LAU LEUNG WA AND ANOTHER v. LAU YUE KUI AND ANOTHER

HCAP 10/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO. 10 OF 2001

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Dates of Hearing: 4 to 8 and 11 to 15 July and 24 and 25 August 2005

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J U D G M E N T

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Introduction

1.  The plaintiffs are two of the beneficiaries of the estate of the late Mr. Lau Wai Chau (respectively “the Estate” and “the Deceased”).

2.  The 1^st defendant (“D1”) is the administrator of the Estate whereas the 2^nd defendant (“D2”) is the solicitor engaged by D1 to handle the probate and administration of the Estate.

3.  The plaintiffs' principal claim against D1 in this action is based in short on his alleged:-

(a)     breach of fiduciary duty as an administrator (in equity);

(b)    breach of duty of reasonable diligence (in tort);

(c)     negligence (in tort).

4.  Apart from the principal claim, the plaintiffs also seek to remove D1 as an administrator and to bar him from later claiming remuneration for his work done in that capacity.

5.  The plaintiffs' claim against D2 in this action is based essentially on his alleged:-

(1)     beach of professional duty of reasonable care and skill (in tort);

(2)     breach of duty of loyalty and fidelity (in equity);

(3)     knowing assistance in the breach of D1's duties of administrator (in equity).

The plaintiffs no longer pursue the cause of action set out in sub-para (1) above at the time of trial.

6.  The plaintiffs' case against both defendants is essentially based on an allegation that D1 has, by entering into written fee agreements with D2 (set out in more details below), rendered the Estate liable to pay manifestly and grossly excessive fees to D2.  Further, parts of the fees were payable either for no work or work which was properly unnecessary/irrelevant to the grant of probate or the administration of the Estate.

7.  For the same reason, D2 should properly have advised D1 against entering into the fee agreements.  In any event, D2 should not have entered into the said fee agreements.

Background Facts

8.  The Deceased was, relative to the 1^st plaintiff (“P1”), the father and, relative to the 2^nd plaintiff (“P2”), the grandfather.  He passed away in August 1933 and left behind 8 sons including P1.  At the time of the writ herein, P1 was aged 73 and P2 (now a retired general surgeon) was aged 70.

9.  The Deceased owned quite a few pieces of land in the Yuen Long area.  Parts of those land have been resumed by the Government commencing in the 1980's; the major resumptions however took place later in 1989, 1993 and 1995.  Large sums have been paid by the Government as a result by way of compensation.

10.  The Deceased left an English will dated 11 July 1930 and a Chinese codicil dated 4 March 1932.  But administration of the Estate was not granted until June 1994, more than half a century later.  D2 was the solicitor responsible for obtaining the grant.  The administrator's affidavit stated that the gross value of the Estate was $54,000 (and a net principal value of $53,000).  On that basis, estate duty and interest thereon was assessed at some $14,600 and paid subsequently.

11.  Although the Deceased left behind the said will and the said codicil, in 1932 he in fact divided his real properties and distributed some of them among his 8 sons.  However, at the time of the Deceased's death, there were still real properties (fish ponds, paddy fields and houses located in the Tung Shing Lane area in Yuen Long and some properties in the Mainland) which remained undistributed (“the undistributed properties”).  The said codicil provided they were to be held and managed in perpetuity for ancestral worship.

12.  The Deceased's descendants gathered to discuss the distribution of the undistributed properties in 1946.  They were grouped into 8 “fongs” which basically were consisted of members coming from the family of each of the Deceased's sons.  The discussion resulted in the execution by the heads of the “fongs” a document known as the Deed of Family Arrangement or “DFA” for short.  The 1^st plaintiff is a member of the 8^th  “fong” whereas the 2^nd plaintiff is a member of the 6^th “fong”. D1 is a member of the 4^th “fong”.

13.  By the 1990's, disputes arose among the “fongs” regarding the validity of the DFA.  Two sets of litigation were instituted in 1995 and 1996: one camp of the various “fongs” contending for its validity whereas the other camp contending otherwise.  The latter group argued the undistributed properties (and hence the Government compensation) should be divided equally, instead of being distributed as provided for in the DFA.

14.  There is no direct evidence about the actual motive behind the litigations.  But it is not difficult to imagine that there must have been increase or decrease in the land value of the undistributed properties respectively held by the “fongs” between 1945 and 1996.  The change in land value would very probably mean some of the “fongs” would benefit more if the DFA was valid and binding; the converse would be true for the other “fongs” if the undistributed properties were to be divided equally.

15.  One of those civil actions ended in the Court of Final Appeal, which in essence decided that the DFA is valid and enforceable: FACV 15/1999 (27 March 2000).  The practical result was that the respective share of each “fong” was to be valued in accordance with the DFA.

16.  Three fee agreements were signed by D1 for fees payable to D2.  They were respectively dated 29 November 1994, 7 November 1995 and 13 July 2000 (respectively “the Nov 94 agreement”, “the Nov 95 agreement” and “the Jul 00 agreement” and collectively “the said fee agreements”).

The Said Fee Agreements

17.  The relevant parts of the said fee agreements are relatively short.  In view of their importance to this action, those parts will be quoted below.

18.  The Nov 94 agreement provides:-

“… [D1] hereby agree to [D2's] legal costs (exclusive of disbursements) at 2% (TWO PERCENT) of the gross value of [the Estate], such value to be determined at the time of completion of [D2's] work or distribution of [the Estate] whichever is the greater payable upon receipt of proceeds of cash compensation or sale proceeds or distribution of the whole or part of [the Deceased's] properties.  The gross value upon which [D2's] legal cost at 2% is based may be agreed … or in default of agreement [be determined] by an independent valuer … ” (emphasis supplied).

