TO KAN CHI AND OTHERS v. TO KIN WAH AND ANOTHER

cacv 68/2006

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 68 of 2006

(on appeal from HCMP NO. 509 of 2002)

______________________

______________________

__________________________

REASONS FOR JUDGMENT

__________________________

Hon Rogers VP:

1.  This is an appeal from a judgment of Yam J given on 29 September 2005.  In that judgment, amongst other matters, the judge ordered that “the sum of $350,000 to be paid out by the HSBC International Trustee Ltd, the Trustee of the Fund, forthwith to To Kin Wah’s lawyer on account of his costs.  To Kin Wah’s solicitors shall submit a skeleton bill for his estimated costs until discovery, and if the matter could not be agreed between the two parties, it shall be decided by a Master of the High Court.”  At the conclusion of the hearing of this appeal, this court dismissed the appeal and made an order that the costs of both parties should be taxed on a trustee basis, if not agreed between the parties, and be paid out by the HSBC Trustee International Trustee Ltd.  We now hand down our reasons.

Background

2.  The background to this matter has been set out in the judgment below and for the purposes of this judgment it is sufficient to say that in the case of Secretary for Justice v To Kan Chi & Others [2000] 3 HKLRD 756 the Court of Final Appeal rejected the argument on the part of the Secretary for Justice that the Tsing Wan Kun Temple could exist as an entity in itself and it affirmed the declaration that had been made that the temple and its assets were owned by the t’ong Tsing Wan Kun, the members of which t’ong were members from time to time of the Tso and the To Clan.  The second declaration made by the Court of Final appeal was:

“The temple Tsing Wan Kun’s assets are, as they have been for centuries, devoted to the purposes of due observance of the customary ceremonies of the temple Tsing Wan Kun and of maintenance of its temple buildings and temple properties.  They will remain so devoted unless and until the t’ong Tsing Wan Kun, proceeding in a manner which conforms with Chinese law and custom, withdraws them from devotion to those purposes.  The t’ong Tsing Wan Kun’s proprietary rights in the temple Tsing Wan Kun’s assets are vested rights.  Accordingly the t’ong Tsing Wan Kun is entitled to effect such withdrawal at any time provided that it does so in a manner which conforms with Chinese law and custom.”

3.  The history of what took place following the Court of Final Appeal judgment is set out, to some extent, in the judgment below.  For the purposes of this judgment it suffices to say that the plaintiffs were appointed the managers of the t’ong.  It is also clear that the defendants in this case strongly object to that appointment.  So far, they have taken out at least two sets of proceedings the object of which has been to have those appointments set aside.  One of those proceedings has been HCA 1603/2004 in which a declaration was sought that the defendants in that case (the plaintiffs in this case) have not been validly appointed as Managers of the t’ong and an injunction to restrain them from claiming to be the Managers.  The issues in that case are, in my view, quite different from the issues which arise in this case.

4.  This case commenced by an ex-parte originating summons whereby the plaintiffs sought an order that the funds standing to the credit of Tsing Wan Kun in HCMP No. 562 of 1992 and HCMP No. 2084 of 1994 be released to them forthwith.  That application was issued on 5 February 2002.  Despite the length of time that has passed since then these proceedings are still in comparatively early stages.  The defendants have been joined, but there are no pleadings, at least not as yet, in this case.  The first issue in these proceedings is whether the money should be paid out of the funds to the Managers and, no doubt as a consequence of that, the issues will be as to how the money should be handled thereafter because the court would only give such leave if the use to which the money would be put would conform with Chinese law and custom as required under the order made by the Court of Final Appeal.

5.  It was in those circumstances that the defendants made application to the court for an order that their costs would be paid out of the Fund.  There is no dispute between the parties that the Court has power to make such an order, even at this early stage, although it is an unusual order to make.  The power comes from section 52A of the High Court Ordinance, Cap. 4 and Order 62, rule 6(2).  Whether or not an order should be made and the terms of that order are matters of discretion.  Hence as a starting point in this appeal it must be observed that this is an appeal against the exercise of discretion by the judge below.  Hence, the usual rules as to that apply.

6.  There are two cases which are of considerable assistance in determining how the discretion as to making an order, such as has been sought and granted in this case, should be exercised.  The most recent is McDonald v Horn [1995] ICR 685 which was a decision of the Court of Appeal comprising Hoffmann, Hirst and Balcombe LJJ (as they then were) and the case of In Re Buckton [1907] 2 Ch 406.  Hoffmann LJ referred to that latter case in giving the judgment with which the other members of the court agreed.  His judgment refers to the fact that there are forms of trust litigation where the courts have been willing to treat other parties to the litigation as being entitled to costs in any event by analogy with the way in which trustees’ costs are dealt with.  It was in this context that Hoffmann LJ referred to the case of In re Buckton where there had been an analysis highlighting three types of such litigation.

7.  The first type was one in which a trustee sought directions from the court as to the administration of a trust, the second was one where some other person, who was not a trustee, raises a similar point in a way which would have justified an application by the trustees and the third is where the beneficiary is making a hostile claim notably against the trustees or, possibly, against other beneficiaries.  Whilst it was appreciated that it was often difficult to distinguish between the different types of cases it was said that no pre-emptive order should be made in cases where there was hostile litigation.

