ERIC EDWARD HOTUNG v. HO YUEN KI AND OTHERS

HCA 571/2003

HCMP 2820/2002 and

HCMP 4511/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 571 OF 2003

MISCELLANEOUS PROCEEDINGS NOS. 2820 and 4511 OF 2002

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AND

MISCELLANEOUS PROCEEDINGS NO. 2820 OF 2002

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BETWEEN

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AND

MISCELLANEOUS PROCEEDINGS NO. 4511 OF 2002

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(Consolidated by the order of Deputy High Court Judge To

dated 10 April 2003)

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RULING ON ORDER AND COSTS

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1.  The parties were unable to agree on the terms of my order. Nor on costs.

2.  According to the plaintiff, having regard to paragraphs 124, 125, Nos. 128 and 129 of my judgment, the plaintiff is entitled to the following orders:

“	1.	The Ho-Trusts (as pleaded in paragraph 4 of the Re-Re-Amended Statement of Claim) were subject to the condition that the 1st Defendant was not to and was not permitted to interfere in or with the affairs and management of Hotung Enterprises Limited and Hotung Investment (China) Limited.
	2.	the Hillhead-Trusts (as pleaded in paragraph 5 of the Re-Re-Amended Statement of Claim) were subject to the condition that the 4th Defendant was not to and was not permitted to interfere in or with the affairs and management of Hotung Enterprises Limited and Hotung Investment (China) Limited.
	3.	Despite the setting up of the Ho-Trusts and the Hillhead Trusts the Plaintiff were and are still entitled to retain control over the administration and management of Hotung Enterprises Limited and Hotung Investment (China) Limited without any interfere from the 1st Defendant or the 4th Defendant.
		…
	5.	The 1st Defendant be restrained from acting upon the instruction or purported instruction of the 2nd and 3rd Defendants as mentioned in paragraph 15(a) of the Re-Re-Amended Statement of Claim until the death of the Plaintiff or until such time as the Plaintiff expressly relinquishes his right to manage the companies referred to therein, whichever is earlier.
	6.	The 4th Defendant be restrained from acting whether by its directors or agents or otherwise howsoever upon the instruction of the 3rd Defendant, made purportedly in his capacity as the purported trustees of the beneficial interest of the 5th and 6th Defendants, as mentioned in paragraph 15(b) of the Re-Re-Amended Statement of Claim until the death of the Plaintiff or until such time as the Plaintiff expressly relinquishes his right to manage the companies referred to therein, whichever is earlier.
	7.	The trust deeds pleaded in paragraphs 11(a) and 11(c) of the Re-Re-Amended Statement of Claim be rectified by inserting thereto provisions stipulating that the Ho-Trusts are subject to the condition set out in paragraph 1 hereinabove.
	8.	The trust deeds pleaded in paragraphs 11(b) and 11(d) of the Re-Re-Amended Statement of Claim be rectified by inserting thereto provisions stipulating that the Hillhead-Trusts are subject to the condition set out in paragraph 2 hereinabove.”

3.  In the Re-Re-Amended Statement of Claim one of the conditions relied on by the plaintiff was that:

“

(c)

that the trustee was not to be concerned with and would be relieved of all duties regarding the management of the company to which the shares related.”

4.  This condition is the foundation for the above orders.

5.  Little submission was made at the trial on the meaning or effect of this condition.  Nor was any submission made to me on the form of the order in the event that this was the only condition established by the plaintiff.

6.  I had not found that to be a condition of the trust.  Nor would I make any of these orders.

7.  The condition as pleaded has little meaning, since the trustees as trustees of the shares were not obliged to manage any of the companies.  It was not the plaintiff’s case that the trustees were required to turn a blind eye to mismanagement or that the trustees should not look after the interests of the beneficiary as shareholders.  Nor did it purported to qualify or limit the right of the trustees as shareholders or their duties towards the beneficiaries.

8.  I did not deal with this condition at any length in my judgment because of the possibility of litigation over the plaintiff’s management of the companies.  Mr Steven Kwan who appeared for the plaintiff accepted that when the plaintiff managed the companies he must do so as a fiduciary. I think certainly so vis-à-vis the companies.  Possibly also as constructive trustee owing fiduciary duties to the children too.  I did not decide the point. It was not for me to decide.  Nor do I decide it now.  Having regard to the potential liabilities of the plaintiff and the 1^st and 4^th defendants, I say nothing more about this “condition”.

9.  The order I would make is simply that the plaintiff's claim be dismissed with the exception that in relation to one share in HEL currently held by the 1^st defendant, I will make an order in the following terms: 

“	The one share in Hotung Enterprises Limited held by the 1st Defendant in favour of the plaintiff prior to 17 September 1979 and now standing in the name of the 1st defendant is held by her on trust for the plaintiff absolutely”.

I understand that no consequential order is required.

Costs

10.  I have no doubt that costs should follow the event.  And that the 2^nd, 3^rd and 5^th defendants (the defendants) should have the costs of the consolidated action against the plaintiff.

11.  It was submitted on behalf of the plaintiff that the defendants should be deprived of or ordered to pay costs because the defendants’ conduct in the preparation of witness statements and in giving evidence have unnecessarily lengthened the proceedings and occasioned additional expense.  Mr Kwan submitted that the least I should do is to order the defendants to pay the plaintiff's costs attributable to such conduct.

