November, 2005 would deal only with the Order 62 rule 8 proceedings.
	2.	O.62 r.8 proceedings provides that solicitors have a duty and right to show cause. Any parties pursuing their claim against solicitors to bear costs personally must attend the proceedings. Other parties who are affected by the proceedings may apply to be present.
	3.	If Messrs Louis K.Y. Pau & Co. consider otherwise, they can make a proper application therefor and the Court would consider the application in the way it is made.”

50.  Since the 3^rd and 4^th defendants were not seeking costs against Fong & Ng, they did not attend the hearing which commenced on 17 November 2005.

51.  The hearing eventually took three days.  The learned judge gave his judgment on 10 March 2006.  This is the order he made:

“	IT IS ORDERED that Messrs. Fong & Ng, 3rd Defendant and 4th Defendant be liable to pay the costs of these proceedings incurred by the Plaintiff, 1st Defendant, 2nd Defendant and intended 5th Defendant on indemnity basis, to be taxed if not agreed.”

52.  Yam J granted the 3^rd and 4^th defendants leave to appeal on 18 April 2006.

53.  Fong & Ng had also appealed but by consent, Fong & Ng’s appeal was dismissed by consent on 16 November 2007.

The appeal

54.  Essentially, at the conclusion of the three-day hearing the learned judge found serious misconducts proved against Mr Fu and hence Fong & Ng.  It seems that the learned judge was of the view that Fong & Ng were wrong to have either claimed that the notarial fees were payable as testamentary / administrative expenses, or that unless they were paid out of the estate, the statutory beneficiaries would be liable to do so.  He seemed also to be of the view that insofar as Fong & Ng had so claimed or asserted, they were doing so for the benefit of the 3^rd and 4^th defendants.

55.  It also appeared that he was of the view that the 3^rd and the 4^th defendants were responsible for such misconduct.

56.  I believe that insofar as the learned judge seemed to have ordered the 3^rd and 4^th defendants to pay the costs of the O.62 r.8 proceedings, the learned judge was wrong.  I say “seemed” because it is not clear from the judgment whether he had indeed so ordered.  Nor did he make clear whether that was so when he gave leave to appeal.  But on a fair reading of the judgment he seemed to have done so.  I have proceeded on that basis.

57.  It is quite clear that from the correspondence referred to above, there was no intimation that the outcome of the O.62 r.8 proceedings might also affect the 3^rd and 4^th defendants.  As Mr Peter Ng, SC, who appeared for the 3^rd and 4^th defendants submitted, those proceedings did not concern the 3^rd and 4^th defendants since they were not applying for Fong & Ng to bear costs personally.  On that basis, they had been excused from attending and did not attend the hearing.

58.  I also doubt whether the learned judge had truly taken heed of the decision of the Court of Final Appeal in Ma So So Josephine v Chin Yuk Lun Francis and Anor [2004] 7 HKCFAR 300 when he proceeded in the O.62 r.8 proceeding to find misconduct against Fong & Ng and by extension the 3^rd and 4^th defendants.

59.  There, the Chief Justice said:

“

8.

It is fundamental to understand that the jurisdiction under [O.62 r.8] is a summary jurisdiction and should be strictly confined to questions which are apt for summary determination …”

60.  That is why normally allegations of breach of duty relating to the conduct of the case should be confined strictly to cases such as:

“	Failures to appear, conduct which leads to an otherwise avoidable step in the proceedings or the prolongation of a hearing by gross repetition or extreme slowness in the presentation of evidence or argument …”  per Lord Hope of Craighead in Harley v McDonald [2001] 2 AC 678 (at para. 50).

61.  Lord Hope went on to say:

“

53.

… Allegations that may raise questions about duties owed to the client by the barrister or solicitor and the conduct of the case outside the courtroom are unlikely to be of that character.  They are likely therefore to fall outside the scope of that inquiry.  The court must bear in mind that it is not its function, in the exercise of this jurisdiction to adjudicate on the position as between the client and his barrister or solicitor.”

