LAM SIK PIU AND ANOTHER v. CHAN MAN CHIU AND ANOTHER

DCMP823/2010

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

MISCELLANEOUS PROCEEDINGS NO. 823 OF 2010

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BETWEEN

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J U D G M E N T

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1.  This is a sad case. Despite that the parties are able to reach a settlement in respect of the Plaintiffs’ claim, they still fight bitterly on the issue of costs.

2.  The 1st Plaintiff, Mr Lam, is the natural father and the next friend of the 2nd Plaintiff in the present proceedings.  The 2nd Plaintiff, the Son, is now aged 20 and is a mentally handicapped person (“the Son”).  The Plaintiff married the Deceased in 1989.  Unfortunately, the Deceased died in May 2003 because of breast cancer when she was only 39 years of age.  The Son is the only child of the marriage.

3.  The Deceased made a will in 2001 (“the Will”).  The making of the Will was before she purchased the flat in Tsing Yi Estate (“the Matrimonial Home”).  The Matrimonial Home was a former housing unit, and before the purchase the Plaintiff and the Deceased had resided there under a tenancy since late 1999.  Under the Will, Mr Chan Man-chiu, the 1st Defendant, and Mr Chan Ping-kwong, the 2nd Defendant, were the appointed executors and trustees under the Will.  Both Mr Chans were the Deceased’s elder brothers.  The beneficiaries under the Will were Mr Chan Ping-kwong as to the 85% of the residual estate of the Deceased and the Son as to the 15% of the residual estate of the Deceased if and when the Son attains the age of 18.  The Will made no provision whatsoever for Mr Lam.  Apparently, the Deceased had very little trust on Mr Lam because under the Will, she appointed both Mr Chans to be the legal guardian of the Son.

4.  The Letter of Probate was granted to both Mr Chans on 4 October 2005. 

5.  Mr Lam and the Son had all along been living in the Matrimonial Home without paying any rent to the estate of the Deceased.  After the death of the Deceased, Mr Lam made the mortgage payments in respect of the Matrimonial Home. 

6.  According to the Schedule of Property attached to the Grant of Probate, the Deceased had cash and other personal valuables in the amount of $350,000.  The other main asset of the Deceased is the Matrimonial Home which was subject to a mortgage loan of $127,000.  As at 7 December 2009, the market value of the Matrimonial Home unencumbered was $550,000 on vacant possession basis.

7.  Sometime in July 2007, Mr Chan Ping-Kwong transferred all the money in the estate to his account and he then distributed the asset.  $60,000 was given to the Son as his share in the asset in February 2009.

8.  On 17 March 2010, Mr Lam commenced the present action on his own behalf and on behalf of the Son to claim for, inter alia, the following:

(i) reimbursement of the expenses paid by Mr Lam on behalf of the estate, including the mortgage payments made by him after the death of the Deceased and the funeral expenses in the sum of about $250,000; and

(ii) reasonable provision for the maintenance of the Son and himself under the Inheritance (Provision for Family and Dependents) Ordinance, Cap. 481 (“the Ordinance”). 

9.  During the direction hearing, I had referred the case for mediation.  Quite surprisingly, the mediation was not successful and the case came before me for trial.

10.  The case was finally settled on the first day of the trial.  Under the terms of the agreement:

(1)  Mr Chan Ping-kwong would pay about $250,000 to Mr Lam under the reimbursement claim;

(2)  both Mr Chans would transfer 15% of the interest of the Matrimonial Home to the Son;

(3)  both Mr Chans assign a life interest to the Son to live in the Matrimonial Home and the Son shall be entitled to reside there with Mr Lam and his immediate family members;

(4)  both Mr Chans should not dispose of their interest in the Matrimonial Home during the life of the Son and the Plaintiffs would pay for the renovation and maintenance costs of the Matrimonial Home with 85% of those costs to be reimbursed by Mr Chans to be paid out of the net sale proceeds of the Matrimonial Home after the death of the Son.

11.  However, the parties cannot agree on the issue of costs.  Mr Lam and the Son ask for the costs of the action to be paid by Mr Chan Ping-kwong personally, but the Defendants argue that there should be no order as to costs of the action, or alternatively, the Plaintiff be entitled to costs of the reimbursement claim while the Defendants be entitled to the costs of the reasonable maintenance claim.

12.  Mr Lam and the Son are both legally aided under two separate Legal Aid Certificates.  Since 2003, Mr Lam has also been receiving CSSA payment for the maintenance of his living.  As Mr Lam was the beneficiary under the life policy of the Deceased, Mr Lam also received about $200,000 from the Deceased’s insurer in 2003. 

13.  As there is a potential conflict of interest between Mr Lam and the Son, I have considered the issue as to whether they should be separately represented.  However, as the conflict of interest is more apparent than real, I do not want to complicate the proceedings which would certainly result in additional costs and delay.  In any event, I am satisfied that the settlement terms are in the best interest of the Son.

14.  Both Mr Chans give an undertaking to the court that they would not use the asset of the estate to pay for the costs of the present proceedings. 

15.  The Plaintiffs ask for the costs on the basis that the Defendants only offered to make a payment under the reimbursement claim on the first day of the trial.  In such circumstances, Mr Chan Ping-kwong, who is the person mainly involved in the legal proceedings, should pay for the costs of the Plaintiffs.  However, after considering the overall circumstances, I am of the view that the fairest costs order is that there be no order as to costs of the action.