19.  The Nov 95 agreement provides:-

“… [D1's] instructions to [D2's] firm to check the devolution of title of each of the lots and/or portions … and to ascertain particulars of the various lots comprised in [the Estate] and to instruct surveyors and other professionals to ascertain the sizes and areas of portions … [D1] hereby agree to [D2's] legal costs (exclusive of disbursements) of [D2] at the rate of HK$5,500.00 per hour from 1^st April, 1992 up to conclusion of this matter subject to a maximum amount of 2% (TWO PERCENT) of the gross value of [the Estate].  The gross value of [the Estate] is to be determined at the time of completion of [D2's] work or distribution of [the Estate] whichever is the greater payable upon receipt of proceeds of cash compensation or sale of the whole or part of [the Deceased's] properties.  The value for determining [D2's] legal cost at 2% may be agreed … or in default of agreement [be determined] by an independent valuer … ” (emphasis supplied).

In October 2000, the words “whichever is the greater” were deleted.

20.  The Jul 00 agreement provides:-

“[D1] refer to [the Nov 94 agreement] and [the Nov 95 agreement] and confirm [D1's] agreement with [D2] for determining the value of the gross value of [the Estate] for the purpose of calculating the amount of your legal costs at 2% and 2% respectively be at HK$1,000,000,000.00 and that the total of the aforesaid 2% and 2% legal costs payable [D2] from [the Estate] be at HK$40,000,000.00” (emphasis supplied).

It appears from the evidence there was a basis for valuing the gross value of the Estate at $1 billion.  In any event, no complaint has been raised about this figure per se in this action.

21.  The plaintiffs say that the combined effect of the said fee agreements is the Estate is liable to pay to D2 a total sum of $40 million.  This in short is denied by the defendants.

22.  There are numerous points of dispute raised in relation to what the true nature of each of the said fee agreements, such as whether they were “fixed fee” agreements, or whether there was a variation of agreement.  Because I am able to reach a conclusion on the plaintiffs' claim without the need to determine these points, I will proceed on the assumption that the plaintiffs' contention regarding the combined effect of the said fee agreements is correct (as a matter of construction based purely on their wordings).  This is of course subject to the discussions relating to the availability of taxation of the fees (and the adequacy and appropriateness of such a remedy).

23.  The said fee agreements were first disclosed to the plaintiffs in 2000.  It is disputed if they were so informed in mid-2000; but there is no dispute they were informed latest by October 2000.  The exact time of the disclosure is immaterial for present purposes.

24.  It was confirmed by D2 at trial that no payment had been received by him pursuant to the said fee agreements.

Were the Fees Charged Excessive and/or Unreasonable?

25.  As stated in para. 6 above, the whole the plaintiffs' case is premised on the gross and manifest excessiveness of the fees payable under the said fee agreements.

26.  It is contended that the total fee payable, which has been agreed to be $40 million, is by itself grossly and manifestly excessive.  Further, the agreed rate of payment (that is, 2% of the gross value of the Estate) is also grossly and manifestly excessive.  The same applies to the hourly rate of $5,500.

27.  Secondly, the Nov 95 agreement covered work which has already been performed, or work which was irrelevant/unnecessary.

28.  The defendants' defence is common over this aspect.  First, there is no or insufficient evidence of grossly and manifestly excessive fees having been charged.  Secondly, in any event, the fees payable under the said fee agreements are subject to taxation by the court and hence cannot possibly be excessive.  Thirdly, the work set out in the Nov 95 agreement was proper work.

(a)     Sufficiency of Evidence

29.  I agree with the defence that the burden is on the plaintiffs to show that the fees payable under the said fee agreements are grossly and manifestly excessive.

30.  There is no evidence of what is (or was) the usual (or usual range of) fees actually charged for legal services provided to estates (especially services for obtaining grants) with a gross value in excess of $50 million.  The defence argues that, in the absence of such evidence, there is no yardstick against which the reasonableness of the amount of fees set out in the said fee agreements can be measured.

31.  The plaintiffs' response to this argument is simply that there is no need to adduce such evidence.  They say, provided it can be shown:-

“by reference to objective criteria, that the fees charged come nowhere near what could be regarded as reasonable remuneration” (para. 26, plaintiffs' closing submissions in reply),

it suffices for present purposes.  They have not identified what the “objective criteria” are.  In this action, the relevant amounts payable under the said fee agreements are:-

(1)     the hourly rate of $5,500;

(2)     the rate of 2% of the gross value of the Estate; and

(3)     the sum of $40 million. 

But while some people may consider these sums to be on the high side, there is still no standard to enable a proper assessment to be made regarding excessiveness.

32.  There are, however, some materials showing the fees charged in relation to works concerning estates.

33.  First, there are documents which show that trustee companies usually charge an acceptance fee (which ranges from 1 to 2% on gross asset value), an administration fee (which ranges from 1 to 4% (usually on a descending scale)) and/or a withdrawal fee (which ranges from 1 to 1.5%).  The plaintiffs say that the charges are for administering the estates and hence they are different from the fees payable under the said fee agreements, which are for legal services for obtaining a grant of representation.

34.  The plaintiffs refer to the minimum fees prescribed by the Hong Kong Law Society for obtaining grants of administration which are:-

Gross Value of Estate		Scale Fee
Exceeding	Not Exceeding
	300,000		4%
300,000	600,000	For the first $300,000	$12,000
		Thereafter	3.5%
600,000	1,000,000	For the first $600,000	$22,500
		Thereafter	3%
1,000,000	10,000,000	For the first $1,000,000	$34,500
		Thereafter	2.5%
10,000,000	50,000,000	For the first $10,000,000	$259,500
		Thereafter	1%
50,000,000		Discretionary on excess over $50,000,000

They rely on the prescribed minimum rates as an indication that the Hong Kong Law Society expects and expected the fees charged by its members in relation to estates with a gross value in excess of HK$50 million to be less than 1% of the gross value.

