WONG JENNIFER CHUI CHUN v. CAI GUO XIANG AND OTHERS

CACV 338 /2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL No. 338 of 2007

(ON APPEAL FROM HCA No. 65 of 2004)

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DECISION

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Hon. Yuen JA:

1.  This is an application for security for costs of an appeal by the 4^th - 7^th  Defendants against a judgment of Poon J given on 26 July 2007.  The applicant is the daughter of the Plaintiff who died after judgment.  She has been appointed to represent the Plaintiff’s estate by order of the court dated 26 February 2008. 

2.  The application for security for costs has been resisted on the ground that the appeal is so meritorious that the court should exercise its discretion not to order security, and also that even though the 4^th - 7^th Defendants reside out of the jurisdiction, they have sufficient assets within the jurisdiction so there will be no difficulty enforcing an order for costs against them.

Background

3.  In view of the 4^th - 7^th Defendants’ submissions on the merits of their appeal, it is necessary to describe the background to the appeal. 

4.  In 1996 Choy Ching Ming (“the Deceased”) died.  He had some relatives (his brother and some nephews and nieces) living in the PRC.  I will refer to them collectively as “the Relatives”.  Under the Intestates’ Estates Ordinance, Cap. 73, they would be the beneficiaries of the Deceased’s entire estate if he died intestate without leaving a spouse.  

5.  In the 1960's and 1970's, the Deceased had a relationship with the Plaintiff Madam Ng Kwan Ying (“Madam Ng”) before she left Hong Kong to reside in the United States.  Claiming to be the Deceased’s lawful kit-fat wife, she entered a caveat in the Probate Registry.  If she succeeded in that claim, the Relatives would get less.

6.  Before the Deceased died, he lived with Madam Elsa Mok Hang Won (“Madam Mok”).  Madam Mok also claimed that she was the Deceased’s lawful kit-fat wife.  That claim would be defeated if the Deceased was still married to Madam Ng.  However Madam Mok also claimed that the Deceased  had signed a will leaving his entire estate to her.  If she succeeded in that claim, the Relatives and Madam Ng would get nothing.

Deed of Family Arrangement

7.  After they became aware of Madam Mok’s claim, the Relatives and Madam Ng came to an arrangement which was contained in a Deed of Family Arrangement.  The Nanyang Commercial Bank Trustee Ltd (“NCB”) was also a party to the Deed.

8.  In the recital to the Deed it was recorded that the Relatives and Madam Ng were

“desirous of avoiding any dispute and litigation on the issue of whether or not [Madam Ng] is the lawful kit-fat wife of the Deceased and/or she is lawfully entitled to share in the estate of the Deceased.  The [Relatives] are agreeable to distributing part of the residuary estate of the Deceased in the manner as hereinafter appearing to [Madam Ng] in full and final settlement of any and all of her claims against the estate of the Deceased and [Madam Ng] is agreeable to accepting the same”: clause (7). 

It was also recorded in the recital that

“notwithstanding the provisions of the Intestates’ Estates Ordinance, Chapter 73, the [Relatives] and [Madam Ng] have agreed that the estate of the Deceased shall, after deduction of all necessary expenses as more particularly set out in the Schedule hereto, be divided in the manner as herein contained”: clause (10).

The manner of division and distribution was set out in clause 9 of the Deed, and is reproduced below.

9.  The parties to the Deed agreed that Madam Ng would withdraw her caveat: clause 5, and that the Relatives and Madam Ng would not make any claims to any part of the Deceased’s estate other than in accordance with the terms and conditions set out in the Deed: clause 10.  It was agreed that (clause 9):

“upon the realisation or conversion into cash of all the realty and personalty of the estate of the Deceased by [NCB] and after the deduction of all necessary expenses as more particularly set out in the Schedule hereto, the net residuary estate shall be divided and distributed to the [Relatives] and [Madam Ng] in the following manner, namely:-

(a)    [the Deceased’s brother] shall have 20% thereof;

(b)    [the Deceased’s niece surnamed Cai] shall have 20% thereof;

(c)    [the Deceased’s other nephews and nieces surnamed Zhang] shall jointly have 20% thereof in their respective equal share; and

(d)    [Madam Ng] shall have the remaining 40% thereof”. 

10.  It was agreed that NCB in its capacity as the lawful attorney of the Deceased’s brother shall apply to the High Court of Hong Kong for a grant of letters of administration to the Deceased’s estate: clause 2.  More importantly for present purposes, it was further agreed that (clause 21):

“In case probate action has to be taken out against Madam Mok, [NCB] shall have absolute power to commence ... and to conduct the action or other proceedings as to protect and enforce the interest of [the Relatives] and the said [Madam Ng] in the estate of the Deceased. ...”  (Emphasis added).

Probate Action 13/1997

11.  A Probate Action was indeed taken out by NCB as the attorney of the Deceased’s brother against Madam Mok.  It was heard by Yam J.

