LAU KIN SHUN FREEMAN, Administrator of estate of LAU WAI CHAU, deceased v. MA WAH YAN and WONG CHI LEUNG, co-administrators of the estate of LAU LEUNG CHAU, deceased AND OTHERS

HCMP 3924/1995

[2024] HKCFI 175

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 3924 OF 1995

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AND

HCMP 3209/1996

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DECISION

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A.  INTRODUCTION[1]

1.  Lau Wai Chau (“the Ancestor”) died in 1933.  He had 8 sons.  During his lifetime, he had acquired, among other things, many pieces of lands in the New Territories. Shortly before his death, the Ancestor divided his lands into nine parts.  Each of the eight fongs (familial branches in the male line) was given one part.  The ninth part went to the Ancestor’s three eldest surviving sons to hold the same on trust for the Ancestor himself.

2.  Despite the aforesaid division of lands, the estate left by the Ancestor (“the Estate”) was still very sizable. Initially such estate was managed by those three eldest surviving sons. However, subsequent family discord led the fongs to enter into a deed of family arrangement in 1946 (“the DFA”), pursuant to which the Ancestor’s estate was divided into nine parts.  Each fong was given one part. The ninth part, which was not allocated to any fong, was reserved as property common to all eight fongs for the purpose of ancestral worship.

3.  Some of the lands covered by the DFA had been resumed by the Government.  As a result, substantial amount of compensation had been paid by the Government. 

4.  Despite the fact that the Ancestor had passed away for a long time, the administration of his estate is yet to be completed. The Administrator (i.e. the plaintiff in both actions herein (“the plaintiff”)) is holding more than $45.4 million of the compensation which has only been paid by the Government recently. 

5.  Pausing here, I should add, for the sake of clarity, that Lau Yue Kui (a son of the Ancestor’s 4^th son) was appointed as the administrator of the Estate on 8 June 1995, and remained to be so until his death on 9 August 2015.  Lau Kin Shun Freeman was then appointed as administrator de bonis non of the Estate on 27 January 2016. Unless otherwise stated, references in this Decision to “Administrator of the Estate” and “the plaintiff” would mean either Lau Yue Kui or Lau Kin Shun Freeman, as the case may be.

6.  On  6 December 2021, the 1^st, 3^rd and 4^th defendants in HCMP 3924/1995 (“the 1995 Action”) took out a summons (“the 1995 Action Summons”) and asked for an order that compensation in the sum of around $45.4 million (or alternatively, an appropriate portion thereof) be distributed.  That summons actually also covered an identical application intended to be made by the 3^rd – 7^th defendants in HCMP 3209/1996 (“the 1996 Action”).  However, since the summons was not filed in the 1996 Action, as a matter of record, no such application was made officially therein, even though all parties had all along treated as if the same application had been made in both actions.   The mistake was subsequently rectified on 18 July 2023 when a summons which is almost identical to the 1995 Action Summons was filed in the 1996 Action (the two summonses will be referred to as “the Summonses”, and the applicants will be referred to as “the 5 fongs”).

7.  The applications made under the Summonses are opposed by the plaintiff on various grounds.  One of the plaintiff’s arguments was that no distribution should be made at this stage because the compensation should be retained for the time being so as to meet the Estate’s existing and contingent expenses/liabilities.

8.  One of the heads of the Estate’s potential liabilities arises out of the case HCMP 593/2007 (“the Taxation Case”). This case concerns the taxation of 2 solicitors’ bills of costs issued by Messrs. Philip Chan & Co in respect of non-contentious work done for the Estate:

(1)  Bill No.1 concerned the work for obtaining estate duty clearance and grant of letters of administration.  It consisted of 595 items relating to work done under a fee agreement made between the Administrator of the Estate and Philip Chan & Co, whereby the Administrator of the Estate agreed to pay legal costs (exclusive of disbursements) at 2% of the gross value of the Estate.  Since it has been agreed that the value of the Estate is $1 billion, therefore $20 million was charged under this bill.

(2)  Bill No.2 concerned administrative work after the Administrator of the Estate has obtained the grant of letters of administration.  It consisted of nearly 20,000 items.  Under this bill, Philip Chan & Co charged $20 million because the total amount chargeable at the hourly rate of $5,500 has exceeded the cap under another fee agreement between the Administrator of the Estate and Philip Chan & Co. 

9.  The Taxation Case was commenced initially by the Administrator of the Estate pursuant to a settlement agreement between him on one hand and the 6^th and 8^th fongs on the other hand in CACV 141/2006 (under which the 6^th and 8^th fongs sought to remove the Administrator of the Estate).  The 5 fongs subsequently applied and were granted leave to join as plaintiffs in the Taxation Case, which has since then become a battle-field between the 5 fongs and Philip Chan & Co.

10.  The substantive hearing of the Taxation Case was originally fixed to be heard for 6 days before Master M Wong.  However, the parties took almost 5 days to make their opening submissions, and in the end, they invited the learned Master to determine a number of preliminary issues first before proceeding to taxation, which the learned Master did in June 2016.

11.  The Taxation Case then proceeded to a full taxation. The substantive taxation hearing before Master M Wong lasted another 10 days.  Eventually, the learned Master, by a written Decision handed down on 11 September 2020, allowed the sums claimed in both bills in full (i.e. a total of $40 million was allowed).

12.  The 5 fongs were not satisfied with the result of the taxation.  They therefore took out a review application which was subsequently dismissed by the learned Master on 19 December 2022.  The learned Master also directed that the question of costs in relation to the initial taxation hearings and of the review application be reserved, pending parties’ further submissions.

13.  By the time of the hearing of the Summonses on 21 August 2023 before this Court, the 5 fongs and Philip Chan & Co had already lodged their respective submissions with the learned Master, whose Decision on costs was still pending.  The matter on costs of the Taxation Case was further complicated by the fact that Philip Chan & Co had submitted that they had made sanctioned offers (“the Sanctioned Offers”) which the 5 fongs failed to beat, and as a result, it was contended that enhanced interest and indemnity costs are payable to Philip Chan & Co.