35.  The defence refers to the fees of an administrator provided for by ss. 19 and 60, Probate and Administration Ordinance (Cap. 10).  S. 60(2)(b) provides that:-

“No such remuneration shall exceed five per cent on the first one thousand dollars, two and a half per cent on the next four thousand dollars and one per cent on the balance of the gross value of all property …” (emphasis supplied).

S. 19 provides:-

“A commission at the rate of five per cent on the first one thousand dollars, two and one half per cent on the next four thousand dollars and one per cent on the balance, or such lower rate or rates as the court may approve on the application of the Official Administrator in the case of any particular estate, shall be chargeable on the gross value of all property of whatsoever nature received or taken possession of, or realized or otherwise dealt with, by the Official Administrator under this Ordinance” (emphasis supplied).

The plaintiffs contend that the above fees are unrelated to the provision of legal services and hence are irrelevant.

36.  Finally, the statement of Anson Kam, an experienced probate solicitor, summarizes the factors which solicitors would take into account in determining the discretionary costs in relation to estates with a gross value exceeding $50 million.  This document does not state whether the fees payable under the said fee agreements are excessive.

37.  In short, I agree with the defence and disagree with the plaintiffs.  The minimum rates prescribed by the Hong Kong Law Society are insufficient to be treated as evidence of the usual rates charged by solicitors for legal services provided.

38.  The plaintiffs have also referred to the fees charged in the UK.  I also agree with the defence that references to the fees charged in the UK are not helpful to the determination of this issue; there is no evidence relating to whether the respective fees charged there and in Hong Kong are similar.

39.  Accordingly, as regards grossly and manifestly excessive fees being charged by D2 under the said fee agreements, the plaintiffs have not adduced evidence sufficient for a finding to be properly made.

(b)     Is Taxation of Fees an Answer and/or Sufficient Answer?

40.  Several matters should be mentioned before turning to this issue:-

(a)     the defendants say that D2 has, in November 1994, informed D1 inter alia that if the fees payable by the Estate were considered to be unreasonable, they could be referred to court for quantification;

(b)    D1 indicated in a letter dated 29 April 2005 that he was inclined to adopt the plaintiffs' view to have the costs payable under the Nov 95 agreement resolved by way of taxation;

(c)     D1 indicated in a letter dated 30 June 2005 (shortly before the trial commenced) that he would agree to D2's offer to render a bill in relation to the Nov 94 agreement and to have that bill taxed;

(d)    on 4 July 2005 (1^st day of the trial) D2 produced an itemized interim bill;

(e)     on 5 July 2005 (2^nd day of the trial) D2 indicated that a bill would be rendered within 14 days;

(f)     D2 has, apparently relying on RHC Ord. 62 r. 21, fixed an appointment to tax the bill (returnable before the master on 6 September 2005).

The significance of the above matters will become clear in the paragraphs below.

41.  Three points need to be determined under this sub-heading:-

(1)     are the fees subject to taxation by the court?

(2)     if so, are the plaintiffs entitled to be heard at the taxation hearing?

(3)     further to sub-para. (2) above, is the scope of the taxing master's power more restricted than in a “normal” taxation?

The plaintiffs also argue that this court should deal with the reasonableness of the fees charged by D2.

42.  The resolution of this dispute involves an examination of ss. 56, 67 and 68, Legal Practitioners Ordinance (Cap. 159).  It is therefore useful to set them out in length.  The relevant parts of s. 56 provide:-

“(1)   … a solicitor and his client may, either before or after or in the course of the transaction of any non-contentious business by the solicitor, make an agreement as to the remuneration of the solicitor in respect thereof.

(2)     The agreement may provide for the remuneration of the solicitors by … percentage …, and it may be made on the terms that the amount of the remuneration therein stipulated for either shall or shall not include all or any disbursements … in respect of searches, plans, travelling, stamps, fees or other matters.

(3)     The agreement shall be in writing and signed by the person to be bound thereby or his agent in that behalf.

(4)     The agreement may be sued and recovered on or set aside in the like manner and on the like grounds as an agreement not relating to the remuneration of a solicitor: Provided that if on any taxation of costs the agreement is relied on by the solicitor and objected to by the client as unfair or unreasonable, the taxing officer may inquire into the facts and certify them to the Court, and if on that certificate it appears just to the Court that the agreement should be cancelled, or the amount payable thereunder reduced, the Court may order the agreement to be cancelled, or the amount payable thereunder to be reduced, and may give such consequential directions as it thinks fit.” (emphasis supplied).

43.  The relevant parts of s. 67, Cap. 159 state:-

“(1)   On the application, made within 1 month of the delivery of a solicitor's bill …, of the party chargeable therewith the Court shall, without requiring any sum to be paid into court, order that the bill shall be taxed and that no action shall be commenced thereon until the taxation is completed.

(2)     If no such application is made with in the period mentioned in subsection (1), then, on the application of the solicitor … or of the party chargeable with the bill, the Court may, upon such terms, if any, as it thinks fit (not being terms as to the costs of the taxation), order-

(a)     that the bill shall be taxed;

(b) that, until the taxation is completed, no action shall be commenced on the bill, and any action already commenced be stayed … ” (emphasis supplied).

