TAM MEI KAM v. HSBC INTERNATIONAL TRUSTEE LTD AND OTHERS

CACV 181/20 16

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 181 OF 2016

(ON APPEAL FROM HCMP NO 2981 OF 2004)

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J U D G M E N T

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Hon Lam VP:

1.  I have read the judgment of Kwan JA and I agree with it.

Hon Cheung JA:

2.  I agree with the judgment of Kwan JA.

Hon Kwan JA:

3.  This is the appeal of Madam Tam Mei Kam against the decision of L Chan J on 1 September 2016 in which the judge refused her application for a lump sum order under section 4(1)(b) of the Inheritance (Provision for Family and Dependants) Ordinance, Cap 481 (“the Ordinance”) out of the net estate of her deceased daughter, the well-known singer and artiste Mui Yim Fong (“the deceased”).  Instead, he made an order for periodic payments under section 4(1)(a), to give Madam Tam “a generous monthly income and full disbursement of reasonable medical expenses”[1].

4.  Madam Tam brought this appeal to set aside the order for periodic payments.  She seeks an order for a lump sum.  In the court below, the total lump sum she asked for was $71 million odd, computed on a multiplier of 15 years.  On appeal, she is content with a multiplier of between 6.56 and 15 years.  She contended that in refusing a lump sum payment, the judge had failed to have regard to weighty matters, he had given excessive weight to secondary, speculative or extraneous matters, and was wrong in law for a number of reasons.

The background

5.  The relevant background matters may first be stated as follows.

6.  The deceased passed away on 30 December 2003, having made a will and a trust deed on 3 December 2003.  Madam Tam is not a beneficiary under the will.  The sole beneficiary under the will is a discretionary trust established by the trust deed known as The Karen Trust.  As of today, the discretionary beneficiaries of the trust include Madam Tam, two nieces and two nephews of the deceased.

7.  The trustee, being the 1^st respondent in these proceedings, has unfettered discretionary powers to add or remove beneficiaries of the trust and in determining how the assets of the trust should be dealt with and distributed.  In exercising such discretion, the 1^st respondent may have regard to the non-binding suggestions made by the deceased in the trustee memorandum dated 3 December 2003.  Among the suggestions are that a monthly distribution of $70,000 is to be made to Madam Tam while she is alive for her use and benefit absolutely, and upon the death of Madam Tam the entire balance of the assets of the trust is to be distributed to a charity known as New Horizon Buddhist Association Limited, the 3^rd respondent in these proceedings.

8.  Madam Tam was born in 1924. She turned 92 in March 2016[2]. There is no dispute that she was wholly dependent on the deceased for her livelihood immediately before the deceased’s death.

9.  Madam Tam brought proceedings to challenge the validity of the will.  Litigation in the probate action was not concluded until May 2011 when her appeal was dismissed by the Court of Final Appeal.  In April 2012, a bankruptcy order was made against her on the petition of her former solicitors for unpaid fees in the probate action.  The bankruptcy order was discharged in April 2016.

10.  In the meantime, in October 2004, she issued the originating summons in these proceedings for reasonable financial provision out of the deceased’s estate under section 4 of the Ordinance.  Between October 2004 and August 2015, a series of orders were made for interim payments to her under section 7 of the Ordinance.  The initial sum of monthly maintenance of $63,000 was increased over the years until it became $228,500.  In addition, the court authorised payment to her for all reasonable medical expenses she had incurred.  There were special payments for Chinese New Year, and for contingencies.

11.  On 23 March 2015, Madam Tam issued a summons in these proceedings for a lump sum payment.  L Chan J dismissed that application on 1 April 2015.  The Court of Appeal (Cheung, Yuen and Kwan JJA) allowed an appeal against that order on 3 August 2015 (CACV 89/2015), as there was confusion whether the judge’s order was made with section 4 or section 7 in mind.  The matter was remitted to L Chan J for directions with a view to fixing a substantive hearing of the originating summons issued in October 2004. The judge gave various directions for the filing of evidence in respect of Madam Tam’s application under section 4 of the Ordinance.  On 11 April 2016, he directed a hearing be held for the originating summons with respect to the question whether Madam Tam should be given (i) periodic payments and the amount thereof; or (ii) periodic payments plus a lump sum; or (iii) just a lump sum.  The hearing was held on 26 August 2016 and on 1 September 2016 the judge gave judgment which is the subject of this appeal.