14.  As the ruling by the learned Master on costs of the Taxation Case as well as the validity and effect of the Sanctioned Offers made by Philip Chan & Co would have a bearing on the present applications, this Court adjourned the Summonses sine die pending the learned Master’s decision, which was eventually handed down on 16 October 2023 (“the Master’s Costs Decision”).  Further written submissions were then lodged by the parties on the impact of the Master’s Costs Decision, which this Court had taken into account before handing down this Decision.  I will deal with the Master’s Costs Decision later on in this Decision.

15.  As far as the 1^st and 2^nd fongs are concerned, it seems that they in principle did not object against the 5 fongs’ applications.  However, they contended that the Court should reserve a sufficient amount of the compensation money for the Estate to meet its costs, expenses and liabilities, whether they had been incurred or are to be incurred.  In addition:

(1)  The 1^st fong stated that the Estate has yet to settle 3 bills of costs issued by Messrs. C. S. Chan & Co. in the total sum of $266,400;

(2)  The 2^nd fong asserted that a sum of $101,200 being legal costs charged under 3 bills of costs issued by the 2^nd fong’s former solicitors should be retained by the Estate before distribution.

B.  THE LATE AFFIRMATION

16.  By summons filed on 11 August 2023[2] (“the Late Affirmation Summons”), the plaintiff sought to adduce the 2^nd Affidavit of Chui Pak Ming Norman which was filed in reply to the 3^rd Affirmation of Li Siu Fung (solicitor acting for the 5 fongs) filed on 17 November 2022. 

17.  As a matter of fact, the plaintiff had already had a chance to reply to the said 3^rd Affirmation of Li Siu Fung when he filed the Affidavit of Lau Cho Wing Joseph on 1 March 2023.  It is not entirely clear why the content of the 2^nd Affidavit of Chui Pak Ming Norman could not be adduced earlier.  All it was said in this regard is that:

“I apologize for the late filing of this Second Affidavit because the matters alleged [in the 3^rd Affirmation of Li Siu Fung] were partly handled by Messrs. Philip Chan & Co who previously acted for the Plaintiff and I had the relevant information recently. However, I verily believe that my short reply stated herein would assist the Court in understanding the allegations made in the 3^rd Affirmation, which, I respectfully submit, are not supported by evidence or adequate evidence, do not represent the whole truth of the matter.”[3]

18.  The above explanation is apparently not sufficient to satisfy the “special grounds” requirement imposed by virtue of Order 58 rule 1(5) of the Rules of the High Court (Cap.4A, Laws of Hong Kong) because the plaintiff has failed to discharge his burden in showing that the new evidence could not have been obtained with reasonable diligence earlier: Ladd v Marshall [1954] 1 WLR 1489.  In particular, it should be noted that the plaintiff only filed the Affidavit of Lau Cho Wing Joseph more than 3 months after he/his solicitors had had sight of the 3^rd Affirmation of Li Siu Fung.  There should have been enough time for him/his solicitors to obtain further information from Philip Chan & Co if necessary.

19.  The Late Affirmation Summons filed on 11 August 2023 is therefore dismissed.

C.  LEGAL PRINCIPLES

20.  The general principles on interim distribution applicable to the circumstances of the present case are not in dispute and may be summarised as follows:

(1)  An administrator has a duty to administer the estate cautiously.  He has to ensure that there would be sufficient fund in the estate to make distribution to all the beneficiaries for their shares, taking into account the potential size of the estate: Li Kin Yan & Another v Li Lim Chi Dorothy (HCMP 3425/2015, unreported, 17 February 2017), at [52];

(2)  The general rule is that the administrator must discharge the debts of the estate before he satisfies any description of legacy or assents to any devise: Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (21^st edition), at §47-02;

(3)  An administrator can be liable for waste (devastavit) if he parts with the assets of the estate without paying or adequately providing for its debts.  This is so even if he was unaware of the debt, even if he acted bona fide and in the belief that the estate had ample assets for the payment of such debts and even if the deficiency is occasioned by subsequent events which he had no reason to foresee.  It is also so even though a court would have been likely to permit him to distribute had he first sought its directions: Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (21^st edition), at §47-02;

(4)  The rule whereby the payment of debts takes priority over the payment of beneficiaries extends to future and contingent debts.  Thus, before any of the estate can properly be distributed to the beneficiaries, an administrator must provide for future and contingent liabilities of the estate.  Where there are contingent liabilities, an administrator is not bound to distribute assets to a beneficiary without first making a retention from the estate’s assets or obtaining some form of security or indemnity as a condition of any distribution: Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (21^st edition), at §47-09;

(5)  Be that as it may, the court has discretion to permit distribution without requiring the administrator to make a retention or obtain security in respect of contingent or unknown liabilities in appropriate circumstances, for example, if the court holds the view that the injustice to the beneficiaries being kept out of the benefit on account of unascertained liabilities that might never arise outweighed the risk that unknown and contingent creditors who had paid for insurance cover might find their claims unsatisfied: Williams, Mortimer and Sunnucks on Executors, Administrators and Probate (21^st edition), at §47-09 and Re Yorke [1997] 4 All ER 907, at 922j – 923e;

(6)  The Court should take into account the following factors:

(a)  Are the estate trustees deadlocked?

(b)  Have the estate trustees acted with mala fides?

(c)  Have the estate trustees failed to exercise their discretion to make an interim distribution?

(d)  Have the estate trustees behaved unreasonably or breached their fiduciary duty and duty of good faith and fairness to the beneficiaries? and

(e)  Would a beneficiary suffer undue prejudice if an interim distribution was not made:

Parson v McGovern [2014] ONSC 1786, at [39];

(7)  If the expenses to be paid by the estate were of uncertain amount (as could be the case if the legal personal representatives were engaged in litigation on behalf of the estate), the legal personal representative would be entitled to adopt a very cautious (though not unrealistically cautious) view about the possible extent of those expenses might be, in deciding whether, or to what extent, a gift might be cut down.  If, however, after taking such a cautious view of what the expenses of the estate might be, it was clear that the assets of the estate were more than enough to meet them, and if there were no other problems of administration outstanding, it could be the obligation of a legal personal representative to make an interim distribution of those assets in the estate which are not at risk of being used up in the future administration of the estate: Gonzales v Charidades [2003] NSWSC 508, at [50].