44.  Finally, the relevant parts of s. 68, Cap. 159 provide:-

“(1)   Where a person other than the person who is the party chargeable with the bill for the purposes of section 67 … is or was liable to pay, the bill to the … that person … may apply to the Court for an order for the taxation of the bill as if he were the party chargeable therewith, and the Court may make thereon the same order, if any, as it might have made if the application had been made by that party: Provided that, in cases where the Court has no power to make an order except in special circumstances, the Court may, in considering whether there are special circumstances sufficient to justify it in making an order, take into account circumstances affecting the applicant but which do not affect the party chargeable with the bill.

(2)     If a trustee, executor or administrator has become liable to pay a bill of a solicitor … the Court may, upon the application of any person interested in any property out of which the trustee, executor or administrator … is entitled to pay, the bill, and upon such terms, if any, as it thinks fit, order the bill to be taxed … ” (emphasis supplied).

45.  There is no dispute the said fee agreements can amount to an agreement falling with s. 56(1) and (3), Cap. 159 (“s. 56 agreement”).  The gist of the dispute between the plaintiffs and the defence concerns the ambit of the proviso to s. 56(4), Cap. 159 (“the s. 56 proviso”), namely, the part of s. 56 which states:-

“Provided that if on any taxation of costs the agreement is relied on by the solicitor and objected to by the client as unfair or unreasonable, the taxing officer may inquire into the facts and certify them to the Court, and if on that certificate it appears just to the Court that the agreement should be cancelled, or the amount payable thereunder reduced, the Court may order the agreement to be cancelled, or the amount payable thereunder to be reduced, and may give such consequential directions as it thinks fit” (emphasis supplied).

46.  The importance of the availability of taxation is this.  Where there is a s. 56 agreement, if the fees payable under the said fee agreements are nevertheless still subject to “normal” taxation (and if the plaintiffs can raise objections thereat), the plaintiffs' case regarding excessive fees fails because, on taxation, the court will only allow reasonable fees to be charged.

47.  The gist of the defence argument is that, when the solicitor (D2 in this action) has delivered a bill of costs to his client (D1 in this action) (despite the existence of a s. 56 agreement), the taxation provisions of Cap. 159 (including the s. 56 proviso) are engaged.  In this connection, the defence asks the court to note the taxation of costs referred to in the s. 56 proviso is:-

“… on any taxation of costs … ”,

and not:-

“on any taxation of costs ordered by the court pursuant to [the s. 56 proviso] or the court's inherent jurisdiction”.

48.  On the other hand, the plaintiffs argue that, where a s. 56 agreement has been entered into between solicitor and client, the solicitor's right is governed entirely by contract: s. 56(4), Cap. 159.  Hence, the solicitor's fee entitlement thereunder is not subject to taxation.

49.  They further argue that the s. 56 proviso only applies to exceptional circumstances because, on a proper construction, the phrase:-

“… on any taxation of costs … ”

in the s. 56 proviso has a limited scope.

50.  In this connection, the plaintiffs rely on the following passages in Walton v. Egan [1982] 1 QB 1232 as correctly stating the state of affairs, namely, the s. 56 proviso is concerned merely with a special form of taxation which is:-

“… a procedure initiated by the court pursuant to its own inherent powers to supervise solicitors as officers of the court … ”

and that:-

“… it is not a procedure exercised as of right by the client … ” (at p. 1238A-B).

The court will only exercise the powers if it is satisfied by the client that:-

“… there is something into which, as a matter of general principle or private right or both, the court ought to look … ” (Rutter v. Sheridan-Young [1958] 2 All ER 13 at p. 20C-D).

If it is so satisfied, it then orders a bill to be rendered by the solicitor and the costs to be “taxed” (which word has a narrower meaning than taxation in the ordinary sense (see below)).

51.  The plaintiffs say that it has not been established that those exceptional circumstances are present in this action.

52.  The defence, on the other hand, argues that the above-quoted passages must be understood in their proper factual context.  The Walton case involved an action brought by a solicitor who has entered into an agreement which was in the nature of a s. 56 agreement.  The cause of action was based entirely on such an agreement and no bill of costs was delivered (even though earlier there was a bill of costs which brought about the subsequent execution of the s. 56 agreement).  It is also important to note the Walton case was determined as a claim based on a binding agreement to compromise existing rights: p. 1239C.

53.  The defence contends that the true ambit of the s. 56 proviso can be ascertained from the other passages of the Rutter case.  First, Lord Evershed said there:-

“Is [the s. 56 proviso] in the modern legislation …  intended to be a qualification on the right of a solicitor to sue on a [s. 56 agreement] and, therefore, intended to give to the court some jurisdiction only to be invoked when a solicitor does so sue, or is it in some sense, and, if so, what, an independent provision? …

But authorities … which … are binding on this court, have … qualified or put a gloss on the reading of [s. 56(4)] …

[In Re Palmer (1890) 45 Ch D 291, the] relevant Act was [an equivalent of s. 56(4)] …  The question in that case was whether [the client] … could go behind an agreement which he had made … to pay a lump sum … to his solicitor …  The argument was that an agreement for a lump sum bill could be no bar to the right of a person to have a solicitor's bill of costs taxed …  But … this court itself dealt with it on a broader ground … for this is the language of Cotton LJ:

'Then it is said that, having regard to [s. 56(4)], this agreement ought to be referred to the taxing master.  But the appellant has not brought forward any evidence showing that this charge is unfair or unreasonable; and although [s. 56(4)] does … give the court power, where an agreement is so impeached, to refer it to the taxing master to consider …  the court ought not, merely upon such an argument by counsel, unsupported by affidavit or facts which will lead to that conclusion, to refer such an agreement to the taxing master to exercise the power given by [s. 56(4)]'” (emphasis supplied) (pp. 17G to 18I).

