CHINACHEM CHARITABLE FOUNDATION LTD v. THE SECRETARY FOR JUSTICE AND OTHERS

FACV 9/2014

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 9 OF 2014 (CIVIL)

(ON APPEAL FROM CACV NO. 44 OF 2013)

________________________

AND

BETWEEN

(By original originating summons and order to carry on)

AND

BETWEEN

(By original originating summons and order to carry on)

AND

BETWEEN

(By original originating summons and order to carry on)

________________________

_______________________

RULING ON COSTS

_______________________

Lord Walker of Gestingthorpe NPJ (giving the Ruling of the Court):

1.  This is the ruling as to the costs of the appeal to this Court made by Chinachem Charitable Foundation Limited (“the Foundation”).  The Foundation’s appeal was dismissed by unanimous judgments delivered on 18^th May 2015.

2.  The proceedings relate to the true construction of the will of Nina Wang (“Nina”), who died on 3 April 2007.  They were commenced in 2012 by the Secretary for Justice, one of whose functions is to represent and protect the interests of charities. The delay in the commencement of the proceedings occurred because of earlier litigation as to which of two ostensibly testamentary documents should be admitted to probate as Nina’s true last will.  Those probate proceedings were finally disposed of in 2011.

3.  Nina’s estate was and is very valuable.  Its probate value was over HK$ 80 billion.  But the principal issue raised in the construction proceedings was relatively narrow and technical: whether the Foundation (a company limited by guarantee with exclusively charitable objects) took Nina’s net estate for its general charitable objects (subject to some relatively minor non-charitable dispositions) or whether it took her net estate (again, subject to the minor non-charitable dispositions) on particular charitable trusts, including the establishment of “a Chinese prize of worldwide significance similar to that of the Nobel Prize”, declared by Nina’s will.  On either view almost the whole of the estate was irrevocably dedicated to charitable purposes: the essential difference was whether those purposes were to be defined solely by the memorandum and articles of the Foundation, with Nina’s will as no more than an expression of wishes (“the corporate purposes construction”), or whether they were defined by trusts declared in her will, coupled with the Foundation’s power to undertake the trusteeship of any charitable trust consistent with its main objects (“the charitable trust construction”).

4.  On 22 February 2013, after a three-day hearing, Poon J decided this issue in favour of the Secretary for Justice, who was contending for the charitable trust construction, and against the Foundation, which was contending for the corporate purposes construction.  The other interest represented was that of the interim administrators of Nina’s estate, who were represented in court but have adopted a neutral attitude throughout the proceedings.  The judge ordered that the costs of all parties should be paid out of Nina’s estate.  That is the normal order in construction proceedings of this sort.  In such a case the ambiguity or obscurity of the testator’s will has made the construction proceedings necessary, and it is thought right and proper that the testator’s estate that should bear the costs of proceedings by which the personal representatives and the possible beneficiaries obtain legal certainty from an order of the court.

5.  The position is however quite different on an appeal.  The rival contenders for beneficial interests under the will have had the court’s answer as to the meaning of the will. The personal representatives and trustees of the will know that they can safely deal with the estate in accordance with the court’s order.  The general rule is that if any party chooses to appeal against the order, that party does so at its own risk as to costs.  On a first appeal the court may occasionally be persuaded not to award costs against an unsuccessful appellant, but it does so as an exceptional exercise of discretion, because of particular circumstances, and not as a matter of course.  If on the other hand the appeal is allowed, the appeal court may be more ready to order a second round of costs out of the estate, on the basis that it has taken two rounds of litigation to arrive at the right answer.  But it is a matter of judicial discretion rather than settled practice.

6.  These principles are established by the authorities, some of which are referred to in the parties’ written submissions.  The general rule as to first-instance proceedings for construction of a will is stated in Re Buckton [1907] 2 Ch 406.  The judgment of Lord Esher MR in Re Radnor (1890) 45 Ch D 402, 423 made clear that the position is different on appeal:

“One of the appellants was the surviving trustee of the will; he and the other appellants were perfectly entitled to take the opinion of Mr Justice Chitty as to what was right to be done; but when they appeal to this Court from him, being absolutely protected as trustees by his decision – I do not say they are wrong in appealing, but they appeal to this Court under the ordinary conditions of appellants, and they fail in this appeal; therefore this appeal must be dismissed with costs.”

