WANG DIN SHIN v. NINA KUNG

HCAP8/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE JURISDICTION ACTION NO. 8 OF 1999

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DECISION ON COSTS

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1.  On 31 December 2003, I handed down the decision (“the Decision”) on the defendant’s application (“the rescusal application”) for an order that the application to remove the Joint Administrators pendent lite (“the Administrators”) not be listed before either Chung J or myself.  I dismissed the defendant’s application, andin paragraph 41 of the Decision, made a costs order nisi as follows:

“[T]he defendant pays the plaintiff and the Administrators the cots of this application, to be taxed, in the case of the plaintiff on party-and-party basis and in the case of the Administrators on indemnity basis, if not agreed. There will be a certificate for two counsel. The Administrators’ own costs be paid out of the Estate on a trustee basis”.

2.  On 12 January 2004, the defendant applied by letter pursuant to Order 42 rule 5B(6) of Rules of the High Court to vary the costs order nisi.  On the Administrators’ indications that they wished to make representations and on the defendant and the Administrators indicating that they did not require an oral hearing, directions for filing of written submission were made on 20 January 2004.  The Administrators had lodged their submissions in response to the defendant’s application for variation, and the defendant had also lodged her submissions in reply.

The defendant’s application

3.  The defendant’s application is to vary the costs order nisi to the following:

“The defendant pays the plaintiff and the Administrators the costs of his application, to be taxed on party-and-party basis, if not agreed.  There will be a certificate for two counsel.  The Administrators’ own costs be reserved.”

4.  In substance, the defendant seeks two variations:

(1)     To vary the basis of taxation in respect of the costs awarded to the Administrators from indemnity basis to party-and-party basis; and

(2)     To reserve the Administrators’ own costs to be dealt with together with the application to remove the Administrators.

5.  The Administrators oppose both variations and ask that the order nisi be made absolute.

The indemnity costs order

          (1)     The arguments

6.  The defendant argues that there is no or no proper basis for awarding indemnity costs to the Administrators.  It is argued that indemnity costs order could only be properly and legitimately ordered where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in oppressive manner, and that indemnity costs may also be ordered where proceedings were instituted or prosecuted in such circumstances as to constitute an affront to the court.  The defendant says there is no finding and indication in the Decision handed down to justify the indemnity costs order.

7.  For the Administrators, it is argued that the circumstances in which an indemnity costs order may be made are not restricted to those contended by the defendant, that it may be awarded where the court, in the exercise of its discretion, considers it appropriate to do so.  The Administrators also argue that the defendant’s application had no apparent prospect of success from the outset, and the Estate should not be burdened with any shortfall of costs consequent upon a party-and-party taxation, hence it is appropriate to make an indemnity costs order.

          (2)     The relevant principles

8.  Order 62 rule 28(3) of Rules of the High Court provides that the court “may in any case in which it thinks fit to do so order or direct that the costs shall be taxed on … the indemnity basis”.  Under the rule, the court has a broad discretion to determine whether indemnity costs should be ordered. 

9.  In principle, there has to be some special and unusual features for an indemnity costs order to be made. However, the circumstances in which an indemnity costs order may be awarded are not restricted to where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in oppressive manner, or to circumstances that constitute an affront to the court.  The discretion is not to be fettered or circumscribed beyond the requirement that taxation in an indemnity basis must be appropriate:Town Planning Board v. Society for Protection of the Harbour Limited (unreported)FACV 14of 2003 paras.15-17 approving Sung Foo Kee Ltd v. Pak Lik Co (a firm) [1996] 3 HKC 570 at 575-6 and Choy Yee Chun (the representative of the estate of Chan Pui Yiu) v. Bond Star Development Ltd [1997] HKLRD 1327 at 1334-5. 

10.  Generally speaking, the grounds upon which an indemnity costs order are awarded must be connected with the case, and may extend to any matter relating to the litigation and the parties’ conduct in it, and also the circumstances leading to the litigation, but no further: Town Planning Board v. Society for Protection of the Harbour Limited at para.18.