Thus, the court refused to intervene under the s. 56 proviso only because of the lack of evidence of unfair or unreasonable fees being charged.

54.  More importantly, Lord Evershed continued in the Rutter case:-

“It will be observed that Cotton LJ … construed [s. 56(4)] … as conferring a general power on the court, notwithstanding an agreement for a lump sum payment, to order that a bill be delivered and that the bill be taxed.  But, said the lord justice, such a power in the court will not be exercised merely because the client asks for it … ” (pp. 18I to 19B);

“It seems, therefore, to me quite plain that, as a matter of general principle, it is not right to say that a client who has made an agreement for paying a lump sum … has an unqualified right to ask for a bill of costs.  His right to require a bill is limited to cases where he can show, on the facts … ,  to the satisfaction of the court that there is something into which, as a matter of general principle or private right or both, the court ought to look” (emphasis supplied) (p. 20B-D).

Hence, the limits are concerned with the client's right, not the court's jurisdiction.

55.  The plaintiffs' second argument under this heading is, even if such a special form of taxation can be ordered, according to the s. 56 proviso, only “the client” can raise objections to the fees.  In relation to the legal work provided to the Estate, only D1 has been D2's client.  The plaintiffs, not being D2's clients, cannot raise objection at the taxation hearing.

56.  Relying on s. 68, Cap. 159, the defendants argue that, once a bill of costs has been delivered (as has happened in this action), the plaintiffs, as persons

“… interested in any property out of which the trustee, executor or administrator … is entitled to pay, the bill … ” (see s. 68(2), Cap. 159 quoted above),

can apply to have the costs taxed.  In any event, even at common law, they can commence an action for such purpose and join D1 (as the administrator) if necessary: Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (2000) 18^th Ed., para. 62-34; Gandy v. Gandy (1885) 30 Ch D 57. 74; Re Craig [1971] Ch 95.

57.  It is incorrect to read the words “the client” in the s. 56 proviso without regard to the other provisions, especially s. 68(2).  It is also incorrect to construe ss. 56, 67 and 68, Cap. 159 to mean that the right to raise objections depends on who initiated the taxation process.

58.  In brief, I agree with the above submissions of the defence, and disagree with the plaintiffs', for the reasons put forth by the defence (set out above).  If the plaintiffs' argument on the meaning of the s. 56 proviso, ss. 67 and 68, Cap. 159 be correct, objections relating to locus standi to oppose the taxation can be raised.  And the right to object will have to depend on who happens to apply for taxation.  This cannot right.  But even if somehow such a narrow construction should be adopted, the court's power to join necessary parties can adequately deal with the matter.  In this connection, the court's power at common law to order a bill of costs to be delivered (declared in statutory form by way of s. 65(1), Cap. 159) should also be noted; a bill of costs may be ordered to be delivered to the affected beneficiaries, if necessary.

59.  Finally, the plaintiffs argue that the taxing master's jurisdiction is more restricted (compared to that in a “normal” taxation undertaken pursuant to ss. 67 and/or 68, Cap. 159) where the taxation involves the s. 56 proviso.  This is because the s. 56 proviso lays down that he has no power to make any determination regarding the s. 56 agreement; what he can do is only to inquire into the facts and certify his findings.  The cancellation of the s. 56 agreement and/or the reduction of the fees payable (and/or other consequential directions) can only be ordered by the court.

60.  In any event, so the plaintiffs contend, since this court has all the relevant facts before it in this action, this court can deal with the matter.

61.  Again I disagree.  Whether there is a need to invoke the powers conferred by the s. 56 proviso depends on whether the said fee agreements will be relied on by D2 on taxation (it can be assumed that if he does, they will be objected to by D1 and/or the plaintiffs).  If D2 does not do so at the taxation initiated by him, there will be no need for the taxing master to invoke the power conferred by the s. 56 proviso.  If the s. 56 proviso is engaged (because D2 relies on the said fee agreements), even though the prescribed procedure may involve a longer process, there is no basis to say it somehow should affect the court's power to reach a just result.

62.  Hence, irrespective of whether there is a need to invoke that power, the court's powers under the other provisions of Cap. 159 (such as ss. 67 and 68) to tax bills of costs will not be affected.  A discussion of the taxing master's powers under Ord. 62 (which in many ways are similar to his power to tax non-contentious costs) can be found, for example, in Hong Kong Civil Procedure 2006, para. 62/App/18 to 62/App/27, 62/App/67 and 62/App/74.  In a “normal” taxation, the powers of the taxing master are not only to assess the quantum of the fees as regards rates of charge and time spent, but also whether it was proper for the work to be done.  I do not see any valid reason for thinking somehow he should have less powers over those matters where the s. 56 proviso is engaged.

63.  Secondly, it is incorrect to say all materials necessary for the exercise of the jurisdiction conferred by the taxation provisions of Cap. 159 have been placed before this court.  Upon the plaintiffs' application (which was opposed by the defence) for the question of quantum to be tried separately from liability, I acceded to that application.  Hence, parties have properly adduced evidence related only to liability in the course of the trial.

64.  By reason of the matters set out above, I find that taxation of the fees payable under the said fee agreements is a sufficient answer to the plaintiffs' allegation that the Estate has been made liable to pay excessive fees:-

(1)     s. 68(1) and (2), Cap. 159 ensures the plaintiffs' right to be heard.  To that extent, they will not suffer from any procedural disadvantage by the mere reason that the powers conferred by the s. 56 proviso may be invoked;

(2)     the taxing master's powers are not adversely affected by the power conferred on him by the s. 56 proviso.