D.  THE PLAINTIFF’S GROUNDS OF OPPOSITION

21.  While the plaintiff’s solicitor stated initially in his 1^st affidavit that he supported the release of the balance amount (being the amount set out in the Summonses (i.e. the compensation money) less the outstanding costs/expenses to be reserved)[4], it is apparent that the plaintiff is in substance opposing the Summonses[5]. The plaintiff’s stance may be summarised as follows:

(1)  All parties had agreed to devise a scheme in having the compensation monies collected and to be paid into joint account(s) on account of all costs and expenses incurred for probate and administration (including remuneration of the administrator) to be paid out first before any distribution could be made.  The scheme has been in place for 20 years, and the 5 fongs should not be allowed to depart from such past practice easily;

(2)  No distribution should be made without any execution of “release and indemnity”;

(3)  Substantial costs and expenses would have to be spent by the Estate before the completion of administration thereof.  The Estate should reserve sufficient amount of monies to meet these liabilities;

(4)  The 5 fongs still owe the Estate money as agreed or ordered by the court.  Pursuant to the rule of Cherry v Boultbee (1839) 4 My & Cr 442, such outstanding sums should be paid by the 5 fongs first before any residual compensation monies should be distributed to them.

22.  I will deal with the above arguments in turn below.

E.  DISCUSSION

E1.    The alleged agreed scheme

23.  This argument can be dealt with quickly.

24.  As aforesaid, it was argued that the parties had agreed that the compensation monies paid into joint account(s) (under the names of the plaintiff’s solicitors and the 5 fongs’ solicitors) should not be distributed before all costs and expenses incurred for the administration had been paid, and that such an agreement has been embodied in 2 consent orders dated 17 January 2001 and 26 November 2002 respectively (“the Consent Orders”).  As a result, it was said that the agreed scheme should not be departed from lightly.

25.  As recognised by Mr But for the plaintiff at the hearing:

(1)  the Consent Orders were made more than 20 years ago;

(2)  the compensation monies covered by the Consent Orders had been depleted after all these years;

(3)  the monies which the 5 fongs are seeking to be distributed actually come from a new compensation paid by the Government in 2021 in respect of further lands which have been resumed, and this new amount of compensation is not covered by the Consent Orders.

26.  Hence, the “agreed scheme” argument does not assist the plaintiff.  At the end of the day, the Court has to consider whether any interim distribution should be made by reference to the existing/potential liability of costs and expenses, etc. which I will further discuss below.

E2.    Execution of “release and indemnity”

27.  This argument can again be dealt with quickly. 

28.  In my view, the crucial question is whether any interim distribution should be made.  It is only when it is considered appropriate for an interim distribution to be made that the issue of “release and indemnity” arises.  

29.  Given it has now been made clear by counsel for the 5 fongs that they are willing to execute “release and indemnity”[6], I do not think the Court should deal with this matter further at this moment.  The precise wordings thereof should be considered as and when necessary.

E3.    The amount of existing/potential expenses/liabilities

30.  The plaintiff submitted that no interim distribution should be made because the total amount of potential liability/expenses of the Estate would be much more than $45.4 million (the amount of interim distribution sought).  The breakdown of such liabilities/expenses has been set out in a table exhibited as “LCWJ – 9” (“the Joseph Lau’s Table”) in Lau Cho Wing Joseph’s Affidavit, the items of which have been re-grouped by counsel for the 5 fongs as follows:

A.	First legal charge	$6.48m
B.	Taxed and agreed costs and interest (a)   HCMP 263/2010 (b)   HCMP 593/2007 (interim payment; CACV 75/2014)	$0.58m + $0.75m + $0.83m = $2.16m
C.	Non-contentious costs allowed by Master M Wong less interim payment	$25m - $15m – $0.15m = $9.85m
D.	Provision for costs of taxation	$15m
E.	Provision for interest on $25m if predate order for certification is allowed: 27/3/2007 – 3/3/2017 (10 years) $25m x 6% x 10 years	$15m
F.	Enhanced interest period (3/3/2017 – 3/3/2023, 6 years) Provision for enhanced interest on costs allowed: $25m x 18% x 6 years = $27m Provision for enhanced interest on costs of taxation: $15m x 18% x 6 years = $16.2m	$27m + $16.2m = $43.2m
G.	Administrator’s remuneration Lau Yue Kui ($10m) Freeman Lau ($0.6m)	$10.6m
H.	Provision for other outstanding costs like 95/96 proceedings including claim from all other fongs	$10m
	Total:	$112.29m

31.  I will consider the above items in turn below.

32.  However, before I do so, I should refer to the Taxation Case again at this point.  It may be recalled that the hearing of the Summonses has been adjourned sine die pending the decision on costs in the Taxation Case.  The decision has since then been handed down by Master M. Wong on 16 October 2023.  In a gist, it was held that:

(1)  The Sanctioned Offers made by Philip Chan & Co are valid;

(2)  The 5 fongs had failed to beat the Sanctioned Offers;

(3)  No pre-certificate interest is payable by the 5 fongs.

33.  It was thus ordered by the learned Master that:

(1)  The 5 fongs shall pay costs of the initial taxation and of the review application to Philip Chan & Co.  Such costs shall be taxed on common fund basis before the service of the Sanctioned Offers, and on indemnity basis after service of the Sanctioned Offers, with certificate for one counsel;

(2)  The 5 fongs shall pay enhanced interest on the costs of $40 million to Philip Chan & Co at the rate of 10% above judgment rate from the service of the Sanctioned Offers;

(3)  The 5 fongs shall pay enhanced interest on Philip Chan & Co’s costs of taxation pursuant to sub-paragraph (1) above at the rate of 10% above judgment rate from the service of the Sanctioned Offers;

(4)  The 5 fongs’ own costs and the costs and interest payable to Philip Chan & Co be paid out of the Estate;

(5)  Philip Chan & Co shall pay the 5 fongs the costs of its summons (which sought, inter alia, an order that the entirety of the two fee agreements between the plaintiff and Philip Chan & Co be certified as fair and reasonable), such costs may be offset by the costs payable by the 5 fongs.