62.  Yam J said:

“

52.

Cai and his niece Cai Xiu Zhu then made a solemn declaration for all the statutory beneficiaries on 19 January 2004.  Some of the facts were disputed by Mr Fu.  In the summary jurisdiction of the court under O.62 r.8, I would assume those facts in favour of Mr Fu.  However some of the facts are not in dispute and some inferences are irresistible to be drawn.  I therefore would only rely on those ‘facts relating to the conduct of the case that are immediately and easily verifiable’ Lord Hope of Craighead in Harley v. McDonald [2001] 2 AC 678 at 703 para.53.”

63.  Unfortunately, it is not clear what inferences the learned judge regarded as irresistible.  Nor do I see how it was possible for the learned judge to resolve the serious factual disputes between Fong & Ng and 1^st defendant as well as the 5^th defendant.

64.  Since Fong & Ng’s appeal had been dismissed by consent, it would not be appropriate for me to say whether the order which was made against them should have been made.  But I am clearly of the opinion that insofar as the learned judge ordered the 3^rd and 4^th defendants to pay the costs of O.62 r.8 proceedings, he was wrong.  It was inappropriate in the O.62 r.8 proceedings to deal with serious allegations of misconduct.  So any purported finding against the 3^rd and 4^th defendants must be set aside.  Since I have not heard submission on this, I would say no more than that it is also seriously arguable that the alleged misconduct might have insufficient causal link with most, if not all, of the costs of the proceedings.

65.  As for the costs of the proceedings, it seemed that the learned judge also came to the conclusion that the 3^rd and 4^th defendants should pay them because of the misconduct on the part of Fong & Ng.  Hence they were ordered to pay those costs on an indemnity basis.  To be fair to the learned judge, when I say he seemed to have ordered costs against the 3^rd and 4^th defendants for the misconduct of Fong & Ng, I should say that the learned judge seemed also to have been of the view that the 3^rd and 4^th defendants themselves were guilty of misconduct.  However, it seemed that view is based on the findings he made as a result of the O.62 r.8 proceedings, which the 3^rd and 4^th defendants had not attended.  I do not believe it is fair or appropriate for a party to be found guilty of misconduct arising out of findings made after a hearing in their absence.

66.  The parties were agreed that since the learned judge’s decision against the 3^rd and 4^th defendants was based on misconduct and that the learned judge did not seem to have exercised his discretion on any other basis, we should exercise our discretion if we thought the learned judge was wrong on misconduct.  The parties have not asked that the matter be returned to the learned judge for a proper adjudication.  None of the parties contended that insofar as the costs of the proceedings were concerned, this is a case where an indemnity costs order against the 3^rd and 4^th defendants could be justified.

67.  In the carefully prepared written submissions supplied to the learned judge, there was an alternative basis upon which the learned judge might have ordered the costs of the proceedings on the party and party basis against the 3^rd and 4^th defendants, namely, that they were responsible for the commencement and subsequent termination of the present proceedings.  It is not apparent from the judgment that the learned judge had taken these submissions into account.  There was no reference to any of the arguments addressed to him.

68.  It is clear that at least from LCL’s letter of 17 August 2002, the 3^rd and 4^th defendants were responsible for the continuation of the proceedings.  Had they not sought to be joined, the present proceedings could have been brought to a speedy conclusion.  Bermuda Trust would have been directed to await a claim by the 3^rd and 4^th defendants.  The common sense view of the matter is that the 3^rd and 4^th defendants were responsible for the continuation of the proceedings.  Moreover, we are of the view that they were also responsible for the commencement of the proceedings.  They were responsible for Fong & Ng’s initial claim by letter dated 13 June 2002 which was prompted by the 3^rd defendant’s letter of 12 June 2002.  Indeed, common sense tells one that the Joint Instructions referred to in para. 19 above could be said to be a product of the 3^rd and 4^th defendants’ claim.