16.  In my judgment, both Mr Chans had all along been acting reasonably in respect of the administration of the estate of the Deceased and the conduct of the present litigation.  One must bear in mind that they are the trustees and the executors of the Deceased’s estate.  Mr Lam has no interest in the estate.  Being the executors and the trustees of the estate, both Mr Chans had the duty to the estate to administer the asset, including the renting out of the property to generate rental income.  In the present case, the circumstances are quite different which involve additional considerations.  The Son is a nephew of the Defendants and he is a mentally handicapped person.  In such circumstances, one of the main considerations was that he must have a place to live.  In this regard, both Mr Chans all along had no intention to sell the Matrimonial Home with a view to distribute the proceeds of the sale.  No matter whether the Defendants would transfer the Matrimonial Home to the Son, they had allowed the Son to occupy the Matrimonial Home without the payment of any consideration.  In this regard, the Defendants’ conduct had all along been reasonable. 

17.  As I understand it, the main complaint of Mr Lam is that the Defendants should have paid off the mortgage debt after the death of the Deceased and let them occupy the Matrimonial Home for the rest of the Son’s life.  Without discharging the mortgage debt, it was wrong for Mr Chan Ping-kwong to distribute or dissipate the asset of the Deceased in 2007.  

18.  However, one must bear in mind that Mr Chan Ping-kwong was both the executor and the beneficiary of the estate.  It was his legal right to sell the Matrimonial Home and to distribute the proceeds of sale amongst the beneficiaries.  If the Matrimonial Home was not sold, he should have at least been entitled to the income derived from the property, and that should be the position before the making of the reasonable provision claim.  By allowing the Son to occupy the Matrimonial Home rent-free, Mr Chan Ping-kwong was sacrificing his interest as a beneficiary under the estate.  In fact, the value of the property to Mr Chan is now practically nil because under the terms of the settlement agreement, he cannot sell the property before the death of the Son.  Obviously, he was willing not to sell the property in the interest of the Son, but he might not be willing to do so for the benefit of Mr Lam.  Although Mr Lam did take care of the Son, he enjoyed the incidental benefit of living in the Matrimonial Home rent-free. As he received money under the Deceased’s insurance policy, he would be in a position to contribute for part of the mortgage payments.  If Mr Chan Ping-kwong was sacrificing his own financial interest for the sake of the Son, why could he not demand Mr Lam to do the same? 

19.  Further, if the Defendants had discharged the mortgage debt in respect of the Matrimonial Home after the death of the Deceased, the Son would not have received as much as $60,000 in 2009. According to the terms of the settlement, Mr Chan Ping-kwong is prepared to pay the reimbursement claim himself without asking the Son to account for part of the payment.  In such circumstances, Mr Chan Ping-kwong did show concern for the welfare of the Son.

20.  As I see it, the parties in the present case should not be criticized for the conduct of the legal proceedings and so the fairest order is one of no order as to costs.  Perhaps one could also approach the matter from another angle.  There are three claims involved in the present case.  One may say that Mr Lam succeeds in the reimbursement claim, but he also fails in his own reasonable provision claim.  For the reasonable provision claim of the Son, I firmly believe that both Mr Chans had all along been acting in such a way that they had no objection for the Son to occupy the Matrimonial Home rent-free for the foreseeable future, and I am sure that legal proceedings are not necessary to resolve this particular issue between the parties.  Apparently, the Plaintiffs succeed in some of the claims but lose on the others and so the fairest costs order is still one of no order as to costs.  Further, Mr Lam has no interest in the estate unless he makes out a claim for reasonable maintenance under the Ordinance.  Whether there was reasonable excuse or not, there is no doubt that the reasonable maintenance claim was made much later after the expiry of the 6-month limitation period as provided for in the Ordinance.  In such circumstances, it was quite reasonable for the Defendants to require Mr Lam to prove his case in the legal proceedings. 

21.  Despite whatever costs order to be made by the Court, Mr Ng, counsel for the Plaintiffs, asks the Defendants to pay for the Plaintiffs’ costs in respect of the Defendants’ allegation that the Plaintiff had possibly defrauded the Social Welfare Department in respect of the CSSA payment.  According to the Defendants, if Mr Lam had disclosed to the Social Welfare Department that he had obtained about a quarter of a million dollars from the Deceased’s insurer, it would not have been possible for Mr Lam to have obtained CSSA payment.  In such circumstances, the Defendants allege that Mr Lam might have defrauded the Social Welfare Department. 

22.  Mr Ng submits that because of such allegation, the Plaintiffs’ solicitors had to incur considerable costs to disprove such allegation.  As the allegation turns out to be wrong and the Defendants should not have made such allegation in the absence of further supporting evidence, the Defendants should pay for the costs associated with such allegation.

23.  Again, I see nothing unreasonable for the Defendants to have raised such allegation.  Obviously, I agree that fraud is a very serious allegation and should not have been made lightly.  However, as Mr Lam had received considerable money from the Deceased’s insurer, the Defendants’ concern in this regard may be a legitimate one.  In particular, Mr Lam’s credibility in respect of the CSSA payment may affect issues such as the potential earning capacity of Mr Lam which would in turn affect the merits of his reasonable provision claim.  In such circumstances, I refuse to make a separate costs order relating to the fraud allegation. 

24.  Unlike other commercial claims, this is very much a dispute within the family.  The terms of the Deceased’s Will speak for itself.  There was very little trust between the Deceased and Mr Lam and, as a result, the Deceased’s family members did not have much trust on Mr Lam. Despite that, all the parties in the present case were able to put the welfare of the Son as a paramount concern and they were prepared to sacrifice some of their financial interests for the sake of the Son.  In such circumstances, they should not be asked to bear the costs of the opposite parties.

25.  As both Mr Lam and the Son are legally aided and are receiving CSSA payment for their living, I doubt very much whether any costs order in their favour would make a practical difference.  On the other hand, Mr Chan Ping-kwong has to finance the litigation himself. However, such consideration plays no part in my costs decision above.  Hence, I make the order that there be no order as to costs of the action.