34.  The impact of the aforesaid orders on the Summonses herein will be discussed below.

35.  I will now consider the items set out in the aforesaid table one by one.

E3.1  First Legal Charge – $6.48 million

36.  By an order made by consent on 26 November 2002, Master J Wong imposed a first charge on the compensation money received by the Estate in favour of the Administrator of the Estate for his legal costs to the extent of $6.48 million. The 5 fongs accept that this sum should be retained before any distribution is made.

E3.2  Taxed and agreed costs and interest in HCMP 263/2010, HCMP 593/2007 and CACV 75/2014

37.  In HCMP 263/2010, the 3^rd fong and the 7^th fong asked for an order that Philip Chan & Co do render a bill for work done for them in respect of the non-contentious work of obtaining compensation arising from the “Minor Route 3 Resumption” of land.

38.  In HCMP 593/2007, Philip Chan and Co applied for interim payment in the sum of $25 million, which was granted by Mr Recorder Houghton SC.  The 5 fongs’ appeal against this order (CACV 75/2014) was dismissed.

39.  In the aforesaid 3 sets of legal proceedings, a number of costs orders had been made in favour of Philip Chan & Co, and it was said that the total outstanding sum (including interest) is in the sum of $2.16 million.  Mr But for the Estate informed this Court that the relevant orders are as follows:

(1)  An order dated 7 July 2011 made in HCMP 263/2010 under which the 3^rd and 7^th fongs were ordered to pay $214,201 and $27,400 to Philip Chan & Co;

(2)  An order dated 1 August 2011 made in HCMP 263/2010 under which the 3^rd and 7^th fongs were ordered to pay $20,000 to Philip Chan & Co;

(3)  An order dated 11 November 2016 made in HCMP 593/2007 under which the Administrator of the Estate was ordered to pay $472,120 to Philip Chan & Co;

(4)  An order dated 12 December 2016 made in CACV 75/2014 under which the 5 fongs were ordered to pay $536,261 to Philip Chan & Co.

40.  In this regard, I accept Mr Yau’s argument that the costs covered by sub-paragraphs (1), (2) and (4) above had been set-off as proposed by the solicitors acting for the Administrator of the Estate in their letter dated 16 December 2014.

41.  What remains is the cost in the sum of $472,120. In Mr But’s skeleton submissions, this was described as payable by the 5 fongs. However, it is clear from the court order dated 11 November 2016 that in fact it is not.

42.  I will therefore disregard the sum of $2.16 million in the present exercise.

E3.3  The outstanding non-contentious costs

43.  It may be recalled that upon the completion of the taxation hearing, Master M Wong held that the fees charged by Philip Chan & Co in its 2 bills on the Estate in the total sum of $40 million should be allowed in full.  It is common ground that the 5 fongs have to contribute 5/8 thereof, i.e. $25 million, and that they have already made interim payment of $15 million.  After such interim payment, the outstanding amount payable by the 5 fongs has become $10 million.

44.  Then there is a confusion as to whether the 5 fongs should be taken to have paid a certain part of the said outstanding sum of $10 million:

(1)  In the Joseph Lau’s Table, it was accepted that the 5 fongs had made another payment of $150,000, and therefore the outstanding sum was reduced to $9.85 million;

(2)  In a table which was handed up to this Court by Mr But, the Administrator of the Estate had given credit to a payment of $180,000, and the outstanding sum was as a result stated to be $9.82 million;

(3)  During oral submission of Mr But, the outstanding sum was said to be $9.85 million;

(4)  In the 5 fongs’ skeleton submissions dated 11 August 2023 and in oral submissions, counsel for the 5 fongs suggested that a total of $19.48 million be retained by the Estate, and one of the components of that total was the outstanding costs payable to Philip Chan & Co which was taken to be $10 million;

(5)  In the further written submissions lodged by Mr But and Mr Wong for the Administrator, it was alleged that the amount of $180,000 was actually paid by the 5 fongs in relation to another matter, and that the outstanding sum to be paid is therefore $10 million.

45.  The latest assertion made by counsel for the Administrator of the Estate is not supported by evidence, neither is the assertion in relation to $180,000 which was contained in the table handed up by counsel at the hearing.

46.  Therefore, for the present purpose, I will take the figure of $9.85 million as the outstanding amount payable by the 5 fongs to Philip Chan & Co. under the two bills which had been allowed in full by Master M Wong.

E3.4  Provision for costs of taxation

47.  In the Joseph Lau’s Table, it was estimated that the 5 fongs have to bear the Estate’s costs of the taxation proceedings, and that a sum of $15 million was proposed to be reserved for this purpose.

48.  At the hearing, Mr Yau suggested that only a sum of $3 million should be retained by the Estate for the aforesaid purpose.

49.  Pursuant to the Master’s Costs Decision:

(1)  The 5 fongs have to pay Philip Chan & Co’s costs of the initial taxation and of the review application on common fund basis (for costs incurred up to 3 March 2017), and on indemnity basis (for costs incurred since 4 March 2017), but such costs payable by the 5 fongs shall be paid out of the Estate[7];

(2)  The 5 fongs’ own costs shall also be paid out of the Estate.

