LEUNG MAY CHOW KAREN AND OTHERS v. LEUNG MAY CHUN ALISON ALIANCE

HCMP 148/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 148 OF 2005

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D E C I S I O N

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Application

1. This is an application for protection and relief under order 85 rule 2(3)(c) of the Rules of the High Court (“RHC”) by the Plaintiffs against the Defendant to defend for another High Court Action HCA 2693/2004 and be indemnified against all costs incurred thereof.

Background

2. Madam Leung Shuet Fun (“the mother”) died testate on 12 May 1992.  The Mother had 3 daughters:

(a) May Chun (美春) (“the elder sister”)

(b) May Chung (美中) and May Chow (美秋) (collectively “the younger sisters”)

3. The Deceased made a Will on 25 April 1961 leaving her estate in 3 equal shares to the elder sister, May Chung’s husband and May Chow.  However, the elder sister forged a Chinese Will so that the entire estate went to her.  Criminal proceedings for forgery were brought against the elder sister.  She was convicted and sentenced to prison for 18 months and released only in about November 1995.

4. However, for a number of years before the death of the mother, the elder sister helped to manage some properties of the mother, including collecting rents from the tenants.  After the mother’s death, the elder sister continued to do so.  On 10 December 1996, the younger sisters were appointed as the administratrices pendente lite of the estate of the mother.  On 3 May 1999, a grant of letters of administration was issued to them.

5. On 22 June 2001, the younger sisters, as joint administratrices of the estate of the mother, commenced HCA 2839/2001 against the elder sister, for, inter alia, account and payment of all rents and other sums received by her when she started to intermeddle the estate of the mother.  Summary judgment was granted against the elder sister, including an order for disclosure.  However, she only complied with the disclosure order until being found guilty of contempt of court by the Hon. Chu J. in HCMP 1550/2003.

6. Then, based on the disclosure, the younger sisters sought interim payment against the elder sister.  Eventually, the younger sisters succeeded before the Hon. Sakhrani J. in March 2005.  Further directions have been given to this Court to conduct an inquiry, yet to be carried out, as to money intermeddled by the elder sister.

7. On 26 November 2004, the elder sister commenced HCA 2693/2004 against the younger sisters in their capacity of the joint administratrices for the estate of the mother.  The elder sister complained that the younger sisters had been guilty of willful default in not getting in certain properties or income of the estate of the mother and therefore, liable to her for an account, interim distribution and other relief.

8. Then, on 20 January 2005, the younger sisters took out the present proceedings to seek to protect themselves against the elder sister’s action in HCA 2693/2004.  The substantive argument was heard by me on 5 October 2005.  Mr. William Wong of Counsel acted for the younger sisters while Mr. E.C. Mumford, S.C. represented the elder sister.  Having heard from the Counsel, I reserved my decision to be delivered.  I now do so.

The Ruling

9. Upon careful consideration of the evidence authorities and submissions from both learned Counsel, I am afraid that I cannot grant to the younger sisters the relief they sought.  My reasons appear as follows.

The Law

10. To start with, I agree with Mr. Mumford that a trustee may get involved in 3 types of litigation.  As Lightman J. held in Alsop Wilkson v Neary [1996] 1 W.L.R. 1220:

“(1) a dispute as to the trusts on which they hold the subject matter of the settlement (“a trust dispute”);

(2) a dispute with one or more of the beneficiaries as to the propriety of any action which the trustees have taken or omitted to take or may or may not take in the future (“a beneficiaries dispute”);

(3) A dispute with persons, otherwise than in the capacity of beneficiaries, in respect of rights or liabilities assumed by the trustees as such in the course of administration of the trust (“a third party dispute”).”

11. As far as HCA 2693/2004 is concerned, it is not a “third party dispute” wherein “Beddoe application” is common, i.e. the trustee is desirous of seeking the court’s directions and approval on conduct of bringing or defending an action, including protection on his costs position by an indemnity from the estate.

