XCHRX RE LEE MENTOR

HCAG5212/1991

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE JURISDICTION NO.5212 OF 1991

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J U D G M E N T

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1. This is an application by HSCB, the administrator ("the Administrator") of the estate of Mentor Lee, the Deceased ("the Estate"), for an order that they be indemnified on the trustee basis out of the Estate of the Deceased the costs incurred in the unsuccessful litigation with John Lee, one of the beneficiaries. These costs incurred comprised of the following items, namely :-

(a) HSBC's own costs incurred for the trial of the action and the appeal to the Court of Appeal, and the application for leave to appeal to the Final Court of Appeal; and

(b) the costs of John Lee which HSBC has been ordered to pay in full for the aforesaid proceedings.

2. The issue is basically whether the Administrator should be reimbursed and indemnified by the Estate in respect of the aforesaid costs, or whether the Administrator has to pay such costs out of its own pocket. In fact, conditional leave was given as of right to the Administrator to appeal to the Court of Final Appeal. However, having regard to the advice of leading counsel after the Court of Appeal's decision and to the strong representations of several beneficiaries against lodging the appeal, it was decided not to proceed with the appeal.

3. The main issue in the aforesaid proceedings involved whether three deposits registered in the name of John Lee were intended as gifts by the Deceased amounting to about $11 million. The Court of First Instance decided that they were not intended by the Deceased as gifts but the Court of Appeal reversed the decision and decided that in the absence of any admissible evidence, the presumption of advancement is the decisive factor and these deposits were gifts to John Lee instead of a resulting trust.

4. The Deceased died on 18 August 1991. Way back in late 1991 and early 1992, prior to the appointment of the Administrator, the widow, being the 'kit-fat' wife of the Deceased, Madam Moi, had already commenced legal proceedings, or made claims in connection with a number of bank deposits believed to belong to the Estate but actually held in the name of other persons or in joint names, including those three deposits in the name of John Lee. Upon the application of Madam Moi, and with the consent of all other beneficiaries, an order was made by Bokhary J (as he then was) on 21 February 1992 that :

(a) the Applicant and Madam Moi be appointed as administrators of the Estate pursuant to ss.26 & 36 of the PAO (Cap.10);

(b) after the grant of letters of administration, Madam Moi would renounce her administratrixship and the Applicant would become the sole administrator of the Estate;

(c) "The Trust Corporation after the grant shall continue to pursue (a) High Court Action A6726 of 1991, HCMP 3386 of 1991 and other court proceedings relating to any bank accounts (b) Claim made on all bank accounts by Madam Moi Song Eng on behalf of the estate, and (c) Claims on other bank accounts or assets as the Trust Corporation may make on behalf of the estate of the Deceased. Provided always that the Trust Corporation shall have a discretion as to the conduct of the said Actions and Claims including the discontinuance, withdrawal or compromise of any or all of the same."

(d) "The Trust Corporation shall be at liberty to retain or instruct or employ such lawyers ... as may be necessary ... and shall be reimbursed by the said estate to all professional fees and other disbursements properly incurred for and on behalf of the estate."

5. The aforesaid order was not a so-called Beddoe Order although it now turns out that the trustee Administrator was under the false impression that their costs should be reimbursed by the Estate, and hence the present application.

6. The present application was made under RHC, Order 62, rule 6(2) which provides that :

"Where a person is or has been a party to any proceedings in the capacity of trustee, personal representative or mortgagee, he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by the trustee or personal representative or the mortgaged property, as the case may be; and the Court may otherwise order only on the ground that the trustee, personal representative or mortgagee, has acted unreasonably or, in the case of a trustee or personal representative, has in substance acted for his own benefit rather than for the benefit of the fund."

In other words, the general rule is that the trustee shall, in the ordinary course of event, be entitled to be paid out of the fund held by the trustee unless the court otherwise orders on the ground that he has acted unreasonably or has in substance acted for his own benefit rather than for the benefit of the fund.

7. Usually, a trustee will protect itself in advance by getting a Beddoe Order. However, even if no Beddoe Order is applied for, the trustee is still entitled to be reimbursed of the costs out of the estate provided that these costs were properly incurred. The test is that such costs should be allowed if a judge would have authorised the claim had he been asked for a Beddoe Order in advance. In other words, the court puts itself in a position in which the court would have been had an application been made to it before commencing the claim. It has been said in Snell's Equity, 30th edition, at page 293 that :

"... If trustees omit the precaution of obtaining leave, they are still entitled to be reimbursed their costs if the action was properly brought or defended for the benefit of the trust estate even though incidentally they were defending their own character against a charge of personal fraud in respect of something connected with their administration of the trust estate. But if litigation is speculative and, in the ultimate result, unsuccessful, a trustee will usually not be allowed his costs, even though he acted in good faith and under the advice of counsel. And a trustee who unreasonably withholds trust property from a beneficiary will be ordered to pay the costs of proceedings to establish the beneficiary's claim."