50.  Having considered the Master’s Costs Decision, counsel for the 5 fongs lodged supplemental written submissions, in which:

(1)  They initially asserted that the original estimation of $3 million costs payable to Philip Chan & Co should still be good, because “on one hand, indemnity costs was allowed post-sanctioned offer, but on the other, only certificate for 1 counsel was granted. [It was considered] that these 2 factors mutually cancel out”[8];

(2)  They then suggested an “alternative analysis”, under which it was stated:

“The 5 fongs already made their point that the estimate [of $15 million] in this regard is entirely unparticularised or unsubstantiated. It is not even clear based on what information the administrator arrived at these figures. As a separate point, [Philip Chan & Co] was represented by 2 counsel all along in the 16-day taxation hearing. Counsel fee must be a major component of this head. Now only certificate for 1 counsel was allowed. The previous estimate of $15m should be reduced significantly for this reason. Taking a broad-brush approach, we submit that an overall 30% deduction of this head should be reasonable”[9]

51.  With greatest respect, the suggestion that only $3 million be provided for Philip Chan & Co’s costs of the taxation proceedings (which include the costs of both the initial taxation hearings and of the review application) is totally unrealistic.

52.  The alternative suggestion that a figure of $10.5 million ($15 million x 70%) be adopted is, in my view, closer to the reality. I would assume that counsel has already taken into account the set-off as mentioned in [33(5)] above.

53.  However, this figure only represents the 5 fongs’ estimation of Philip Chan & Co’s costs (after set-off).  As aforesaid, it has also been held that the 5 fongs themselves can look to the Estate for payment of their own costs.  In the circumstances where the 5 fongs did not give any undertaking that they are not going to look for reimbursement from the Estate, their own costs of the taxation must be taken into account in the present applications. 

54.  However, despite such clear ruling of the learned Master, the 5 fongs had failed to inform this Court what the estimated amount of their own costs would be. 

55.  Doing the best I can, on the basis of the 5 fongs’ estimation of $10.5 million above[10], I would take the figure of $10.5 million as the 5 fongs’ own costs of the taxation proceedings for the sole purpose of the applications before this Court.  I have not forgotten that part of the costs to be paid to Philip Chan & Co’s should be taxed on indemnity basis.  However, it should be borne in mind that the 5 fongs themselves had engaged senior counsel in the review application. 

56.  The total amount of costs of taxation proceedings to be provided for is therefore $21 million.

E3.5  Provision for interest on $25m if predate order for certification is allowed

57.  As Master M Wong has dismissed Philip Chan & Co’s claim for interest in respect of the period before the Court’s certification of costs, the proposed amount of $15 million should be totally disregarded.

E3.6  Enhanced interest

58.  As mentioned, Master M Wong held that the Sanctioned Offers made by Philip Chan & Co are valid, and therefore ordered that enhanced interest shall be paid on both Philip Chan & Co’s costs of taxation and on the allowed non-contentious costs of $40 million, calculating from the date of service of the Sanctioned Offers.

59.  The Administrator of the Estate estimated that the enhanced interest on non-contentious costs should be $27 million, whereas the enhanced interest on Philip Chan & Co’s costs of taxation should be $16.2 million.

60.  Counsel for the 5 fongs submitted that only the outstanding taxed costs should attract enhanced interest.  Hence, it was said that enhanced interest on non-contentious costs should be $10.6 million ($9.8 million x 18% x 6 years).  As the matter has not been addressed by the Administrator of the Estate, I would assume for the purpose of this Decision that the 5 fongs are correct on their calculation.

61.  As far as the enhanced interest on costs of taxation is concerned, to be consistent with the approach adopted above, I would take $10.5 million as Philip Chan & Co’s costs of taxation.  Hence, enhanced interest would be $11.34 million ($10.5 million x 18% x 6 years).

62.  The total amount of enhanced interest is therefore $21.94 million ($10.6 million + $11.34 million).

E3.7  Administrators’ remuneration

63.  The Administrator of the Estate claimed that a total sum of $10.6 million should be reserved for payment of remuneration to the Administrators (past and current).

64.  The Court clearly has power to allow remuneration to be paid to the administrators of estate.  Section 60 of the Probate and Administration Ordinance (Cap.10 Laws of Hong Kong) provides that:

“(1) Subject to subsection (2), the court may allow to any executor or administrator, including an administrator appointed pendente lite under section 40 (or to a person acting under a power of attorney as attorney for an executor or administrator in the matter of the sealing of a probate or administration under Part IV or in the matter of the realization and administration of an estate under a probate or administration so sealed) such remuneration out of the estate of the deceased person as the court thinks fit.

(2) (a) No allowance shall be made to any executor or administrator or attorney who neglects to pass his accounts at such time, or to dispose of any moneys, goods, chattels, or securities with which he is chargeable in such manner as may be required by probate rules and orders.

(b) No such remuneration shall exceed five per cent on the first $1,000, two and a half per cent on the next $4,000 and one per cent on the balance of the gross value of all property of whatsoever nature administered.”

65.  Be that as it may, the 5 fongs submitted that no provision should be made because:

(1)  No claim has been made for remuneration yet;

(2)  No evidence has been put forward in support.

66.  In HCAP 1/2001, the 6^th fong and the 8^th fong sued the former Administrator of the Estate (Lau Yue Kui – who had passed away) for, inter alia, an order to bar him from later claiming remuneration for his work done in that capacity.  In his Judgment dated 10 March 2006, Chung J agreed with the submission of the then Administrator of the Estate that the appropriate time to consider the matter would be after the completion of the administration of the estate because only then will it be known for certain the nature and amount of work performed.  Further, it was held that it is only when the administrator has decided whether he wishes to make such a claim that he will adduce evidence to substantiate the claim. 

67.  As a matter of principle, I agree with the learned Judge.

68.  However, since the former Administrator of the Estate, the late Lau Yue Kui, had passed away in August 2015, it may be argued that his administrator may make the application at any time since then, as it is now known for certain the nature and amount of work that had been performed by him.  On this matter, I suppose it may be counter-argued that since the new administrator (Lau Kin Shun Freeman, the administrator de bonis non) is still administering the estate, it may be more cost-efficient for the claim of remuneration to be made at one go upon the completion of the administration.