12.  I appreciate that in some of the witness statements filed on behalf of these defendants serious allegations were made against the plaintiff.  Eventually the litigation was conducted without undue personal animosity.  But it was obvious that there was little love or respect on both sides of this family.  Also Anthony probably gave evidence because of the serious (but unfounded) insinuation made against him.  In all the circumstances, I do not believe I should order the defendants to pay any costs or to deprive them of any costs.  Nor do I think the fact that the plaintiff had succeeded in relation to 1 out of 20,004 shares in HEL makes any difference.  So the order I make is that the plaintiff should pay the costs of the defendants in the consolidated action.

13.  The defendants asked for costs against the plaintiff on an indemnity basis.  I see no good reason for ordering costs on that basis and I would not do so.

14.  I turn to consider the costs of the 4^th defendants.  On 10 April 2003 on the 4^th defendant’s Beddoe application, Deputy Judge To ordered by consent that:

“	1.	HCMP no. 2820 of 2002, HCMP no. 4511 of 2002 and HCA no. 571 of 2003 shall thereafter proceed as one action and the consolidated action shall be HCA no. 571 of 2003 (“the Consolidated Action”) and the 2nd Defendant herein shall be the Plaintiff in the Consolidated Action.
	2.	the Plaintiff (the 4th defendant) herein shall take a neutral stance in the Consolidated Action, namely, it shall put in a formal Defence, give discovery of all relevant correspondence, take such steps as the Court may direct and agree to be bound by the Court’s judgment in the Consolidated Action.
	3.	Without prejudice to any costs order that maybe made in the Consolidated Action, the costs of the Plaintiff herein in defending the Consolidated Action should be paid by the losing party in the Consolidated Action and insofar as those costs cannot be recovered from the losing party, they should be paid out of the trust assets.”

The costs of the 4^th defendant are not controversial and I order that the 4^th defendant’s costs in the consolidated action to be borne by the plaintiff, such costs to be taxed if not agreed on the party and party basis.  Subject thereto, the 4^th defendant’s costs may be taxed and paid out of the trust assets on the trustee basis.

15.  I turn to the 1^st defendant.  The 1^st defendant had not applied for a Beddoe order.  Mr Yin, who appeared on behalf of the 1^st defendant, asked for an order similar to that which I would make in favour of the 4^th defendant.

16.  So far as the plaintiff is concerned the plaintiff accepted that the 1^st defendant was entitled to costs from the plaintiff.

17.  The fact that the 1^st defendant had not applied for a Beddoe order would not necessarily disqualify her from an order for costs against the trust assets.

18.  Mr Yin has referred me to O. 62 r. 6(2), which provides that the court may only deprive her of costs against the trust assets only on the ground that she has acted unreasonably.

19.  Mr Yin admitted that although the 4^th defendant had behaved reasonably in applying for a Beddoe order and took no steps in the proceedings (apart from giving discovery and filing a formal defence) and agreed to be bound by the court's judgment, the 1^st defendant was not unreasonable in not doing the same.

20.  I think it is obvious where the 1^st defendant’s sympathy laid.  But I have to ask myself whether she has acted unreasonably.  Moreover I have to ask myself whether I should not at least let her have such costs as a hypothetical reasonable trustee might have incurred.

21.  I think the 1^st defendant has acted unreasonably.  She had no interest to serve in this proceedings at all.  She was not concerned with the beneficial ownership of the shares.  She should have taken no part in the proceedings.  I believe that had she applied for a Beddoe order she would have been directed to take a neutral stance and to take no part in the proceedings other than filing a formal defence and making discovery.  The question here is whether I should make an order in her favour to cover the difference between party and party costs and trustee’s costs confined to such costs.  I believe such difference is likely to be small and the ascertainment of such costs difficult because of the active part she has taken in the proceedings.  Any such order will add to costs.  In all the circumstances, I would not make such an order. 

22.  Lastly, I turn to consider the 3^rd defendant’s application relating to HCMP 2820 of 2002, HCMP 4511 of 2002.

23.  HCMP 2820 of 2002 was the action brought by Sean to compel the 4^th defendant to execute a power of attorney, essentially, giving to Sean, the power to vote under the Hillhead trusts.  HCMP 4511 of 2002 was an action by Sean against the 4^th defendant as holder of 10,002 shares in HEL to convene an EGM pursuant to section 113 of the Companies Ordinance.

24.  Neither action had been pursued by the 3^rd defendant after the order of the consolidation made by Deputy Judge To of 10 April 2003.  I am bound to say that I thought that they had taken overtaken by event and the 3^rd defendant had not intended to proceed with them.

25.  Mr Egan submitted that that was not so, and that the 3^rd defendant now wishes to have directions for the further conduct of those proceedings.  It is now too late.  Even if I have a discretion to allow those two proceedings to proceed because I am not yet functus, I do not believe in the circumstances of this case I should do so.  Not least because I did not believe it will serve any useful purpose.  If Sean now wishes to request the 4^th defendant to take any action in relation to the shares in HEL, he can do so.  If the 4^th defendant refuses, and he thinks that is wrong, he can start new proceedings.  It seems quite clear that the 4^th defendant would have complied with reasonable requests from the 3^rd defendant but for the plaintiff’s claim.  No doubt the 4^th defendant was aware that even as bare trustees they might under suitable circumstances come under an obligation to protest trust assets.