The judgment below

12.  The judge found that Madam Tam has met the statutory requirements to apply for reasonable financial provision under section 4.  She is within section 3(1)(iv), as a parent of the deceased who immediately before the death of the deceased was being maintained, wholly or substantially, by the deceased.  She comes within section 3(3) in that the deceased, otherwise than for valuable consideration, made a substantial contribution in money or money’s worth towards her reasonable needs.  The judge is satisfied under section 4(1) that the disposition of the deceased’s estate effected by the will is not such as to make reasonable financial provision for Madam Tam, in that the 1^st respondent is not legally obliged to provide for her.  The legal effect of the trust deed is that whether Madam Tam would be provided for is entirely a matter of the 1^st respondent’s discretion.  These findings are not challenged by the 1^st or 3^rd respondent on appeal.

13.  The 1^st respondent adduced evidence that as at 1 August 2016, the estate and the trust together have an estimated net asset value of $75.7 million.  The four other discretionary beneficiaries named in the trust deed, who are Madam Tam’s grandchildren, have not taken part in the proceedings and are not seeking maintenance by the estate or the trust.  The judge did not regard the 3^rd respondent as a competing beneficiary as it is not a beneficiary of the trust but the final repository and there is no evidence that it is in financial need.  The judge found, and there is no challenge on appeal, that there is in fact no competing beneficiary in this case[3].

14.  One other matter that has been agreed and should not be controversial is that Madam Tam, the 1^st respondent and the 3^rd respondent had agreed that if the judge should order periodic payments only, the periodic sum should be at $207,000 per month at the start subject to the agreed annual adjustment of 3.5% for inflation[4].

15.  Madam Tam has contended in her submissions on appeal that the parties have agreed on the multiplicands of the monthly maintenance plus new year bonus and annual medical expenses at $1,401,176, both with an inflation rate of 3.5% a year, and the only disagreement was the multiplier.  This is incorrect, as can be seen from the relevant correspondence mentioned below.  Her contention that the periodic payments order was “in violation of the parties’ agreement” on the multiplicand is simply wrong.

16.  On 24 August 2016, the court wrote to the parties to enquire “in the event of the court ordering only periodic payments” whether there is any agreement among all three parties on (i) the amount of periodic payments; (ii) the date of the first payment; (iii) the rate of annual adjustment; and (iv) the day of the year for the adjustment to take effect.  Madam Tam responded on 25 August stating that it was her understanding the parties have agreement that the domestic needs of her would be $207,000 plus medical expenses of $1,401,176 a year with an inflation rate to both of 3.5% per year and the only disagreement was that she contended a multiplier should be applied to “the said basic amount” to reach a lump sum.

17.  The judge’s clerk wrote to the parties again on 25 August stating that Madam Tam had “misunderstood the direction of the court dated 24 August 2016” and repeated that the court enquired with the parties in the event of the court “ordering only periodic payments on the application” whether there was any agreement among them of the matters in (i) to (iv) as aforesaid.  It was further stated in that letter if the court should “only order periodic payments on the application”, medical expenses will be paid as per the actual amounts incurred directly to the doctors and/or hospital and there will be no need to apply any multiplier.

18.  In response to the further letter of the court, the 1^st respondent proposed on 25 August 2016 that the periodic payments order should adopt a starting figure of $207,000 per month, the first payment should be made on 1 September 2016, the rate of annual adjustment should be +3.5%, and such adjustment should take effect on the first day of September each year.

19.  Madam Tam responded by a letter to the court of 25 August 2016 confirming that the 1^st respondent’s proposal aforesaid would be agreeable “in case the Court decides to make a periodic payments order alone and no more”, without prejudice to any rights of appeal she may have against a periodic payments order alone.

20.  The 3^rd respondent responded by its 4^th letter dated 25 August 2016 that it agrees to the proposal of the 1^st respondent.

21.  It is clear from the above correspondence that the agreement of the parties was on the basis that the judge should order periodic payments only and it was to the amount of monthly maintenance.  It was not an agreement on the multiplicand of a lump sum order as contended by Madam Tam.  Nor were annual medical expenses agreed, as that would be paid as per the amounts actually incurred.