69.  As the above has not been argued fully by the parties (it is not necessary for them to do so anyway), I do not think it is necessary nor appropriate for me to rule whether the administrator should make an application for remuneration right now.   For the present purpose, I think it suffices for me to say that it is evident that the current administrator considers that remuneration should be paid, and it necessarily means that such an application would be made by him in due course.  In such circumstances, it is prudent for the Court to take such a claim into account when considering the amount of money which should be retained.  For the sake of completeness, I should also make it clear that such provision should be made despite the 5 fongs’ argument that no evidence has been put forward in the present application in support of such a potential claim.  It is self-evident that the matters relating to the administration of the Estate are very complicated, and the administration thereof has taken a very long time to complete (it was 90 years ago when the Ancestor passed away, but the administration work is still ongoing), not to mention that the Estate has been involved in countless legal proceedings in the last few decades.

70.  It is undisputed that the gross value of the Estate has been agreed at $1 billion[11]. Adopting 1% as the rate of remuneration[12], the sum to be provided for is $10 million.

71.  The Administrator further asserted that the aforesaid amount of $10 million is only the remuneration payable to the estate of Lau Yue Kui, and that another sum of $600,000 should be payable to him (i.e. Freeman Lau), based on the gross value of the Estate agreed at $6 million[13].  I do not understand why 10% was adopted as the rate of remuneration by the Administrator here. Adopting the rate of 1% as in the preceding paragraph, the remuneration payable to the current administrator should be at most $60,000.  Given this is a relatively small amount, I would disregard this part of the claim in the present applications.

E3.8  Provision for other outstanding costs including claims from all other fongs

72.  Lastly, the Administrator of the Estate proposed that another $10 million be reserved for payment of other outstanding costs including claims from all other fongs.

73.  It is unclear how the sum of $10 million was arrived at.  All that we know is that:

(1)  The 1^st fong’s solicitor alleged that he had presented 3 bills of costs since 2000, and the total amount of $266,400 had not yet been settled.  He asked that the sum be paid from the compensation money of the Estate[14];

(2)  The 1^st fong’s solicitor anticipated that at least another sum of $300,000 should be deposited with his firm on account of further costs to be incurred;

(3)  The 2^nd fong’s solicitor alleged that a number of bills of costs had been issued to the 2^nd fong and that the total amount of billed cost of $101,200 is yet to be settled.  He asked that they should be settled by using the compensation money of the Estate[15].

74.  This is of course not the occasion on which the Court should make any ruling as to whether the above claims of costs are reasonable and whether they should be paid by the Estate.  The decision thereof should be reserved to another occasion when there is a formal application for payment.  Indeed, Mr Yau and Mr Wong for the 5 fongs have informed this Court that they have proposed to the 1^st and 2^nd fongs that the 5 fongs shall pay the 1^st and 2^nd fongs’ costs to be taxed or assessed. 

75.  In any event, given this Court’s ruling on the other items of existing/potential expenses/liabilities above, without disrespect to the parties, I do not propose to deal further with the arguments made by them in this regard.  For the purpose of the applications before this Court, I will not make any provision for the 1^st and 2^nd fongs’ costs.  Their claims are relatively small in amount anyway and would not have any bearing on the present applications.

E3.9  Conclusion on the amount of existing and potential expenses/liabilities

76.  I summarise the amounts of existing and potential expenses/liabilities of the Estate as follows:

A.	First legal charge	$6.48m
B.	Taxed and agreed costs and interest (c)   HCMP 263/2010 (d)   HCMP 593/2007 (interim payment; CACV 75/2014)	$0
C.	Non-contentious costs allowed by Master M Wong less interim payment	$9.85m
D.	Provision for costs of taxation	$21m
E.	Provision for interest on $25m if predate order for certification is allowed	$0
F.	Provision for enhanced interest on costs allowed and costs of taxation	$21.94m
G.	Administrator’s remuneration	$10m
H.	Provision for other outstanding costs like 95/96 proceedings including claim from all other fongs	$0m
	Total:	$69.27m

E3.10   Backup protection

77.  While on one hand it was submitted on behalf of the 5 fongs that the resumption compensation should be released to the solicitors acting for the 5 fongs after allowing an appropriate sum to be withheld for the Administrator’s protection[16], on the other hand it was alleged by them that:

“In considering the extent of protection which the administrator requires, we invite the Court to bear in mind that the administrator still has 50,000 (sic) square feet of lands under his control. The relevant members of the 5 fongs have to obtain vesting orders of their share of these 50,000 (sic) square feet lands executed by the administrator in order to enjoy possession of them as full legal and beneficial owners. The worth of 500,000 square feet of lands in New Territories is, at the current value of $1,000/sq ft, more than $500m. In short, the administrator is adequately protected by security other than the resumption compensation he seeks to withhold.”[17]

78.  However, it has been admitted on behalf of the 5 fongs that the said pieces of lands are the subject matters of a sale and purchase agreement entered into in 1999 (“the 1999 S&P”)[18] under which those pieces of lands had been sold.  The reason why the said sale could not be completed even after so many years is that vesting orders in respect of those pieces of lands are yet to be made. 

79.  In such circumstances, I do not agree that the said pieces of lands can be regarded as good security as suggested by the 5 fongs:

(1)  As vesting orders are yet to be made, the 5 fongs have no legal or beneficial interest in the said pieces of lands: Pacific Harbor Advisors Pte Ltd v Winson Federal Ltd (HCMP 1285/2015, unreported, 21 August 2015) (CA), at [28.2];

(2)  The contingent interest in the said pieces of lands has already been sold to a third party by virtue of the 1999 S&P.  It is highly doubtful, to say the least, as to whether the plaintiff can enforce such security by selling such lands;

(3)  Further, the 5 fongs had taken possession of the said pieces of lands from the spring of 1947: Cheung J’s Judgment of these actions dated 7 January 1998, at [105].  It is undisputed that they are still in possession and control thereof.  It would be very difficult, even if possible, to sell the said pieces of lands for the purpose of enforcing the alleged “security”.

80.  Hence, taking a prudent and cautious approach, I am of the view that the Estate should reserve enough cash for the purpose of paying off its expenses and liabilities instead of to look to the alleged security for obtaining cash for the said purpose.