69.  Mr Ng submitted that ordinarily the general rule is that a defendant is entitled to costs when an action is discontinued.  Generally, it would be very unusual for an order for the payment of the costs by the party against whom the party was discontinuing to be made.  But in a suitable case, a defendant may be deprived of his costs or he may even be ordered to pay the costs of the discontinuing party.  Hong Kong Civil Procedure 2008 21/5/11.

70.  It is clear in this case that the 3^rd and 4^th defendants were joined because of their claim.  It might be said that O.85 was not the appropriate mode for the commencement of the proceedings.  But there was nothing to prevent the action being converted into hostile proceedings in order to enable the 3^rd and 4^th defendants to make their claim.  In the event, it was unnecessary to proceed because the 3^rd and 4^th defendants no longer wished to pursue their claim.

71.  In Ta Tung China & Arts Ltd v Fontana Restaurant Ltd and Ors [1999] 1 HKLRD 404, the Court of Appeal said that there are two ways in which a party could have the matter of costs determined if the substantive issues had become academic.  First, he might apply for leave to discontinue the action and ask for the costs to be determined.  It would be very unusual though for an order for the payment of the costs by the party against whom the party was discontinuing to be made.  Secondly, the parties could go to trial and have the costs dealt with after trial.  The issues on such a trial would be extremely limited.

72.  The situation in this case is different.  There would have been no proceedings at all but for the 3^rd and 4^th defendants’ claim to be paid.  They were joined in order for that claim to be pursued.  They decided not to pursue their claims by way of separate proceedings or by way of a claim made in the present proceedings.  So this is not a case where the plaintiff’s claim had become academic.  This is a case where the 3^rd and 4^th defendants having indicated that they wanted to make a claim, and were joined as parties to enable them to claim, later decided for reasons best known to themselves, not to make any claim.

73.  In such circumstances, I believe the proper order is that costs should be borne by the 3^rd and 4^th defendants on the usual party and party basis.  But such costs would not include the costs of O.62 r.8 proceedings.

74.  Mr Ng submitted that much of the costs and delay were caused because Bermuda Trust wanted the 3^rd and 4^th defendants’ consent to discontinuance.  Mr Ng submitted that Bermuda Trust could have discontinued without leave.  But as Mr Carolan for Bermuda Trust pointed out that under O.62 r.10, had the plaintiff sought to discontinue the proceedings without leave, the plaintiff would have been liable to pay costs.  That is why the plaintiff wanted the agreement of the parties to discontinue.  Eventually, the 3^rd and 4^th defendants agreed to discontinuance in December 2003, but they wished to have the costs of the proceedings.

The 5^th defendant

75.  I turn to consider the costs of the 5^th defendant’s application to be joined as a party.  Yam J said that he would have granted the application had it been necessary for him to do so.  The joinder was opposed by the 3^rd and 4^th defendants.

76.  Insofar as the original proceedings took the form of an O.85 proceeding, I believe that it was not improper for the 5^th defendant to apply to be joined as a party.  But it is quite clear from the evidence filed on his behalf that he wished to be joined in order to make various serious allegations against the 3^rd and 4^th defendants.  Those allegations should not be dealt with in the same proceedings.  Furthermore, it was the 5^th defendant who in his written submission for costs asked that the 3^rd and 4^th defendants should bear the costs of the proceedings on an indemnity basis.  It was possible that the 5^th defendant’s serious allegations influenced the learned judge into making the order against the 3^rd and 4^th defendants.

77.  On the other hand, I should not ignore the apparent change of stance by Mr Fu.  In para. 36 above I have referred to Mr Fu’s change of position.  I have not referred to the rest of the evidence nor the factual disputes which seemed to have seriously influenced the learned judge.  I am of the view that whatever the 5^th defendant’s misgiving, he should have realised after receipt of the 2^nd affirmation of Shum Lai Kwan filed on behalf of the 3^rd and 4^th defendants on 23 September 2003 that the obligation of the statutory beneficiaries in respect of the notarial fees had been fully discharged.