22.  The judge refused to make a lump sum order in the exercise of his discretion, for the reasons I will mention later.  He made instead an order for periodic payments and the 1^st respondent was ordered to pay Madam Tam the following:

(1)   periodic payments in the sum of $207,000 per month, representing provision for her living needs, subject to an increase of 3.5% each year for inflation;

(2)   an annual sum of $103,500, representing Chinese New Year special payment, subject to the same inflation adjustment mechanism; and

(3)   subject to satisfactory documentary evidence being provided by Madam Tam, all reasonable medical expenses incurred by her, directly to the relevant hospitals and medical practitioners.

23.  The judge expressed the view that with periodic payments of $207,000 a month, Madam Tam would enjoy a very stable and comfortable life and all her daily needs will be provided for[5].  Madam Tam has no complaint about the amount of the periodic sum.  Her grievance is that the judge should have made a lump sum order instead.

This appeal

24.  Madam Tam lodged two written submissions in English and one in Chinese.  She repeated many of her arguments before the judge.  Her submissions on appeal may be summarised as follows.

25.  She contended that a lump sum payment order under the Ordinance, as opposed to a periodic payments order, would appear to be the norm, unless the net estate is not sufficient, or comprised non-cash assets generating income.  The only real question is whether there are special circumstances or overriding matters to justify a departure from the norm.  She submitted there are none in this case.

26.  The statutory scheme under the Ordinance is to strive to balance the interests of all the parties, see section 4(4).  But in the present case, as found by the judge, there is no competing beneficiary with Madam Tam.  In deciding whether to make a lump sum order, the only interest that should be considered is her interest.  Using a yearly multiplicand of $3,988,676 (made up of monthly maintenance, Chinese New Year special payment and medical expenses) with 3.5% increase each year and applying a just and proper multiplier between 6.56 and 15 years, there would still be capital remaining in the estate and the trust, which have a combined estimated net asset value of $75.7 million as at 1 August 2016.  The judge should not have departed from the norm based on his speculative concern for her future.  Besides, he had taken into account matters which have no evidential basis and are beyond the scope of section 5.  The order for periodic payments is plainly wrong and contrary to the law.

27.  Madam Tam alleged that the 1^st and 3^rd respondents opposed her application for a lump sum order out of their own self interest.  The 1^st respondent did so to prolong the legal proceedings and earn substantial fees in administering and managing the trust.  The 3^rd respondent did so out of greed.

28.  Madam Tam submitted that the general principles applicable in ancillary relief in the matrimonial context should be equally applicable in the present context, as maintenance under the Ordinance is analogous to maintenance in the matrimonial context.  The considerations of “divorce basis” standards in the present context would only have an impact on the multiplicand, not on the proper form of the order (whether a lump sum or periodic payments) to be made.  The clean break or finality in litigation principle should be applied in her case.  The distinction of legal authorities from the present case due to the absence of a spousal relationship is illogical, artificial and contrary to common sense.  There has been no legal proposition that a spousal relationship is a pre-requisite for making a lump sum order under the Ordinance.  Nor is there a legal proposition that a lump sum order could only be made in the case of young applicants and not elderly ones.  Further, the judge was wrong to give weight to the wish of the deceased in the trust memorandum.

29.  As regards the appropriate multiplier for a lump sum order, she contended that the multipliers in the Hong Kong Life Tables are irrelevant as she is an exception in her age group and is exceptionally healthy.  The judge was wrong to require an opinion on her life expectancy from an independent medical expert if he were minded to make a lump sum order.  He should just have accepted the opinion on her life expectancy given by her two medical experts, Dr Chris K Y Wong, a cardiologist who was her regular physician since 2004, and Mr Chung Sau Nang, a practitioner in traditional Chinese medicine who had treated her regularly since 2006.

30.  She also contended that the judge had failed to take into account her costs liabilities to the 1^st respondent and the 5^th respondent, the latter being her trustees in bankruptcy, under section 5(8).