11.  The Court of Final Appeal in Town Planning Board v. Society for Protection of the Harbour Limited recognizes that an award of indemnity costs, which is a more generous basis, will usually enable the successful party to recover more of his costs than a party-and-party award, such that in some circumstances, it will be appropriate to award indemnity costs so to achieve a fairer result for the successful party.  The Court of Final Appeal further accepts that the attributes of the parties, including their resources, and the character of the proceedings are relevant to the exercise of the discretion to award indemnity costs. 

          (3)     Justifications for indemnity costs

12.  From the authorities, it is trite that the circumstances under which an indemnity costs order may be awarded are not restricted to those contended by the defendant.

13. I consider that an indemnity costs award is appropriate in the present application, having regard to the following considerations:

(1)     The rescusal application is related to the defendant’s application to remove the Administrators pursuant to section 33(3) of the Probate and Administration Ordinance, cap.10 and/or the court’s inherent jurisdiction.  Both the rescusal and the removal applications are applications made within the administration of the estate. 

(2)     Contrary to the defendant’s contention, the removal application is not a piece of hostile litigation between a beneficiary and a trustee.  It does not determine the rights between the defendant in her capacity as potential beneficiary and the Administrators as trustee of the Estate.

(3)     To award the Administrators’ costs on party-and-party basis would result in the Estate having to bear those parts of the Administrators’ costs that are not recoverable inter partes.

(4)     As explained in the Decision, the rescusal application stems entirely from the defendant’s misconception of the nature and basis of her removal application.  It is not a necessary step in the removal application.

(5)     In the circumstances, it will not be right to subject the Estate to the shortfall of the costs incurred for an unnecessary and misconceived application brought by the defendant.

14.  In seeking to support an indemnity costs order, the Administrators have referred to the Court of Appeal’s decision in Chui Pak Ming & Anor v. Leung Lai Lun & Ors (unreported) CACV 687 of 2000, an appeal by some of the beneficiaries of an estate against a Beddoe order obtained by the administrators.  The Court of Appeal unanimously dismissed the appeal and held that the dispute over the Beddoe application was not a beneficiary dispute and was therefore not to be regarded as an ordinary hostile litigation. The Court of Appeal, by a majority, awarded costs to the administrators on an indemnity basis, having regard to the fact that the appeal had no prospect of success at the outset and that in the circumstances it would be wrong for the shortfall of the administrators’ costs to be borne by the estate.

15.  The defendant seeks to distinguish the case on three bases.  Firstly it is said that there is no finding in the Decision that the application had no apparent prospect of success at the outset.  Secondly, it is said that the issues raised in the rescusal application are novel and the circumstances in the present case are unique.  Thirdly, the consideration that the Estate will be burdened with the shortfall of the Administrators’ costs would not arise if the Administrators’ own costs were to be reserved.

16.  As explained in the Decision, the rescusal application is misconceived, and the misconception is rooted in the defendant’s erroneous perceptions as to the proper nature and basis of her application to remove the Administrators.  The arguments that the defendant had advanced may well be novel, but it does not detract from the fact that they are misconceived.  In my view, the case of Chui Pak Ming serves to illustrate that the court in exercising the discretion on costs may properly take into account the fact that the proceedings are brought in the context of the administration of an estate, and that a standard costs order may result in the estate having to suffer the payment of the costs not recovered under taxation.  In such, the court may make an indemnity costs award so as to avoid the unfairness of subjecting the estate to the shortfall of costs.  I am of the view that these considerations apply with equal force to the exercise of discretion in the present case.

17.  As for the last argument of the defendant, for reasons that are explained below, it is inappropriate to reserve the Administrator’s own costs as suggested.  In any event, reserving the Administrators’ own costs to the conclusion of the removal application does not address the unfairness of subjecting the Estate to the shortfall of costs that the Administrators were made to incur in meeting an application erroneously brought by the defendant.

18.  It follows from the reasons indicated that the defendant’s application to vary the indemnity costs order in favour of the Administrators fails.

The Administrators’ own costs

          (1)     The arguments

19.  The defendant’s main argument in seeking to have the Administrators’ own costs reserved to the conclusion of the removal application is that if the defendant succeeds in removing the Administrators, the Administrators would not be entitled to an indemnity against their costs and their costs would not come out of the Estate.  Hence, it is inappropriate to order the Administrators’ own costs on the rescusal application to be paid by the Estate because it would have the effect of making the Estate pays for the Administrators’ own costs irrespective of the outcome of the removal application.  