E4.  The rule in Cherry v Boultbee

81.  The plaintiff also relied on the equitable rule that a person who owes an estate money (i.e. who is bound to increase the general mass of the estate by a contribution of his own), cannot claim an aliquot share given to him out of that mass without first making the contribution which completes it: Cherry v Boultbee (supra) and In re Rhodesia Goldfields Limited [1910] 1 Ch 239, at 244 – 247.

82.  Mr But and Mr Wong for the plaintiff referred this Court to the case of Li Kin Yan & Another v Li Lim Chi Dorothy (HCMP 3425/2015, unreported, 17 February 2017), at [43], in which the said equitable rule has been applied in the Court of First Instance of Hong Kong.

83.  However, none of the parties had cited the case of Alan C. W. Tang, Joint and Several Trustee in Bankruptcy of the estate of Lo Siu Fai Louis v John J. Toohey, Joint and Several Liquidator of Global March Limited (CACV 177/2004, unreported, 3 October 2005) in which Cheung JA stated the followings:

“42. In upholding the liquidator’s determination, Kwan J appeared to accept the equitable principle that ‘a person entitled to participate in and bound to contribute the same fund cannot receive the benefit without discharging the obligation’ : see Re Rhodesia Goldfields Ltd [1910] 1 Ch. 239 and Re Davies Chemists Ltd [1992] BCC 697.

[…]

45. […] the equitable principle will come into play to ensure a debt due from the creditor to the company must be taken into account in order to ensure he would not receive the benefit without assuming the burden. As Swinfen Eady J observed in Rhodesia Goldfields (at p. 246) :

‘A person who owes an estate money, that is to say, who is bound to increase the general mass of the estate by a contribution of his own, cannot claim an aliquot share given to him out of that mass without first making the contribution which completes it. Nothing is in truth retained by the representative of the estate; nothing is in strict language set off; but the contributor is paid by holding in his own hand a part of the mass, which, if the mass were completed, he would receive back. That is expanding what the Lord Chancellor calls in Cherry v.Boultbee 4 My. & Cr. 422, 447 ‘a right to pay out of the fund in hand,’ rather than a set-off............. Under such circumstances the Court in effect says to the person claiming to be paid, ‘You have in your own hands that which is applicable to the payment¾pay yourself out of that’.’

46. This equitable principle came to be known as the V.G.M. principle because it was applied to a company in liquidation in the case of In re V.G.M. Holdings Ltd [1942] Ch. 235.  It is, however, abundantly clear that the application of this principle does not require the defaulter to physically make good the money due to the company first. As Lord Greene observed in that case at page 241,

‘Indeed, it would be quite useless to order (the defaulter) to pay any sum of money part of which might eventually come back to him as a shareholder on a distribution of surplus assets.’

See a review of the authorities in Selangor United Rubber v. Cradock [1969] 1 WLR 1775.”

(emphasis added)

84.  On the face of it, it seems that if the same approach as explained by Cheung JA is adopted herein, then there is no absolute rule that the 5 fongs must be asked to pay their outstanding contribution to the Estate first before asking for interim distribution. 

85.  However, as I have not had the benefit of any submission of the parties on the effect of the above Court of Appeal authority on the application of the said equitable rule herein, I do not think I should express any view on the matter.  I do not have to anyway, given my conclusion herein which I will explain below.

E5.    An overall consideration

86.  As explained above, the total amount of existing/potential expenses/liabilities of the Estate is in the sum of $69.27 million, which is much more than the sum of $45.4 million (or $47 million which Mr Yau for the 5 fongs said the Estate should have accumulated by now).

87.  In other words, it is clear that there is simply not enough cash-flow to support any interim distribution as requested by the 5 fongs.

88.  The conclusion is that no interim distribution should be made. 

89.  Mr Yau and Mr Wong for the 5 fongs, in their supplemental written submissions, suggested that the learned Master’s decision on the validity of the Sanctioned Offers is wrong, and that the 5 fongs have a reasonably arguable appeal.  I do not consider it appropriate for me to express any view in this regard.  However, even assuming (without deciding) that they are right, that would only affect the calculation in [76] above in 2 ways:

(1)  Part of the costs of Philip Chan & Co would not be taxed on indemnity basis, and therefore the total amount of costs payable by the Estate would be reduced, but it is difficult to tell the extent of such reduction;

(2)  The enhanced interest would not be payable, hence the total of expenses/liabilities should be reduced by $21.94 million.

90.  Because of the uncertainty as explained in sub-paragraph (1) above, it is difficult to predict the precise impact of a successful appeal on the said total amount.  However, the deduction of enhanced interest from the total of $69.27 million would only bring the total down to $47.33 million. Even assuming that the change of basis of taxation would reduce the amount of costs by $8 million, the total of expenses/liabilities would still stand at $39.33 million.  There is just a buffer of around $8 million ($47 million – 39 million) left.  Even in such a case, I do not think the Court should exercise its discretion in allowing any interim distribution, because it should be borne in mind that the following items of expenses have not been taken into account when the above total of $69.27 million was arrived at:

(1)  At least part of the costs of these applications which will end up have to be paid out of the Estate;

(2)  The costs of the appeal against the Master’s Costs Decision which Mr Yau had informed this Court that the 5 fongs are contemplating to lodge;

(3)  The Administrator’s costs in the further administration of the Estate, including the costs of establishing the “Lau Wai Chau Tso” pursuant to section 15 of the New Territories Ordinance (Cap.97, Laws of Hong Kong) as directed by Cheung J (as Cheung JA then was) in the order dated 24 January 1998 (“the 1998 Order”).