The legal principles

31.  The statutory power conferred on the court to make orders under section 4 of the Ordinance is on the basis that the disposition of the deceased’s estate effected by will or on intestacy is not such as to make “reasonable financial provision” for the applicant (sections 3(1), 4(1) and 5(1)).  For an applicant who is a parent of the deceased and maintained by the deceased, reasonable financial provision is defined to mean “such financial provision as it would be reasonable in all the circumstances of the case for the applicant to receive for his maintenance” (section 3(2)(b)).  It is pertinent to bear in mind that the statutory power of the court is to make “reasonable financial provision” for the applicant and it is an evaluative judgment based on objective considerations, not the subjective view of the applicant.

32.  In making reasonable financial provision for the applicant, the court is empowered to make one or more of the orders in section 4(1), including an order for periodic payments and a lump sum order.  In the exercise of its discretion whether to make reasonable financial provision and in what manner, the court is enjoined to have regard to the matters in section 5.

33.  Section 5(1) lists out the following matters:

“(a) the financial resources and financial needs which the applicant has or is likely to have in the foreseeable future;

(b) the financial resources and financial needs which any other applicant for an order under section 4 has or is likely to have in the foreseeable future;

(c) the financial resources and financial needs which any beneficiary of the estate of the deceased has or is likely to have in the foreseeable future;

(d) any obligations and responsibilities which the deceased had towards any applicant for an order under section 4 or towards any beneficiary of the estate of the deceased;

(e) the size and nature of the net estate of the deceased;

(f) any physical or mental disability of any applicant for an order under section 4 or any beneficiary of the estate of the deceased;

(g) any other matter, including the conduct of the applicant or any other person, which in the circumstances of the case the court may consider relevant.”

34.  It should be noted that section 5(1)(g) is couched in the broadest terms, enabling the court to have regard to any other matter it may consider relevant.

35.  Section 5(3) is also relevant to an applicant who is a parent of the deceased.  It provides that without prejudice to the generality of section 5(1)(g), the court shall in addition to the matters in section 5(1)(a) to (f), have regard to the age of the applicant and the contribution in money or money’s worth made by the deceased towards the needs of the applicant immediately before the death of the deceased.

36.  Hence, in the case of a parent applicant, the court is specifically enjoined to have regard to the age of the applicant.

37.  Section 5(7) provides that in considering the matters to which the court is required to have regard under section 5, the court shall take into account the facts as known to it at the date of the hearing.  Section 5(8) provides inter alia that in considering the financial needs of any person for the purposes of section 5, the court shall take into account his financial obligations and responsibilities.

38.  The above provisions govern not just whether the court should exercise its power to make reasonable financial provision for an applicant but in what manner such power should be exercised.  And in deciding what kind of order to make, whether this be lump sum, periodic payments, a combination of both or some other form of order specified in section 4(1), the nature and type of order decided upon must be such as to make reasonable financial provision for the applicant, and in the case of a parent applicant, such financial provision as it would be reasonable for that applicant to receive for his maintenance in all the circumstances of the case.

39.  There is no legal basis for Madam Tam’s proposition that a lump sum order is the norm and, where the estate has sufficient funds to pay, should not be departed from in the absence of special or overriding circumstances.

40.  Nor is there legal basis for her contention that insofar as reasonable financial provision is concerned, the only difference between provision for a spouse and a parent applicant is the impact on the multiplicand.  The effect of the order made must be considered in the totality to see whether it is such as to make reasonable financial provision for the applicant.

41.  Moreover, sections 3(2)(a) and (b) draw a clear distinction between reasonable financial provision for a spouse and other applicants.  I have already mentioned how reasonable financial provision is defined for other applicants in section 3(2)(b).  In the case of a spouse, reasonable financial provision is defined in section 3(2)(a) to mean “such financial provision as it would be reasonable in all the circumstances of the case for such a person to receive, whether or not that provision is required for his or her maintenance”.  This is sometimes referred to as the “surviving spouse standard” and is much more generous, recognising that a spouse is entitled to a significant share of the estate assets over and above that which is strictly required for his or her maintenance, whereas in the case of all other applicants, all that the applicant is entitled to is maintenance (Butterworths Hong Kong Probate, Administration and Trustee Handbook (4^th ed), §[3.18]).  Maintenance is not the only or even the dominant consideration to be taken into consideration by the court for a spousal applicant (In re Krubert, deceased [1997] Ch 97 at 102E to F, per Nourse LJ).