Yam J’s judgment

12.  Yam J held that the will propounded by Madam Mok was not valid but he found that the Deceased had made her a donatio mortis causa gift of the contents of a safe deposit box which the judge found contained the bulk of the Deceased’s property.  Yam J also appointed Bermuda Trust (Hong Kong) Limited, now HSBC Private Trustee (Hong Kong) Limited to be administrator (“the Administrator”).  

Civil Appeals 826/2001 and 1089/2001

13.  Both parties appealed against Yam J’s judgment.  However before the appeal was heard, a settlement was reached.  In the words of the solicitor acting for the appellants in this appeal (Ku Ling Yu John, Aff. 30 April 2008, para. 8):

“in the upshot, Mok agreed to taking only (approximately) 50% of everything, foregoing the rest”.  (Emphasis added).  

Tomlin Order

14.  A Consent Summons containing a Tomlin Order was filed in court on 28 May 2002.  This provided that the appeals be stayed on terms set out in the Schedule, the material one of which was:

“The Plaintiff and the Defendant shall ... jointly instruct the Administrator,  Bermuda Trust (Hong Kong) Limited, to forthwith distribute the net estate of the Deceased in the following manner:-

(1)    to pay the sum of HK$15,000,000 to Rosa Chan Yam in full and final settlement of all her claims against the estate of the Deceased,

(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 Plaintiff and the Defendant”.     

“Net estate”

15.  As the donatio mortis causa gift formed the bulk of the Deceased’s property, if by “net estate” the parties meant the estate as found by Yam J, i.e. excluding the donatio mortis causa gift, there would not even have been enough funds to satisfy the obligation under para. (1) to pay Rosa Chan Yam.  It would then have made no sense for the parties to agree to para. (2).  It follows that what the parties must have meant by the term “net estate” was the estate as found by Yam J including the donatio mortis causa gift but after deduction of expenses.

Distributions

16.  On that basis, sizeable distributions were made in 2002 by the Administrator to the Relatives and to Madam Ng (to the knowledge of the Relatives) in the proportion of 60:40 respectively. 

Dispute

17.  In the summer of 2003 however, a dispute arose between the Relatives and NCB as to the latter’s charges. (This eventually led to other proceedings: HCMP2953/2002, culminating in CACV143/2006).  It would appear that some of the Relatives asked the Administrator to remit the balance of the Deceased’s estate to them directly.  In light of that, in December 2003 Madam Ng through her solicitors wrote to the Relatives and to the Administrator asking the Relatives to authorize the Administrator to pay her share to her directly.  There was apparently no response.

18.  In January 2004, the niece surnamed Cai purported to revoke the promise to give Madam Ng 40% of the Deceased’s estate and required the Administrator to make larger payments to herself.

HCA 65/2004

19.  This caused Madam Ng to commence HCA 65/2004 against the Relatives, joining the Administrator as the 8^th Defendant, for an injunction to restrain them from instructing the Administrator to distribute the estate to themselves and Madam Ng otherwise than according to the ratio of 60:40 respectively, and for specific performance of that agreement in the Deed of Family Arrangement.

20.  NCB, as attorney for one of the nieces Zhang Wenjing (who died in 1998), and the Administrator adopted a neutral position. 

21.  The other Relatives however alleged that on the correct interpretation of the Deed of Family Arrangement and the Consent Order, Madam Ng was only entitled to share in the Deceased’s estate in the narrow sense as found by Yam J – excluding thedonatio mortis causa gift which they claim only the Relatives were entitled to under the terms of the Tomlin Order, and counterclaimed for sums ‘overpaid’ to Madam Ng.    

Poon J’s judgment

22.  The action was heard by Poon J who held that Yam J’s judgment had been overtaken by the Consent Order, the net effect of which was that the donatio mortis causa gift now formed part of the Deceased’s estate for the purpose of implementing the distributions under the Consent Order (para. 42).  The judge held that it was inherently inconsistent for the Relatives to say on the one hand, that the donatio mortis causa gift was part of the Deceased’s estate to which they were entitled under the IEO, and yet on the other hand, that Madam Ng was not entitled to it as it was not part of the estate (para. 43).  The judge consequently granted Madam Ng the relief she sought.

CACV 338/2007

23.  The 4^th - 7^th Defendants have lodged an appeal from Poon J’s orders.

Application for security for costs of appeal

24.  This gave rise to the present application for security for costs of the appeal.

Principles

25.  The material principles governing applications for security for costs of an appeal have been summarized by the Court of Appeal in Chung Kau v Hong Kong Housing Authority and others [2004] 2 HKLRD 650 in the following way:

“(2)      ... as a matter of practice, once an applicant for security can demonstrate ... [that] some ... factor such as difficulty or expense in enforcing a costs order exists, whilst the court retains an overall discretion whether or not to make the order, it would then generally be up to the party resisting the application for security to demonstrate countervailing factors which would militate against such an order being made.  A common countervailing factor to resist applications for security are the merits of an appeal.