78.  That being the case, I believe that the proper order is that the 3^rd and 4^th defendants should not bear the 5^th defendant’s costs in his application to be joined.  I take this course because of the confusion in the 3^rd and 4^th defendants’ position regarding the position of the statutory beneficiaries.  I believe, at one time, they shared Mr Fu’s view that the statutory beneficiaries were liable for the full amount.  However, it seems that Yam J has ordered Fong & Ng to pay the 5^th defendant’s costs as well.  If so, I would not interfere with that order.

Costs of the appeal (order nisi)

79.  So far as the appeal is concerned, the 3^rd and 4^th defendants have been partly successful.  They succeeded insofar as the order for indemnity costs as well as the costs of O.62 r.8 proceedings are concerned.  But the respondents had only put forward token resistance to the costs of the O.62 r.8 proceedings.  The hearing of the appeal was taken up by whether the 3^rd and 4^th defendants should be liable for the costs of the proceedings on a party and party basis.  On that issue, I have decided against the 3^rd and 4^th defendants.  So I am of the view that the proper order to be made in relation to the appeal is that there should be no order as to costs.  The plaintiff is of course entitled to its costs out of the estate.  The other defendants should bear their own costs.

80.  As for the 3^rd and 4^th defendants’ appeal regarding the costs of the 5^th defendant’s application to be joined, overall, I believe the appropriate order is that there should be no order as to costs.

Hon Yuen JA:

81.  The facts have been stated in Tang V-P’s judgment.  I agree for the reasons he has given that the 3^rd and 4^th Defendants should not be liable for indemnity costs on account of Fong & Ng’s actions or omissions.

82.  However as for the issue whether the 3^rd and 4^th Defendants should be liable for the inter partes costs on a party and party basis, I do not agree that the entire costs of the Originating Summons proceedings should be laid at their door. 

83.  I think Bermuda Trust would have had to issue proceedings under Order 85 in any event for the court to determine two issues: (1) whether the Notarial Fees (“the Fees”) were testamentary or administrative expenses, and (2) if they were, as the Fees were charged as a percentage of the “estate”, what was the “estate” - in light of Yam J’s judgment in the Probate Action and the Tomlin Order. 

84.  Indeed, that it was proper and necessary for Bermuda Trust to issue such proceedings, if it was unable to make a determination on those issues, was acknowledged by the 1^st and 2^nd defendants in the Joint Instructions of 27 June 2002 (see para. 19 of Tang V-P’s judgment).

85.  Subsequently in a letter dated 17 July 2002, Bermuda Trust expressed its view on the two issues.  On issue (1), it took the view that the Fees were not testamentary or administrative expenses as it had been appointed administrator by Yam J. under s.36 Probate and Administration Ordinance Cap.10, and so, it asserted, the Notarial Certificates (“the Certificates”) should not be included in testamentary or administrative expenses. 

86.  However it appears that in taking this view, Bermuda Trust did not take into account the indisputable fact that when the Probate Registry required the production of the Certificates before it would grant Letters of Administration a year before, Bermuda Trust did not seek to argue with the Probate Registry that the Certificates (be they original or certified copies) were not required.  It took the path of least resistance and provided certified copies (given by the 1^st Defendant’s then solicitors without his consent) to the Probate Registry. 

87.  In any event, as the only parties to the Probate Action were the 1^st Defendant and the 2^nd Defendant, the Probate Registry was at least arguably right to require production of the Certificates in order to identify whether any persons who were not parties to the Probate Action have been passed over by the judge’s order for the discretionary grant under s.36, such as the deceased’s parents or other siblings.