42.  Section 5(2) further provides that in making an order for a spouse under section 4, among other things the court is required to have regard to “the provision which the applicant might reasonably have expected to receive if on the day on which the deceased died the marriage, instead of being terminated by death, had been terminated by a decree of divorce.”  This is designed to ensure that on death, a surviving spouse would be in no worse position than would have been the case if the spouse had been divorced (Butterworths Hong Kong Probate, Administration and Trustee Handbook, §[5.05]; Cunliffe v Fielden & Ors [2006] Ch 361 at §20).

43.  So for all the above reasons, the clean break principle in matrimonial cases simply cannot be applied in the same way to a non-spousal applicant.  The cases cited by Madam Tam in which lump sum orders were made for spousal applicants[6] do not help to advance her case.  And the judge was correct not to follow the other two cases cited by her concerning non-spousal applicants in which lump sums were awarded[7].  As Oliver LJ has noted in In re Besterman, Deceased at 479G to H[8], “each case in this jurisdiction depends upon its own particular facts and I think that it would be a pity if this case should be used as a basis for drawing general deductions of principle to be applied in other and probably quite different cases, whether of large or small estates.”

44.  The purpose of the Ordinance is limited to the provision of reasonable maintenance insofar as non-spousal applicants are concerned, it is not to “provide legacies” for the applicant or to “divert [a deceased’s assets] where it would be most useful and appreciated” (In re Coventry, deceased [1980] 1 Ch 461 at 474F to 475D, per Oliver J).  What is proper maintenance for non-spousal applicants depends on all the facts and circumstances of the particular case.  As stated by Goff LJ in In re Coventry at 485 C to D, “it does not mean just enough to enable a person to get by; on the other hand, it does not mean anything which may be regarded as reasonably desirable for his general benefit or welfare.”  And although the word “required” is not repeated in section 3(2)(b), the clear implication is that in the case of a non-spousal applicant, the court is to look at what is reasonably “required” for that applicant’s maintenance (In re Coventry at 472F to G, per Oliver J; In re Jennings, deceased [1994] Ch 286 at 295D to E, per Nourse LJ; Tang Tim Chue v Tang Ka Hung Robert & Anr, HCMP 2506/2009, 7 June 2012, Au-Yeung J, at §137).

The exercise of discretion

45.  I turn to consider how the judge exercised his discretion in deciding to order periodic payments instead of a lump sum.

46.  The judge had taken into account the following matters:

(1)   There is no competing beneficiary in this case.  The 3^rd respondent is not a beneficiary of the trust but the final repository, so the judge would only need to consider Madam Tam’s interest (§56 of the Judgment)[9].

(2)   There is no need for a clean break by making a lump sum order just because Madam Tam does not like the 1^st respondent for her own reasons.  The 1^st respondent is a professional trustee and is not responsible for her enmity to it (§§57 to 58).

(3)   A periodic payment at the agreed rate of $207,000 per month would provide Madam Tam with a very stable and comfortable life.  All her daily needs would be provided for.  There is no appreciable risk that the total value of the estate and the trust would be exhausted by the periodic payments and medical expenses during Madam Tam’s life time (§59).

(4)   Unlike periodic payments which may be varied under section 8, a lump sum order cannot be varied if it is exhausted during her life time should she live to 108 years and beyond assuming her medical certificates are reliable, or if her needs should increase in future.  This would lead to an appalling situation for her (§§60, 61 and 63).

(5)   Her seniority is of concern as she may not be able to manage properly a large lump sum.  It is much better to provide her with a generous monthly income and full disbursement of reasonable medical expenses (§61).

(6)   If periodic payments are ordered, there is no need to estimate the medical expenses required on a lump sum basis and her reasonable medical bills would continue to be paid in full.  This is important as it is probable that her need for medical and hospital care may increase in the years to come (§62).

(7)   It would be wrong to provide her with capital to purchase a flat comparable to her current residence and a burial ground.  Such capital expenditure is beyond the reasonable financial provision she is entitled to and the purchase of a burial ground is not within the meaning of maintenance and outside the scope of section 4 (§§64 to 66).

(8)   A periodic payments order is in line with the wish of the deceased as expressed in the trustee memorandum (§68).