65.  In brief, the answers to points (1) and (2) in para. 41 above are in the affirmative and the answer to point (3) is in the negative.

Were There Breaches of Duties?

66.  Having concluded that no excessive fees can be charged under the said fee agreements, the cornerstone of the plaintiffs' primary claim against both defendants is removed.  Strictly there is no need to deal with this issue.  I shall do so for completeness.

67.  In considering this aspect of the plaintiffs' claim, it must be noted that the plaintiffs' case is not based on any alleged:-

(a)     fraud on the part of either or both defendants;

(b)    conspiracy between the defendants; or

(c)     actual intention of either or both defendants to harm the Estate.

Logically, therefore, it cannot be part of the plaintiffs' case that D1 knowingly conferred undue benefit to D2.

(a)     Plaintiffs' Case against D1

          (1)     Fiduciary Duty

68.  The plaintiffs' case regarding D1's breach of fiduciary duty is not put on the basis of bad faith on D1's part; but rather on the basis that D1, in entering into the said fee agreements, have acted otherwise than in good faith.

69.  According to the plaintiffs, the test applicable in determining if there has been a breach of the duty is:-

“… whether office-holders [such as an administrator] have acted properly in undertaking particular tasks at a particular cost in expenses or time spent must be whether a reasonably prudent man, faced with the same circumstances in relation to his own affairs, would lay out or hazard his own money in doing what the office-holders [such as an administrator] have done”: Mirror Group Newspapers plc v. Maxwell [1998] BCC 324, 334E-F.

The reasonably prudent man is expect to deploy commercial judgment, not to act regardless of expenses: Maxwell, p. 334F.  The test is objective.

70.  The analysis preferred by D1 is that, from a practical point of view, the duty contended for differs little (if at all) from the duty to act with reasonable care and diligence.  He submits that a personal representative's duty of diligence or care, though arising out of the relationship as a fiduciary, is not fiduciary in nature.  The ingredients of such a duty are accordingly no different from an ordinary tortuous negligence claim: the claimant needs to prove negligence and loss and damages caused as a result.

71.  In considering this aspect, D1 asks the court to take into account the circumstances under which the said fee agreements came to be executed.  They include:-

(a)     since the time of the DFA, legal title to many properties has not been obtained.  This caused problems to the 8 “fongs” when tenants challenged their legal title;

(b)    many lawyers have been consulted about the problem since the mid-1970's with no fruitful result;

(c)     by the 1990's, the general impression of the 8 “fongs” was that it was difficult (both legally and financially) to obtain a grant of representation of the Estate;

(d)    part of the difficulties arose from the lack of title documents relating to some of the properties;

(e)     such a perception of difficulties can be shown by a letter sent by Mr. Lau Yue Sum, a member of the 8^th “fong” who is himself a solicitor, representing that obtaining probate would be a very difficult matter;

(f)     there were no funds available in the Estate to meet the expenses needed for obtaining legal services or paying estate duties;

(g)     by around March 1993, when the Government resumption became known, there was an urgency to obtain grant of representation because of the statutory time limit to lodge a claim for compensation.  The urgency was also related to the interest payable for the compensation;

(h)     it was understood by the “fongs” that the amount of compensation was in terms of millions of dollars;

(i)      in February 1994, D2 successfully obtained a grant of probate of the estate of D1's father for which D1 agreed to a fee of 2% of the gross value of the estate;

(j)      between December 1993 and July 1996, D2 successfully negotiated for a reduction of the value of the estate of D1's father for estate duty purposes by 70%.  D2 also successfully negotiated for an increase of the amount of compensation for D1;

(k)     since 1979, all the 8 “fongs” have been consulting D2 and no other solicitors.  D2 has been advising the family effectively for the last 2 decades;

(l)      in the valuation put forth by Messrs. Vigers to the Estate Duty Office for the Estate, D2 suggested to reduce the valuation from about $1.8 million to less than $56,000.  D2 later obtained estate duty clearance in May 1994 based on the low value.

72.  Further to the above, the defence also asks me to note that D2 has up to now not yet been paid by the Estate and the knowledge that D2 was willing in effect to give a lengthy credit period should be taken into account in deciding this aspect.

73.  D1 also testified to the effect he had considered the prescribed minimum fees of the Hong Kong Law Society and the usual charges of the trust companies in Hong Kong before entering into the said fee agreements.

74.  Finally, the defence relies on D2's statement to the effect that, if there is any complaint regarding the fees charged, the matter can be referred to court for quantification.

75.  D1 argues that it was reasonable for him to enter into the said fee agreements bearing in mind the matters set out above and the fact that he was only a layman.

76.  The plaintiffs have made various detailed and forensic criticisms of the matters set out above.  I do not consider it necessary to repeat them in detail.  In short, it is implicit in the plaintiffs' contentions that, when considering this aspect on an objective basis, each of those matters should be considered separately and, when one does so, they are individually inadequate.

77.  That approach is incorrect.  When looking at the reasonableness of a person's conduct in the context of the surrounding circumstances, it is generally inappropriate to assess the issue assuming that he must analyse the situation with the degree of precision contended for by the plaintiffs.  People do not usually act like that in real life.  It should not be taken from the above, however, that I agree with the plaintiffs that each of the above matters is inadequate.  One or two matters relied upon by D1 may not stand up to detailed scrutiny in their entirety; they have been into account in the overall assessment of this aspect.