In the end, it would have to be decided whether the action brought by the trustee was unreasonable or speculative.

8. It would be incorrect to view the matter as it now stands with the benefits of the decision of the Court of Appeal and to decide whether the action should be brought or not.

9. Having reviewed the strength and weaknesses of the trustee's case, I am afraid I cannot say that the action of the trustee was unreasonable or speculative. It is common ground between the parties that the following facts were accepted by both parties, namely :-

(a) The Deceased retained the original deposit receipts.

(b) The Deceased used his own address as the correspondence address for the accounts.

(c) John Lee signed blank mandates in favour of the Deceased. Although John Lee said the Deceased had told him that the money was for John Lee's use, all information concerning the deposits was sent to the Deceased. The Deceased had never told him about the particulars of the account or the money paid in or taken out.

(d) All monies credited to the three accounts, both initially and upon numerous subsequent occasions, were paid in by the Deceased from his own money or accounts controlled by him. The Deceased thus took money from other accounts he controlled and mixed it with the three deposits.

(e) All money withdrawn from the accounts were paid into accounts of the Deceased or accounts controlled by him and was withdrawn for the Deceased's own purposes and without any reference to John Lee.

(f) The Deceased had exercised full and effective control over the three deposits during his lifetime. The Deceased could withdraw the money at any time or cease to renew the time deposits when they matured, without the knowledge or consent of John Lee.

(g) The Deceased paid a lot of attention to the various fixed deposits and would spend time arranging and organising them. The detailed movements of money into and out of the deposits were recorded by the Deceased himself in the account schedules.

10. The litigation was basically divided into two camps, i.e. the 'kit-fat' wife and her seven children on one side and the four children of the concubine on the other side, including John Lee. The former took the view that the Deceased's treatment of the three deposits were inconsistent with John Lee's case that the deposits in the accounts were gifts from the Deceased. John Lee had never operated the accounts by payment in and out and, prior to the death of the Deceased, had received no correspondence from OTB, the bank concerning the accounts. There were authorities to the effect that the level of control over the deposits by an alleged donor may negative the presumption of advancement (see Warren v. Gurney [1944] 2 All ER 472 at 473H, McKie v. McKie [1898] VLR 489, James v. James (1896) 19 LT 809, Marshall v. Crutwell (1975) LR 20 Eq 320, Halsbury's Laws of England, Vol.20, paras. 1 & 2, Stock v. McAvoy (1872) LR 15 Eq 55 and Scawin v. Scawin (1841) 1 Y & CCC 65).

11. This submission was however not accepted by the Court of Appeal who relied on some more recent cases and in particular, In re Figgis, deceased (1969) 1 Ch 123, Re Harrison (1920) 90 LJ 186 at 191 (Russell J), Shephard v. Cartwright (1955) AC 41 (Per Viscount Simmonds, at p.450, Lord Reid, at p.456), Young v. Sealey (1949) 1 Ch 278 at 284, 295 (Romer J), In re Pattinson (1885) 1 TLR 216 (Chitty J), and Fowkes v. Passoe (1875) 10 Ch Appeal 343, at 353 (Mellish LJ). In In re Figgis, deceased, Megarry J said at p.146 that :-

"The fact that the husband had always used the joint current account as if it were his own seems to me to emphasise rather than detract from the significance of the joint names. Accordingly, I hold that the balance standing to the credit of each joint account forms part of the estate of the wife ...."

Eventually, Megarry J at p.149 described the nature of the gifts as :-

"an immediate gift of a fluctuating and defeasible asset consisting of the chose in action for the time being constituting the balance in the bank's account."

Megarry J's decision was accepted in the Court of Appeal by :-

(a) Godfrey JA, at 445O - 446E;

(b) Rogers JA, at 446Q - R; and

(c) Mortimer V-P, at 453C - F.

Eventually, the Court of Appeal decided, as aforesaid, that in the absence of any admissible evidence, the presumption of advancement should prevail.

12. If a Beddoe Order was applied for by the trustee in advance of the action, the court would have to take into consideration two important matters, namely :-

(a) the strength and weaknesses of the case of the trustee; and

(b) the nature of the dispute.

13. It has been said in the case of Alsop Wilkinson v. Neary [1995] 1 All ER 431, at p.436 that :-

"The purpose of the application [for a Beddoe order] is to inform the judge as to the strengths and weaknesses of the trustees' case and the views of trustees and beneficiaries regarding the prospects of success and the course to be taken, for example in respect of a possible compromise."