91.  It should be noted that the amount of costs and expenses payable under item (3) above is very difficult to assess.  In this regard, Mr But told this Court during oral submission that nowadays the Government is very, very reluctant to register a new “tso” for lands. In reply, Mr Yau for the 5 fongs submitted that:

“There is also the submission that the Government is not in favour of allowing “tso” to be set up as modern practice.  That would of course entail some negotiation with the Government at the first stage, and secondly whether the fongs ultimately take the view that the matter should be dealt with by the Court for the purpose of following the directions given by Cheung J.  It would depend on the view of the fongs and of course primarily the view of the Government […]”[19]

92.  Mr But’s suggestion that the Government is reluctant to register a new “tso” is in fact unsupported by any evidence.  I will therefore disregard such an assertion.  However, Mr Yau’s reply as quoted above has highlighted an aspect which the Court must not lose sight of: In the course of establishing the “tso”, the Administrator’s decision on various related matters may be met with different views of the fongs. In such situation, it is possible that the matter(s) has/have to be resolved in Court again.  Taking into account the history of litigation among the different fongs in the past 30 years or so, I must say that the Court should not underestimate the likelihood of further litigation being considered necessary, for example, in relation to the identities of the 4 managers to be appointed under paragraph 19 of the 1998 Order.

93.  The said buffer of $8 million, even if it exists, can be easily eaten up by these items of further costs and expenses.  Hence, taking a prudent and cautious approach, the Court should not accede to the request of interim distribution.

94.  In coming to the above conclusion, I have also taken into account the factors mentioned in Parson v McGovern (supra). In this regard, my views are that:

(1)  The Administrator has not acted with mala fides;

(2)  The Administrator has not failed to properly exercise his discretion to make an interim distribution;

(3)  The Administrator has not behaved unreasonably or breached his fiduciary duty and duty of good faith and fairness to the beneficiaries;

(4)  The 5 fongs would not suffer any undue prejudice if an interim distribution is not made.

95.  In relation to sub-paragraph (4) above, Mr Li Siu Fung for the 5 fongs stated in his 2^nd Affirmation that:

“[…] the key members or the head of the family of 3 of the fongs entitled to the resumption compensation are at advanced age. One of them is 90 years old already and some of the others are in their late 70s and late 80s. They have waited for almost 20 years for getting the compensation after agreeing with the Government on its offer to pay them these monies. They should not be kept waiting for any longer.”[20]

96.  I think it must be made clear that it was not the Administrator of the Estate who had kept the 5 fongs waiting for almost 20 years, since the compensation money in question was only released to the Administrator in 2021.

97.  Further, it can be seen from the earlier part of this Decision that the compensation monies retained by the Administrator are kept for payment of, among other things:

(1)  The costs of the administration of the Estate;

(2)  The 5 fongs’ own liabilities to pay costs and enhanced interest.

98.  In other words, even though the 5 fongs are not getting any cash out of the compensation monies, they are no doubt going to be benefitted from those monies in other forms.

99.  Hence, there is no way that they can be said to be suffering from any undue prejudice despite the fact that there is no interim distribution by way of cash.

F.  ORDER

100.  By reasons of the aforesaid, the Summonses are hereby dismissed.

G.  COSTS

101.  In the Summonses, the 5 fongs asked for the following cost order:

“the costs of the Plaintiff as the Administrator de bonis non of the Estate [of] Lau Wai Chau in respect of this application, to be taxed on trustee basis if not agreed, be borne by the recipient parties referred to in (1) above pro rata to the compensation they respectively receive.”

102.  If the 5 fongs accept that they should bear costs in the event they succeed in their applications, there is no reason why they should not bear costs of the applications if they fail.

103.  In their written submissions, Mr Yau and Mr Wong for the 5 fongs suggested that:

“The costs order sought in the summons[es] should be given, like in the case of amendment, in two sets, one set for costs of perusal and consideration of the summons and supporting affirmation, and the other set to be determined in accordance with the merits of the opposition.”

104.  Counsel for the 5 fongs have not made clear whether the above suggestion should be applicable in the event they failed in the present applications.  If it is their intention that the above should be equally applicable to the situation where the Summonses are dismissed, then I take the tentative view that that is not right, and that the 5 fongs should bear the entire costs of the Administrator and of the 1^st and 2^nd fongs, subject to taxation/assessment, because the 5 fongs should take the full consequence of their failed applications.

105.  I also take the tentative view that the 5 fongs should be liable to the plaintiff and the 1^st and 2^nd fongs jointly and severally.

106.  I therefore make the following costs order nisi:

(1)  The costs of the Summonses of:

(i)    the plaintiff in HCMP 3924/1995 and HCMP 3209/1996,

(ii)   the 2^nd defendant in HCMP 3924/1995 and HCMP 3209/1996, and

(iii)  the 1^st defendant in HCMP 3209/1996

shall be borne by:

(i)    the 1^st defendant in HCMP 3924/1995 and 3^rd defendant in HCMP 3209/1996,

(ii)   the 4^th defendant in HCMP 3209/1996,

(iii)  the 6^th defendant in HCMP 3209/1996,

(iv)  the 3^rd defendant in HCMP 3924/1995 and 5^th defendant in HCMP 3209/1996, and

(v)   the 4^th defendant in HCMP 3924/1995 and 7^th defendant in HCMP 3209/1996,

such costs to be summarily assessed in lieu of taxation on trustee basis;

(2)  Liberty for the receiving parties to apply for a further direction that the costs payable by the 5 fongs be paid out from the Estate in satisfaction of the 5 fongs’ share in the Estate, upon the receiving parties’ unsuccessful attempt to enforce the above costs order against the 5 fongs by other means.

(3)  The 5 fongs’ costs of the Late Affirmation Summons shall be paid by the plaintiff, which is to be summarily assessed, and shall be offset by their liability to pay the plaintiff’s costs.

(4)  There be no order as to the costs of the 1^st and 2^nd fongs of the Late Affirmation Summons.

107.  The above order nisi shall become absolute in the absence of application to vary (which, if any, shall be made by letter, and will be disposed of on paper) within 14 days hereof.

108.  Unless any application for variation of the aforesaid costs order nisi is made within time, the receiving parties shall lodge and serve their respective statements of costs within 7 days after the expiry of the said 14-day period[21]. The paying parties shall lodge and serve their respective statements of objection within 7 days thereafter.  Summary assessment of the costs of the Summonses will be conducted on paper (no matter whether any statement of objection is lodged by the paying parties within time) thereafter.