88.  As for issue (2), Bermuda Trust’s point of reference was the value of the deceased’s estate as per Yam J’s judgment in the Probate Action.  However after the Tomlin Order, it was certainly an arguable question whether the value remained crystallized at the time of that judgment.  The terms of the Tomlin Order were structured in such a way that all the deceased’s assets (including the DMC assets) were placed into one pot which the parties termed “the estate”, which was then split 50-50 between the 1^st Defendant (and those he represented) and the 2^nd Defendant. 

89.  Accordingly, whilst Bermuda Trust expressed its views on the two issues in July 2002 one way, the issues were not so clearcut that it could do without the security of an order from the court, and so it was proper and necessary for Order 85 proceedings to be commenced.

90.  Although there was some confusion and a certain amount of posturing in the correspondence between the respective solicitors after the commencement of proceedings, in my view it was not until the 3^rd and 4^th Defendants asserted an alternative claim in debt on oath (Ip Yiu’s affirmation, 10 February 2003) - followed by the 1^st Defendant’s split from Fong & Ng - that the Originating Summons proceedings took a different (and eventually abortive) turn.

91.  Accordingly it would not be right or fair to make the 3^rd and 4^th Defendants bear costs before 10 February 2003.  In my view the 3^rd and 4^th Defendants should bear their own costs before that date,  and the costs of Bermuda Trust and the 1^st and 2^nd Defendants should be borne by the estate, with Bermuda Trust’s costs to be taxed on the Trustee basis.  After that date, the 3^rd and 4^th Defendants should bear the costs of the Originating Summons proceedings on a party and party basis, save for the intended 5^th Defendant’s application for joinder, for which the intended 5^th Defendant should not be awarded costs for the reasons set out in Tang V-P‘s judgment.  

92.  As for the costs of the appeal, I would give an order nisi that as the 3^rd and 4^th Defendants have had to lodge this appeal in order to set aside the judge’s order for indemnity costs, they should be entitled to half of the costs of the appeal.

Hon A Cheung J:

93.  I agree with the judgment of Tang VP and the costs orders he proposes. 

94.  The Judge ordered costs against the solicitors on an indemnity basis pursuant to Order 62 rule 8.  The solicitors initially appealed from the order, but eventually abandoned the appeal.  In those circumstances, this Court does not need to consider the position of the solicitors or the appropriateness of the order that has been made against them, which still stands.

95.  However, the order illustrates the potential pitfall to solicitors acting for a party in litigation upon the instructions given not by that party directly, but by a third party in the name of the former.  Thus in the present case, the solicitors acted in the name of the 1^st defendant upon the instructions of the 3^rd defendant, who gave the instructions to the solicitors pursuant to powers of attorney that it had obtained from the 1^st defendant and the other statutory beneficiaries.

96.  This sort of situations can happen under a variety of circumstances.  Apart from the case of an attorney suing in the name of the donor under a power of attorney, examples that readily come to mind are cases where an insurer defends proceedings, such as a personal injuries claim, in the name of the insured; and an infant or patient suing or defending proceedings by a next friend or guardian ad litem.

97.  Sometimes, the third party giving instructions to the solicitors to act in the name of another in litigation does so without having any substantial personal interest in the matter.  A good example is a parent suing or defending proceedings in the name and for the benefit of his or her infant child.  In other situations, the third party giving instructions to the solicitors may have a substantial interest in the proceedings, such as an insurer defending a claim made against an insured in, say, a road traffic claim.

98.  In the latter situation, most of the time the interest of the third party giving instructions to the solicitors and that of the person in whose name the solicitors conduct the relevant proceedings are the same.  However, there may be occasions when their interests actually or potentially conflict.  What should the solicitors do?  Groom v Crocker [1939] 1 KB 194 provides an illustration of the danger to the solicitors of blindly following the instructions given by the insurer of an insured who was sued in a road traffic claim.