In Re Stuart [1940] 4 All ER 80 the  Court of Appeal made clear that this was not an inflexible rule, and that in special circumstances it might allow the costs of an unsuccessful appeal.  But it also made clear that that was an exceptional course, and it did not take that course in that case.  In Re Londonderry [1965] Ch 918, a case about disclosure of trust documents, the Court of Appeal regarded an appeal by trustees as an “irregularity”, but allowed the appeal in part and awarded the trustees their costs.

7.  In this case the Foundation is seeking its costs after losing at first instance and on each of two further appeals.  No precedent has been cited for such a case.  To allow the Foundation a third round of costs would be a truly exceptional course, especially as it is on any view before the court in a fiduciary capacity (on the charitable trust construction it is a trustee in the full sense, and on the corporate purposes construction it would have been a quasi-trustee: see the judgment at paragraph 38).  But the Foundation did not seek guidance and protection from the court in the form of a Beddoe order (see Re Beddoe [1893] 1 Ch 547).

8.  The Foundation’s written submissions put forward several points in support of an exceptional order.  I do not find them persuasive.  First it is said, correctly, that the estate is of exceptionally high value.  But the costs incurred in this second appeal must also have been high, and the court should not encourage extravagant expenditure of charity funds merely because they are large.  Clauson LJ’s reference to “large interests” in Re Stuart (at p 81) seems to have been directed mainly to the interests of unborn beneficiaries.  Second, it is said that the appeal was as of right.  In my view that is irrelevant to the costs order to be made after an unsuccessful appeal.  Third, it is said, correctly, that the Court of Appeal must have treated the appeal as exceptional, since it did allow the Foundation its costs.  But a second appeal to this court is a different matter calling for a fresh exercise of discretion.

9.  Finally it is said, correctly, that this court gave some further guidance as to future administration of the trusts of Nina’s will, going in some respects beyond guidance as to the need for approval of a scheme.  But that further guidance (especially as to the requirement for a managing organisation, and as to the need for a scheme) was largely contrary to the submissions made by the Foundation, which submitted that there was no need for a scheme.  It cannot in my view be a reason for a more favourable decision on costs.

10.  I would therefore decline to order any part of the Foundation’s costs of the appeal to this court to be paid out of Nina’s estate.  The Secretary for Justice submits that this court should go further and order the Foundation to pay the other parties’ costs.  It is submitted that the real purpose of the appeal was to promote the position of the Foundation’s governors, and not to benefit charity.  That is a serious allegation which was not put forward at the hearing of the appeal, and is not now supported by anything stronger than inference from the circumstances.  During the course of the appeal I have been puzzled, as other members of the court may have been puzzled, at the vigour and tenacity with which the Foundation has argued its case for the corporate purposes construction, when the vast bulk of the estate is on any view irrevocably committed to charitable purposes. But that is far from amounting to evidence of bad faith.  I would reject that submission made on behalf of the Secretary for Justice.

11.  There remain other grounds for the view that if the Foundation is refused its own costs out of the estate, it should also be ordered to pay some or all of the other parties’ costs.  That might be said to be the natural order to make, in accordance with the principles and authorities discussed in paragraphs 5 and 6 above. But such an order, if enforced (and there would be no point in making it unless it was to be enforced), would undoubtedly lead the Foundation into insolvent liquidation, regardless of the outcome of the other claims against it.  It would involve more expense and delay in carrying the trusts of Nina’s will into execution, and would be a sorry end to the Foundation, established as it was by Nina and her late husband.  I would not therefore make such an order.  I consider that the Foundation has acted imprudently in pursuing this further appeal, but that its imprudence should not be visited with consequences that might tarnish Nina’s memory and cast a shadow over her testamentary benefaction.

12.  The application for approval of the scheme lies in the future.  If the Secretary for Justice wishes to submit that the Foundation is not fit to act as a trustee of Nina’s benefaction, either on the ground of insolvency or on any other ground, or that one or more of its governors should stand down, he should adduce evidence in support of his submissions.  In the absence of any such submissions the Foundation can expect to receive its proper costs of participating in the approval of the scheme, subject always to the discretion of the judge hearing those proceedings.