47.  I reject Madam Tam’s contention that any of the above matters considered by the judge are beyond the scope of the matters that the court is enjoined to have regard under section 5.  As mentioned earlier, under section 5(1)(g), the court is to have regard to “any other matter, including the conduct of the applicant or any other person, which in the circumstances of the case the court may consider relevant”.  Most of them relate to Madam Tam’s conduct in the past, or what the judge could properly regard as how she would probably conduct herself in the foreseeable future.  The judge is familiar with the circumstances of Madam Tam, as he has been seized with her applications for interim maintenance and other applications in her bankruptcy proceedings since 2013.  Her advanced age is obviously a concern, and this is justified by the fact that she spent a total of 112 days in hospital between September 2014 and August 2015.

48.  As for the deceased’s wish expressed in the trustee memorandum, although section 5(1) does not specifically refer to the deceased’s reason for making or not making provision for an applicant in the will as a relevant factor, the determination of what reasonable financial provision should be made is based on objective considerations and so the deceased’s reasons, which may or may not be credible or reasonable, could be regarded as relevant under the general catch-all provision of “any other matter” in section 5(1)(g) (Butterworths Hong Kong Probate, Administration and Trustee Handbook, §[5.04]).

49.  I do not think the judge’s exercise of discretion can be faulted.  His reasoning is entirely consistent with the legal principles on “reasonable financial provision” discussed earlier.  The basis for the exercise of that discretion is not, as contended by Madam Tam, what would be desirable for her general benefit or welfare so long as there are sufficient funds in the estate for payment to be made and there is no competing beneficiary.  The judge had applied objective considerations in the evaluation of whether a lump sum order or periodic payments would meet what is reasonably required for Madam Tam’s maintenance in all the circumstances.  He concluded that a lump sum order would not, for the cogent reasons he gave.

50.  It is well established that the appeal court should not interfere with the exercise of discretion of a trial judge unless it is demonstrated it was exercised under a mistake of law or in disregard of principle, or that he took into account irrelevant matters or failed to exercise his discretion or the conclusion he reached was outside the generous ambit within which a reasonable disagreement is possible such that it was plainly wrong (Hong Kong Civil Procedure 2017, vol 1, §59/0/54).  It has not been shown that the judge had made an error in law or that he had failed to have regard to relevant factors or took into account irrelevant matters.  What weight the judge chose to attach to a particular factor in determining the kind of order he should made is within his discretion.  Nor has it been shown that his decision not to make a lump sum order is plainly wrong.

51.  There is just no basis for this court to interfere with the judge’s exercise of discretion.

52.  I will just deal with two other matters raised by Madam Tam.

53.  The first concerns her costs liabilities to the 1^st and 5^th respondents.  She complained that the judge had failed to have regard to that pursuant to section 5(8) in considering her financial needs.  Madam Tam asserted that such costs liabilities were a live issue before the judge.  I note that she did mention section 5(8) in §49 of her 8^th affirmation and had exhibited the letters she wrote to those respondents asking for updates on the outstanding costs orders but had no firm replies as most of the costs orders have not been taxed.  However, this was not a point covered in her written submission of 12 August 2016 placed before the judge.

54.  Her costs liabilities would have no or very little bearing on the crucial issue whether a lump sum order or periodic payments would meet what is reasonably required for her maintenance.  If it is her complaint that the judge had failed to take into account the costs liabilities in adopting the agreed amount for periodic payments, it is up to her to make such application as she sees fit for variation of the periodic payments under section 8, if and when the outstanding costs are taxed or agreed.

55.  The other matter relates to the judge’s refusal to accept the opinion given by Dr Chris Wong and Mr Chung on Madam Tam’s life expectancy and requiring her to be examined by an independent medical expert and for comprehensive tests to be conducted on her health.  The judge can hardly be criticised for this.  The reports given by Dr Wong and Mr Chung are too general and perfunctory.  The judge is clearly entitled to ask for a proper expert report to assist him to come to a view on the life expectancy of Madam Tam, had he considered a lump sum order to be appropriate.

Conclusion

56.  For the above reasons, I would dismiss the appeal of Madam Tam.  The judge’s order on costs would not be disturbed.

57.  As for the costs of this appeal, Madam Tam’s appeal is entirely without merit.  I see no reason why she should not pay the costs of the 1^st and 3^rd respondents of this appeal.  I would make an order nisi that she is to pay the costs of the 1^st and 3^rd respondents of this appeal.