(3)      On a consideration of the merits of the appeal, while a detailed examination is not required (or desirable, even if possible on the materials before the court at this stage), the Court should form some sort of preliminary, even instinctive, view.  Where the merits appear to go strongly one way or the other, this may by itself be a decisive factor.  Thus, an appeal which is very strong would often be a very good reason not to order security.  The converse of course also applies.  A hopeless appeal may even by itself justify an order for security.  However, if the court takes the view that the appeal could really go either way, then generally it will look to the existence of any other factors to tilt the balance, in the absence of which, security will be ordered.  This is of course on the assumption that a factor such as impecuniosity [or difficulty or expense in enforcing a costs order] has already been demonstrated”.

Merits of appeal?

26.  I  have considered the grounds of appeal set out in the Notice of Appeal.  Contrary to the appellants’ contention, I do not consider that they have such a good case that security for costs should not be ordered.  They have accepted that the Schedule to the Tomlin Order covered the entirety of the Deceased’s property, including the donatio mortis causa gift (see paragraph 13 above).  That was the result of the probate action which under the terms of the Deed of Family Arrangement was to be conducted to ‘protect and enforce the interest’ of the Relatives and Madam Ng.

27.  The appellants through their solicitor emphasized that the recital to the Tomlin Order recorded that there was a warranty by leading counsel for the plaintiff in the probate action (who was the Deceased’s brother by his attorney, an officer of NCB) that he “represents the interests of all statutory beneficiaries who have or may have an interest upon the intestacy of ... the Deceased”.  It was argued that that description did not include Madam Ng.  However I do not see how that helps the appellants because the Relatives had themselves by the Deed of Family Arrangement agreed to distribute to Madam Ng 40% of the Deceased’s net estate (which they failed to obtain in its entirety but managed to obtain half by way of the probate action culminating in the Tomlin Order).

28.  That the agreement in the Deed of Family Arrangement applied to what the Relatives  managed to obtain under the Tomlin Order was clearly shown by the fact that they subsequently acknowledged as correct accounts showing the 60:40 proportion of distribution of the half of the Deceased’s property that they obtained under the Tomlin Order.

29.  In conclusion, I do not agree with the appellants that their case on appeal is so strong that security for costs should not be ordered.

Assets within the jurisdiction?

30.  I then come to the appellants’ argument that they have sufficient assets within the jurisdiction.  They point to the fact that the Administrator has “agreed to hold $1.5 million” which would otherwise have been distributed to the Relatives (Ku Ling Yu John, Aff. 30 April 2008, para. 27).

31.  However it is clear from the letter from the Administrator’s solicitors to Madam Ng’s solicitors dated 17 December 2007 (exh. JK-4) that all that the Administrator was doing was promise

“not [to] make further distribution ... from the Estate for the account of the [Relatives], which distribution ... would have the effect of reducing the net balance held by the Administrator on behalf of the [Relatives], after allowing for [Madam Ng’s] 40% entitlement thereof, below HK$1.5 million without first giving 14 days prior written notice to you of our client’s intention to make a distribution ... which would have that effect”.  (Emphasis added).  

32.  There is no evidence to indicate that the Relatives have instructed the Administrator to withhold distribution of $1.5 million pending 14 days notice to Madam Ng.  Even if they had given those instructions, instructions may be revoked.  In my view, given that these appellants are resident outside the jurisdiction, it is clear that Madam Ng would encounter difficulty and expense in enforcing an order for costs against them should they fail in their appeal.  However in the course of the hearing the solicitor appearing for the 4^th - 7^th Defendants was prepared to give an undertaking on their behalf in the following terms:

‘The 4^th - 7^th Defendants by their solicitor undertake that they and each of them will not whether by himself, his servants or agents or otherwise howsoever, instruct or cause the 8^th Defendant as Administrator to pay, remit or distribute the balance of the Deceased’s estate to himself, his servants or agents or otherwise howsoever, without retaining an aggregate sum of $150,000 amongst the four of them as security for costs of this appeal until after the determination of this appeal, and in the event that the appeal is dismissed, the 4^th - 7^th Defendants shall forthwith instruct or cause the 8^th Defendant as Administrator to pay the said sum of $150,000 into Court on account of any costs payable by the 4^th - 7^th Defendants to the Plaintiff’.

Estimate of costs

33.  As for the estimate of costs contained in the skeleton bill, there are a few items which were over-generous.  Taking a global view, a sum of $150,000 is a reasonable estimate of the costs involved as I cannot see the appeal lasting more than one day. 

Order

34.  Accordingly upon the 4^th - 7^th Defendants’ undertaking set out above,  I made no order on the application for security for costs.  Having heard the parties on costs, in the exercise of my discretion, I would order that the costs of and occasioned by this application be to the Plaintiff in any event.