99.  Yam J thought, on his view of the facts, that Fong & Ng were faced with “a dire conflict of interest” between the statutory beneficiaries as donors and the 3^rd defendant as donee under the powers of attorney (para 81 of the judgment).  In a nutshell, he made an adverse costs order against the solicitors on the basis that they failed to deal with the conflict of interest properly.  As the appeal by the solicitors has been abandoned, it is not necessary to deal with the question of whether the Judge was right or wrong in his view.  Nor is it desirable to do so in the absence of detailed arguments from counsel on this question.

100.  However, speaking for my part, I do perceive this as a potentially important matter which the profession should pay specific attention to when agreeing to litigate in the name of one person on the instructions of another.  The solicitor must watch out for any actual or potential conflict of interest between the person giving him or her the instructions and the person in whose name the litigation is conducted.  An adverse costs order such as the one made by the Judge against a firm of solicitors could, depending on the facts and actual amount of costs involved, have disastrous consequences upon the solicitors involved, which could be quite disproportionate to the gravity of whatever “misconduct” that the solicitors might have been guilty of.

101.  Taking the matter a step further, the appeal brought by the 3^rd and 4^th defendants actually touches on a separate but related question, namely the position of someone in the situation of the 3^rd defendant, a donee under a power of attorney, or expressed more generally, the position of someone who has been authorised or entrusted with the responsibility by another person to instruct solicitors to commence or defend proceedings in the latter’s name.  Apart from the donee under a power of attorney (like the 3^rd defendant in the present case), using the examples that I have given above, an insurer and a parent acting as a next friend or guardian ad litem of an infant in litigation also stand in such a position.

102.  What should such a person do when, during the course of the litigation, his own personal interest under his arrangement with the person in whose name the litigation is being conducted by the solicitors should actually or potentially conflict with that other person’s interest?  What if, subjectively and genuinely, he does not perceive any such conflict of interest even though objectively, such a conflict or potential conflict has arisen?  And what if the solicitors whom he has instructed to conduct the proceedings in the name of another also, rightly or wrongly, fail to perceive the conflict or potential conflict?  And what if, in the case of a donee under a power of attorney, one of the reasons for giving the power of attorney in the first place was to secure the donee’s own interest in the subject matter/transaction?  What should he do?

103.  Having raised all these questions, I must emphasise that in this appeal and the judgment below, what was and is in issue is not whether anybody is guilty of breach of any duty (fiduciary or otherwise) as such. What is in issue is what should be the appropriate costs order.  However, depending on the facts and on whether those facts are disputed, the question of costs could be dependent on or related to the question of breach/misconduct (if any). 

104.  On the facts of the present case, counsel did not find it necessary to address any of these general questions.  In those circumstances, I do not find it at all appropriate to express any general view on them.

105.  In the present case, I agree that the 3^rd and 4^th defendants genuinely believed that the quantum of the notarial and handling fees which they claimed was the correct figure.  I further agree that on the materials before the Court, they had more than reasonable grounds for their belief.  Moreover, on their account of what had happened (which should be assumed to be correct insofar as the 3^rd defendant is alleged to have “misconducted” itself by abusing the authority given to it in the powers of attorney), the statutory beneficiaries had not raised any objection to the quantum claimed by them at the relevant time.  The 3^rd and 4^th defendants instructed the solicitors to seek, in the name of the 1^st defendant, recovery of the remaining 50% of the notarial and handling fees from the estate (and through the estate, the 2^nd defendant).  The solicitors themselves did not perceive any conflict or potential conflict and rendered no advice whatsoever to that effect to the 3^rd and 4^th defendants.  In those circumstances, I fail to see how the 3^rd defendant could be said to have abused the authority that the statutory beneficiaries had given it pursuant to the relevant powers of attorney.  As Mr Peter Ng SC for the 3^rd and 4^th defendants has submitted, the solicitors were there to advise the 3^rd defendant, and not the other way round.  If the solicitors themselves, rightly or wrongly (on which I do not wish to express any view), did not perceive any conflict or potential conflict, certainly, for the purposes of costs, the 3^rd defendant should not be blamed if it did not see any either.