14. In that case, Lightman J held, in the context of proceedings challenging the validity of the trust, that :-

"In a case where the dispute is between rival claimants to a beneficial interest in the subject matter of the trust, rather the duty of the trustee is to remain neutral and offer to submit to the Court's directions, leaving it to the rivals to fight their battles ... in the case of hostile litigation, although in an exceptional case the court may consider that the trustee should have his costs, ordinarily the trustee will not be entitled to any indemnity, for he has incurred expenditure and liabilities in an unsuccessful effort to prefer one class of beneficiaries over another and so acted unreasonably and otherwise then for the benefit of the trust estate."

15. Further, Mr Tang for the respondents, relied on the case of Evans v. Evans [1985] 3 All ER 289. The Court of Appeal in England refused to make the Beddoe Order sought and held at p.293 that :-

"... in a case where the beneficiaries are all adult and sui juris and can make up their own minds whether the claim should be resisted or not, there must be countervailing considerations of some weight before it is right for the action to be pursued or defended at the costs of the estate. ..."

However, the case against John Lee is not a case challenging the validity of the whole of the trust nor did it involve the whole Estate. The Estate was estimated at about $90 million including the said $11 million deposits.

16. It is true that it was a hostile litigation supported basically by the camp of the 'kit-fat' wife. In the first place, the action of the trustee cannot be said to be wholly unmeritorious, albeit eventually the case was lost in the Court of Appeal. It is distinguishable as in the case of Re Dallaway cited in Evans v. Evans that Megarry V-C clearly had reservations about the prospects of the claimants' success in the action. Nourse LJ said in Evans v. Evans at p.293b - c that :-

"This is a most important question to be considered in deciding whether the action or its defence should be financed at the costs of the estate. "

Further, he said that :-

"... Third, the proposal made in Re Dallaway was not, as here, that the other nine brothers and sisters should be joined as defendants to the action, but that they should give the bank an indemnity against its costs. That was clearly an unworkable proposal, whereas the proposal here is one to which, like the master, I can see no real objection. On these three grounds it seems to [me] that Re Dallaway is distinguishable from the present case, to which I now return."

17. It was submitted by Mr Tang, SC on behalf of the respondents that injustice will result if the trustee's costs were to be deducted from the Estate and John Lee would be receiving a lesser amount since he is one of the beneficiaries himself.

18. However, it has been pointed out by Ms Eu for the applicant that due to the hot-potch principle, the amount John Lee received as a gift inter vivos would have to be taken into consideration in the division of the Estate. Thus the amount of $11 million would have to be deducted from the Estate first, leaving the other beneficiaries to share the Estate. Since the 'kit-fat' wife would receive half of the Estate, leaving the other 11 beneficiaries to have a share to the other half, John Lee's gift received inter vivos would be more than the amount of the individual share of each beneficiary. In the end, John Lee would not be receiving an additional amount from the Estate. If costs were to be deducted from the Estate, it would not, in the end, affect John Lee's position. Thus there would be no injustice against John Lee himself.

19. Further, as said in Evans v. Evans and Re Dallaway, the indemnity to be given by the seven beneficiaries, who were desirous of continuing the action, would be unworkable since the other three beneficiaries who would not like the action to continue would benefit from the action if the action turned out to be successful. They do not have to give any indemnity but in the end they would benefit from it. That would work unfairly against other beneficiaries instead.

20. In the end, I find nothing before me which would suggest that the trustee had acted unreasonably and that the whole action was just speculative. Thus the general rule under Order 62, rule 6(2) applied, i.e. the Administrator should be reimbursed from the Estate for all costs incurred by them and the costs they have to pay John Lee as a result of the unsuccessful action.

21. It has been suggested by the respondents that the Administrator should, in any event, not be entitled to those costs for the appeal from the Court of Appeal to the Court of Final Appeal. The appeal was lodged by the trustee Administrator within the prescribed time and as a result of leading counsel's advice that there would be an even chance of success in the Court of Final Appeal. The Administrator intended to ask for longer time to pay in the security for costs as in the meantime all the beneficiaries could be given more time to consider their position. Although it turned out that the Court of Appeal did not give the Administrator further time and that the beneficiaries had indicated their wishes within the prescribed time, most of them were against lodging the appeal any further, it cannot be said that the Administrator was unreasonable in the steps taken by it. This was all done in order to protect the Estate.

22. In short, I find that the third set of costs incurred by the Administrator in applying for leave to appeal to the Court of Final Appeal should also be reimbursed by the Estate, including the costs they have to pay John Lee as a result thereof.

23. In conclusion, I find that the Administrator should be entitled to be reimbursed by the Estate for all costs they incurred or they were ordered to pay to John Lee. The position would be quite unreasonable if the Administrator were to be asked to pay all these costs out of their own pocket when all these steps and actions were taken for the benefits of the Estate alone. I do not find any indication from the papers before me that the Administrator was acting for its own benefit.

24. Accordingly, I make an order in terms of the Amended Summons dated 5 November 1999. All parties agree that all the costs involved in this application of all parties should be paid out of the Estate on common fund basis and I so order.