20.  For the Administrators, it is argued that under Order 62 rule 6(2) of Rules of the High Court, they are entitled to have any shortfall of their costs paid out of the Estate because they had neither acted unreasonably in opposing the rescusal application nor acted for their own benefit rather than the benefit of the Estate.

          (2)     Inappropriate to reserve costs

21.  I consider that it is inappropriate to reserve the Administrators’ own costs on the rescusal application to the determination of the removal application for two reasons.  Principally, the rescusal application, though related to the removal application, is a free standing and self-contained application.  It had been heard and adjudicated upon.  In the normal course, the costs of the application should be dealt with upon the conclusion of the application. 

22.  Secondly, the outcome of the removal application has no impact on the Administrators’ entitlement to an indemnity from the Estate in respect of their costs on the rescusal application.  I have ruled that the rescusal application is without merits.  It is a step taken unnecessarily.  Whether the Administrators had acted appropriately in opposing the rescusal application should be considered separately from whether the Administrators have acted reasonably and for the benefit of the Estate in defending the removal application.  Similarly, whether the Administrators have misconducted themselves in the administration of the Estate justifying their removal is a separate question from whether the Administrators had acted unreasonably or misconducted themselves in dealing with the defendant’s rescusal application. 

          (3)     The entitlement to an indemnity against costs

23.  As to the position of the Administrators’ own costs in the rescusal application, it is governed by Order 62 rule 6(2) of Rules of the High Court.  Under the rule, the Administrators being a party to the rescusal application in the capacity of trustees of the Estate, are entitled to have the part of their costs that are not recovered from the defendant paid out of the Estate.  The Court’s discretion to order otherwise is only exercisable on the ground that the Administrators have acted unreasonably or have in substance acted for their own benefit rather than for the benefit of the Estate.  The Administrators had not acted unreasonably in opposing the rescusal application.  They also succeed in opposing the application.  There is further nothing to show that they opposed the application wholly or substantially for their own benefit rather than for the benefit of the Estate.  On the contrary, it must be beneficial to the Estate to point out to the court that an application is made on an erroneous footing and to identify to the court the potential adverse effect an application may have on the administration of the Estate.  It is also not to be overlooked that the Administrators’ opposition has the support of the plaintiff, who is the beneficiary of the Estate as the judgment of Yam J now stands. 

24.  In paragraph 6 of Messrs Baker & McKenzie’s letter dated 12 January 2004, it was stated that as pointed out in paragraph 25 of the Decision, “where an application is made by a beneficiary seeking the removal of the trustee and/or damages for breach of trust, the trustee is not entitled to an indemnity against his costs and that his costs do not come out of the trust estate”.  It went on to argue in the next paragraph that the same principles ought to apply to the removal application and the applications in relation thereto, including the rescusal application.

25.  I had already made the point that whether the Administrators should be removed from their office and whether they act properly for the benefit of the Estate in defending the removal application are to be considered separately from whether the Administrators had acted appropriately and in the interest of the Estate in dealing with the rescusal application.  The question of whether the Administrators are entitled to an indemnity against their costs on the removal application does not arise for consideration at this stage.  However, it is necessary to dispel any possible doubt over paragraph 25 of the Decision.  The paragraph does no more than setting out the relevant facts in Alsop Wilkinson v. Neary [1996] 1WLR 1220, and the judgment of Lightman J therein.  As to whether Lightman J’s holding that a trustee’s costs in a beneficiaries dispute that is regarded as ordinary hostile litigation do not come out of the trust estate should apply to the Administrators in the removal application, it is not a question that calls for determination in the rescusal application or the present application for variation of the costs order nisi.

26.  The defendant’s application to vary the order nisi in respect of the Administrators’ own costs therefore fails.

Conclusion

27.  For the reasons stated above, the defendant’s application to vary the costs order nisiis refused.  The costs order nisiset out in paragraph 41 of the Decision is hereby made absolute.  The costs of the present application to vary the costs order nisishould follow event.  The defendant is to pay the Administrators their cost on the application to vary.  Adopting the reasons set out above, the Administrators’ costs are to be taxed on indemnity basis, if not agreed, andthe Administrators’ own costs be paid out of the Estate on trustee basis.