78.  Having considered the whole circumstance:-

(1)     the test for determining this issue is more accurately stated by the plaintiffs.  D1's duty is to act as if he was dealing with his own affairs, and not merely a duty to take reasonable care (as is applicable in ordinary negligence).  The former duty is higher than the latter (although it may not be a lot higher);

(2)     applying the higher duty, I do not find D1 to have acted unreasonably in entering into the Nov 94 agreement; hence, I do not find him to have breached that duty.

Subject to the matters set out below, I do not find anything significant enough to justify a different conclusion as regards the Nov 95 agreement or the Jul 00 agreement.

79.  In relation to the Nov 95 agreement, there is a further attack as regards the propriety of the scope of work.  The plaintiffs argue that:-

(1)     checking the devolution of title of each of the lots and/or portions;

(2)     ascertaining particulars of the various lots comprised in the Estate;

(3)    instructing surveyors and other professionals to ascertain the sizes and areas of portions,

were not work properly to be performed by an administrator.  There is no need to give good title to the beneficiaries.  Further, some of the work have in fact been done in other context and/or by other professionals.  For example, work done by Messrs. Vigers relating to the claim for compensation for the Government resumption.

80.  D1 puts forth in gist two points in reply.  The first is that, as a layman, he was not in a position to know what work was or was not necessary but has to rely on the lawyer about that.  Secondly, the work was needed in connection with the distribution of the Estate.  In the factual context of this action, there was a need to identify the undistributed properties (in distinction to the properties respectively owned by the 8 “fongs”).  There was also a disparity between the land boundaries as appeared in the documents and the actual boundaries which needed to be resolved.  There were other reasons why the work was needed, but in short, the work specified in the Nov 95 agreement was needed to find out what each “fong” has already obtained (and what they should still be entitled to as a result), before distribution could properly be carried out.

81.  As regards whether there was double-charging, the arguments set out above (that is, the fees payable are subject to taxation and D1's reliance on D2's view) are equally applicable.

82.  I agree with the defence.  The plaintiffs have over-simplified the work of the defendants in administering the Estate.  They have also approached the matter almost on the assumption that a lay client when acting as an administrator should be suspicious of work which the solicitor has advised should be done.  That cannot be right.

83.  This cause of action has not been made out.

          (2)     Negligence

84.  Insofar as the plaintiffs should rely on negligence as a separate cause of action, the matters set out under the previous sub-heading “(a)(1) Fiduciary Duty” equally applies.  I will not repeat them here.

85.  I do not find this cause of action has been established.

(b)     Plaintiffs' Case against D2

86.  As stated (in para. 5) above, the cause of action against D2 is founded in an alleged breach of fiduciary duty.  The breach is said to have arisen from:-

(a)     D2 has made a profit out of the assets of the Estate by charging grossly and manifestly excessive fees;

(b)    D2's failure to advise D1 (in relation to the Nov 95 agreement) the scope of legal work which was necessary (as opposed to desirable) for the due administration of the Estate;

(c)     D2's failure to advise D1 the appropriate level of fees payable for the services to be provided.

87.  In relation to para. 86(a) above, it is said that, because he is the intended recipient of the fees payable under the said fee agreements while being the only person advising D1, he has placed himself in a position of conflict of interest.

88.  Bearing in mind it is never part of the plaintiffs' case either defendant has been guilty of the matters referred to in para. 67 above, I do not consider the propositions in para. 86(a) and 87 above to have merits.  Charging of fees by the professionals (be they lawyers, accountants, surveyors or bankers) when they act in essence as fiduciaries is a well recognized exception to the rule against conflict of interest: Re Peregrine Investments Holdings Ltd. [1998] 3 HKC 1, 10B-C.  Income from professional fees is accepted as a proper reward to the professionals for the services they provide.

89.  The plaintiffs rely on the Peregrine case and the decision in Mirror Group Newspapers plc v. Maxwell and Others [1998] BCC 324 in support of their argument that charging grossly and manifestly excessive fees amounts to a breach of fiduciary duty on which a cause of action can be founded.

90.  I disagree with the argument.  Whatever criticisms the courts might have made regarding professional fees in the decisions in the Peregrine case (for example, at pp. 5-6, 16-17, 22 and 24) or the Maxwell case (for example, at pp. 331 and 346-347), I do not understand the courts to be saying there that merely charging excessive fees per se should amount to a breach of fiduciary duty such as to ground a claim against the intended recipient.

91.  In relation to the contention summarized in para. 86(b) above, because of the earlier finding that the work cannot be considered to be unnecessary, it is also rejected as having no merits.  Apart from the matters set out above in support of that finding, I also agree with D2's submissions regarding this aspect (set out in D2's closing submissions).

92.  The contention summarized in para. 86(c) above is rejected.  It has not been established the fees payable are grossly and manifestly excessive.

93.  Finally, I do not agree D2 has knowingly assisted D1 to breach his duties for the simple reason that D1 has not been found to have breached his duties.

(c)     Informed Consent of the Beneficiaries

94.  It is unclear if the plaintiffs put this forward as a separate and independent cause of action.  Insofar as they do, I do not find that this has any merit.  I agree with the defence that, if the defendants have not breached any of the duties contended for by the plaintiffs, the lack of consultation does not add anything to the plaintiffs' claim.

95.  I also agree with the defence that informed consent may in appropriate cases be raised as an additional defence to a claim of breach of duties.  This point, however, does not arise in the present factual context.

Should D1 be Removed?

96.  This aspect is based essentially on the plaintiffs' case that D1 has breached his duties as an administrator.  Because I have found that this has not been established, this claim also fails.

97.  The plaintiffs also argue that hostility between the trustee and the beneficiaries can be a ground for removing the trustee.  This argument is premised on their case concerning excessive fees and should therefore also fail.