106.  In those circumstances, the Judge’s reasons given for making the 3^rd and 4^th defendants liable for the costs of the proceedings on an indemnity basis totally fall apart.

107.  On top of all this, assuming that the Judge was correct in his view regarding the solicitors’ mishandling of the whole matter after the three-day Order 62 rule 8 hearing, in my view, he ought to have given the 3^rd and 4^th defendants an opportunity to address the Court on their liability towards costs (if any) before making the draconian costs order against them.  This is so because (a) there was no advance warning to the 3^rd and 4^th defendants that depending on the outcome of the Order 62 rule 8 hearing, the Court would be minded to make an adverse order on costs against the 3^rd and 4^th defendants for the whole proceedings on an indemnity basis, as a result of which the 3^rd and 4^th defendants did not even bother to take part in the three-day Order 62 rule 8 hearing and the Judge did not invite them to so attend; and (b) the Judge’s view on the solicitors’ conduct in the whole matter obviously had an important bearing on his view on the responsibility of the 3^rd and 4^th defendants for the costs of the proceedings and the basis of taxation.  In those circumstances, it was only fair that the Judge should have given the 3^rd and 4^th defendants an opportunity to address the Court on whether they should be made liable for the costs of the proceedings, particularly on an indemnity basis, alongside the solicitors, after the Judge had decided on the Order 62 rule 8 question.  Unfortunately, they were not afforded such an opportunity.

108.  For these reasons as well as those given by Tang VP, I agree that the indemnity costs orders against the 3^rd and 4^th defendants made by Yam J should be set aside. 

109.  For the reasons given by Tang V-P, I agree that the 3^rd and 4^th defendants should bear the costs below (on a party and party basis), save for the costs relating to the intended 5^th defendant’s joinder application and those relating to the Order 62 rule 8 proceedings.  All I wish to add is that whilst as Yuen JA has pointed out, the administrator had its own reasons to take out the Order 85 proceedings in the first place, the history of the matter remains that it was the subsequent intervention of the 3^rd and 4^th defendants and in particular, their assertion of an alternative claim in the Order 85 proceedings, which led the proceedings to take a different and abortive turn.  And when the proceedings were aborted, all costs that had been incurred, including those that had been incurred by the administrator and the 1^st and 2^nd defendants prior to the 3^rd and 4^th defendants’ joinder or assertion of an alternative claim, were essentially thrown away.  The fact that the 3^rd and 4^th defendants only joined in midway does not mean that they did not cause the wasting of the pre-joinder/assertion costs.  In those circumstances, I agree that the 3^rd and 4^th defendants should be made responsible for the costs of the entire proceedings (subject to the exceptions mentioned).

110.  As for the costs of the appeal, I agree with the reasons given by Tang V-P and the order he proposes.  In my view, setting aside the indemnity costs order is just the first hurdle that the 3^rd and 4^th defendants have to overcome in this appeal.  It is not the end of the matter, nor is it a freestanding matter by itself.  It only means that the costs below have to be dealt with afresh.  And since the 3^rd and 4^th defendants have not in their notice of appeal or supplemental notice of appeal put forward the costs order that both Tang V-P and I favour as the order that they ask this Court to make in respect of the costs below, they cannot be said to be wholly or substantially successful in the appeal.  In those circumstances, looking at the matter in the round, I agree that “no order as to costs” is a fair order to make in respect of the costs of the appeal.

Hon Tang VP:

111.  The appeal by the 3^rd and 4^th defendants is allowed, the order of Yam J dated 10 March 2006 as affects the 3^rd and 4^th defendants is set aside.  The 3^rd and 4^th defendants are ordered to pay the costs of the proceedings, but not the 5^th defendant’s costs or the costs of the O.62 r.8 proceedings.  Orders nisi in respect of the costs of the appeal that there be no order as to costs, save that the plaintiff will have its costs out of the estate.