8.  However in the McDonald case the court went on to consider what was termed an extension of the Wallersteiner v Moir (No. 2) [1975] QB 373 principle.  Wallersteiner v Moir (No. 2) was a case where a minority shareholder sought a pre-emptive order when he was bringing a derivative action on behalf of the company.  Of its essence it would seem that a derivative action is necessarily hostile litigation: it is litigation brought by one party on behalf of another, specifically by a shareholder on behalf of the company as a whole in respect of some alleged wrong.  Given the nature of such litigation the majority shareholders may well be in support of the alleged wrongdoer.  In McDonald v Horn the court was prepared to extend the principle established in the derivative action cases to that case, which concerned an action by beneficiaries of a pension fund who wished to ensure that the fund was properly administered.

9.  In the present appeal Mr Yuen SC, who appeared on behalf of the plaintiffs, argued strongly that this was hostile litigation.  He pointed to the clear antagonism which there was between the plaintiffs and the defendants, in particular because of the other litigation that was on foot.  In my view, however, Mr McDonnell QC, who appeared on behalf of the defendants, was correct in his submission that the present litigation was not hostile litigation in the sense referred to in the Re Buckton and McDonald v Horn cases but was in the category of the second category of cases referred to in re Buckton namely where a non-trustee was seeking directions of the court as to the proper administration of a trust.

10.  Furthermore even if this might be regarded as hostile litigation, I agree with the judge below where, in summarising his views in paragraphs 51 and 52, he said that the facts of this case show that there should be further investigation by the court.  What, in effect, the court has done is to put the defendants in funds, at least for the time being, so that they can give the court the assistance which it needs in order to determine whether the directions which are sought comply with the requirements of the Court of Final Appeal as referred to above.

11.  It has to be observed that there is a considerable value in the Fund which is not only in excess of what is needed to restore the temple but, it would seem, many times that amount.  It can be said that it is not in the public interest or in the interest of anybody connected or likely to be connected with the t’ong that the Fund should simply be kept to accumulate to an extent far beyond the needs of the initial intention behind the establishment of the Fund.  There is sufficient excess to make it attractive to the members of the t’ong to seek a distribution to themselves on a pro-rata basis.  Whether that should be done or whether the funds should be kept for what have been referred to as secondary purposes, namely, to be applied to such things as building schools, providing uniforms for students, relieving poverty and supporting widows, is a matter which involves a careful and detailed examination of Chinese law and custom.  There are the interests of other than the present adult members of the t’ong to consider including children yet to be born.  It is not surprising that the court should feel it appropriate to have proper representation to present all relevant aspects of the case.  That, in my view, is precisely what the judge was doing in making the order which is the subject of this appeal.

12.  As a subsidiary argument, Mr Yuen submitted that in view of the fact that the judge refused to make a similar order in the other proceedings, namely HCA 1603/2004, the making of the order in the present proceedings was inconsistent and should be set aside.  As already explained, the issues in the two cases are quite different.  Furthermore, there are valid reasons as set out in paragraphs 53 and 54 of the judgment below for delaying that decision and I do not consider that the discrepancy said to exist should be a bar to the order granted.

13.  Hence, far from simply deciding this appeal on the basis that I would not interfere with the exercise of the judge’s discretion, I would go further and say that I agree with the way in which the judge’s discretion was exercised.

14.  Mr Yuen made reference to the terms of the order and submitted that there should be included a provision that the costs should only be allowed if they were reasonable and proper.  In my view the order which has been made that the costs should be taxed on a trustee basis is sufficient and the matter should be left to the taxing Master.

15.  In view of the fact that this court ordered that the costs of both parties should come from the funds of the t’ong it is apposite to say a word about the order of costs which was made.  Whilst both parties agreed that that was an appropriate order it was still necessary for them to satisfy the court that it should be made.  Quite simply, once it is has been decided that it is appropriate to make a pre-emptive order in circumstances such as prevail in the present case on the basis that the order is appropriate so that the court should have the necessary assistance, that rationale should apply to all the costs in the case, unless it can be said that they should not have been incurred, at least until the circumstances have changed.

Hon Chu J:

16.  I agree that the appeal should be dismissed for the reasons given by Rogers V.P.  I wish only to add one observation on the ground of appeal relating to the terms of the pre-emptive costs order.

17.  Paragraph 3 of Yam J’s order provided that To Kin Wah be indemnified out of the Fund for the costs he incurred in this case up to discovery, to be taxed on trustee basis if not agreed by the plaintiff’s solicitors.  Mr Yuen SC submitted that the terms are too wide and that the paragraph should be varied so that To Kin Wah would only be indemnified for the costs reasonably and properly incurred by him in the case.  In support of his submission, he referred to Hong Kong Civil Procedure 2007 para.62/App/9 that deals with the wide ambit of taxation on trustee basis.

18.  I can see the force of Mr Yuen’s argument that the indemnity should only be in respect of costs reasonably and properly incurred, but not all costs authorized by To Kin Wah.  For my part, it may be that To Kin Wah’s costs should be taxed on common fund basis.  However, as submitted by Mr McDonnell QC, the plaintiffs have not in this appeal sought to vary the basis of taxation.  The mere addition of the words “reasonably and properly” to paragraph 3 of Yam J’s order as proposed by Mr Yuen will only create confusions for the taxing master.