Should D1 be Barred from Claiming Remuneration?

98.  This matter originates from D1's letter dated 24 October 2000 in which he sought the plaintiffs' view regarding his intention to claim remuneration for the work he had performed as administrator of the Estate (at 1% of the gross value of the Estate).

99.  The dispute between the plaintiffs and D1 is whether this is the proper forum to determine that issue.  The plaintiffs say yes whereas D1 says otherwise.  In essence, the plaintiffs submit that it is an exception to allow remuneration to an administrator.

100.  D1 argues that the appropriate time to consider the matter would be after the completion of the administration of the Estate.  This is because only then will it be known for certain the nature and amount of work performed by him.

101.  Further, it is only when D1 has decided whether he wishes to make such a claim that he will adduce evidence to substantiate the claim.  Because he has not decided yet, there is no such evidence before this court.

102.  I agree with D1.  I also agree that, since the court's jurisdiction to allow remuneration is set out in s. 60, Cap. 10, it is arguable whether the decisions in the UK, where the powers are founded in inherent jurisdiction, are applicable to Hong Kong.

103.  For those reasons, I disagree with the plaintiffs regarding this aspect.

Other Matters

104.  The following matters are stated below to avoid any doubt.

105.  Regarding the credibility of the defence witnesses, subject to any express findings made herein to the contrary, I accept their testimony to be truthful and reliable.  In assessing credibility in order to make a finding of fact, the tests adopted for such assessment are as those stated in the judgment of Star Glory Investment Ltd. v. Kai Tuo (H.K.) Technologies Co. Ltd. and Others, HCA 3523/2002:-

“The assessment of a witness's credibility and/or reliability is a task frequently undertaken by the court in litigation (in fact, very often an essential task).  I consider the following to be the appropriate test to adopt:-

'There are two objective tests for assessing a witness's credibility regarding a matter to which he has testified:-

(a) whether that part of his testimony is inherently plausible or implausible;

(b) whether that part of his testimony is, in a material way, contradicted by other evidence which is undisputed or indisputable (an example often given of such evidence is contemporaneous documents).

Further, where it is shown that a witness has been discredited over one or more matters to which he has testified (using the above tests), this fact is relevant to the assessment of his overall credibility.  Likewise, regard may be had to a witness's motive for deliberately not giving truthful testimony.  For example, telling the truth may prejudice his interest, or a just determination of the litigation may affect his interest'.

(See, for example, the decisions in Chiu Chi Tong v. Lau Chong Sai HCA 765/2002 (para. 28) and Yu Ming Investment Ltd. v. Pang Ru Chuan, Richard HCA 814/2002 (para. 13))”.

Any testimony of the plaintiffs which is inconsistent with the above is rejected.

106.  Although not all the points made by the parties (whether set out in their respective written submissions or verbally during the hearing) have been expressly referred to above, I have considered them.  Subject to indications to the contrary, and insofar as it may be necessary to so decide (further to what has expressly been stated in the above paragraphs), I prefer the points made by the defence to those made by the plaintiffs which have not been expressly dealt with above.

107.  Two additional matters are worthy of consideration (set out below).

(a)     D2's Statement Regarding Taxation

108.  It is the defence case that, before the Nov 94 agreement was entered into, D1 was advised by D2 that if the fees payable were complained to be unreasonable, the matter could be referred to court for quantification.  This has been referred to in the closing submissions as “the Assurance”.

109.  In a ruling made on 12 July 2005, I found that this had been admitted by the plaintiffs in their reply (especially in para. 5 thereof).  In their closing submissions, the plaintiffs contend that there are two inconsistencies:-

(1)     D1 testified to the effect that the complaints against the fees could include complaints by the other beneficiaries of the Estate whereas D2 testified that the complaint should come from D1;

(2)     D1 testified to the effect that the Assurance was an advice given to him by D2 but D2 testified that the Assurance was not only an advice, but also a term of the said fee agreements or a collateral agreement thereto.

The plaintiffs say that the inconsistencies show that the defendants are untruthful.

110.  I do not agree.  As correctly pointed out by the defence, the Assurance took place a long time ago and any difference in recollection could well have been the result of imperfect memories (which I find to be the reason for the “inconsistencies”).

111.  The absence of the Assurance from the said fee agreements (or any documents of a contemporaneous nature) is also relied upon in support of the attack on credibility.  I have taken this into account when assessing the credibility of this part of the defence testimony.

112.  However, I accept the plaintiffs' submission that the Assurance was in the nature of an advice rather than something with contractual force.  But this finding does not affect the outcome of this action.

(b)     Delay in Taxation

113.  The plaintiffs also argue that, because of the delay in proposing taxation of the fees, the defendants are disentitled from claiming taxation should be the preferred remedy.

114.  The argument is difficult to comprehend.  First, this is not a case where the plaintiffs have agreed to taxation of the fees upon the remedy being proposed by the defence.  The claim that the fees payable are gross and manifestly excessive is maintained throughout, despite the proposal to tax having been made.  In pursuing that claim, it is part of the plaintiffs' arguments that taxation is unavailable as a matter of law and, in any event, the remedy is inadequate (for the reasons set out above).

115.  Second, delay in proposing taxation of fees has not been put forth as a breach of duty either in equity or in tort.

116.  I have however taken into account the delay when assessing the credibility of the defence witnesses.

Conclusion

117.  The plaintiffs' claims sought in the writ are dismissed.

Costs Order Nisi

118.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will accordingly be a costs order nisi pursuant to Ord 42 r 5B(6) that the costs of this action be paid by the plaintiffs to the defendants to be taxed if not agreed.