12. HCA 2693/2004 belongs to the category of either a trust dispute or a beneficiaries dispute.  That makes the position of the Plaintiffs quite different, namely, the protection is only available to the trustee in exceptional circumstances.  The followings are stated in the 17 edition of Lewin (“Lewin”) on Trusts:

“21-86	The right of indemnity does not avail a trustee who is successfully sued for breach of trust, for the fact that he has committed a breach of trust suffices to exclude entitlement to indemnity and there is no need for the claimant to show that the breach of trustee amounts to misconduct.  Generally the unsuccessful trustee will be ordered to pay the costs of the successful claimant, assessed on the standard basis, and including the costs of accounts and inquiries made necessary by the breach of trust ……”
“21-88	Sometimes trustees who are sued for breach of trust seek to protect their position by making a Beddoe application for directions as to whether or not they should defend.  Apart from exceptional circumstances, this is inappropriate.  For, in contrast to the position concerning third party proceedings, a trustee who loses a breach of trust action is not entitled to indemnity, and so cannot expect the court to indemnify him at a time when it is not known whether or not the charge of breach of trust is well founded.  There may perhaps be exceptional circumstances where a Beddoe application might be justified ……”

Exceptional Circumstances?

13. Having said that, have the younger sisters able to show “exceptional circumstances” so that the estate should fund the costs of defending HCA 2693/2004?  The authors in Lewin explained what might constitute exceptional circumstances:

“21-88	……for example where a disaffected beneficiary seeking to bring pressure on the trustee charges him with a breach of trust which even if established would demonstrably not have involved any loss to the trust fund, and might have yielded a profit, and where it would be of benefit to the trust for the defendant trustee to have access to the trust fund for the purpose of enabling the trustee to obtain legal representation so as bring the action to a speedy and effective conclusion.
	Successful defence by trustee
21-89	A beneficiary who unsuccessfully sues trustees for breach of trust will normally be ordered to pay the costs of the trustees.  But costs may prove to be irrecoverable from the beneficiary, for example because he is impecunious or legally aided, or the costs recovered, assessed on the standard basis, may be less than the costs actually incurred by the trustees which would be allowed on the indemnity basis.  In such cases, the question arises whether the trustees must suffer the burden of their costs personally, so far as not recovered from the unsuccessful claimant.”

14. After thoughts, I do not think that the case of the younger sisters fall within any of the exceptional circumstances discussed by the above learned author.

(a) The elder sister sued the younger sisters for willful default or negligence in administering the estate.  Although I believe that the “wrongdoing” of the elder sister is relevant to how the younger sisters have administered the estate, the “key issues” in HCA 2693/2004 remains to be: whether the conduct of the younger sisters in the administration of the mother’s estate amount to willful default or negligence?

(b) For the time being, bearing in mind that it might be a dispute of evidence or opinion in the end to be resolved by the court at trial only, I do not consider that a meaningful assessment on the parties’ respective merits in HCA 2693/2004 can be done.

(c) There is no evidence before me that the elder sister is unable to pay the costs in HCA 2693/2004 in case that she will lose the proceedings in the end.

Discretion

15. Mr. Wong also urged me to exercise my judicial discretion to grant him the relief.  With respect, if discretion is to be exercised, I decline to do so as suggested by him.

(a) Mr. Wong told me that, from the evidence, the younger sisters had tried their best to administer the estate.  Such administration was only delayed and frustrated by the wrongful acts of the elder sister.  However, this Court has not been informed as to how the younger sisters want to defend in HCA 2693/2004, including but not limited to if a striking out application is to be taken out.  Without knowing the exact course to be taken by the younger sisters, I do not think I should grant them protection on costs without limitation.

(b) In substance, the mother’s estate is to be distributed in 3 equal shares among the 3 sisters.  If this Court agreed with the younger sisters on the present proceedings, the “net effect” would be that they would bear 2/3 of the costs in defending HCA 2693/2004, leaving only 1/3 to be shared by the elder sister.  It is the case of the younger sisters that they have done everything properly, why would they bear 2/3 of the costs?

Costs

16. I do not have the benefit of hearing argument on costs from both learned Counsel.  However, it appears that there is no reason why costs should not follow the event.  Further, Counsel’s assistance is useful to me.  I therefore make an order nisi that costs of the present application and proceedings, including certificate for counsel for hearing on 5 October 2005, be to the Defendant and borne by the Plaintiffs, on party-and-party basis, to be taxed if not agreed.