YUNG SIU CHEE MARGARET AND OTHERS v. CHOY CHING WA FIONNE AND OTHERS

HCMP 1682/2016 and
HCMP 1568/2017
(Heard Together)

[2019] HKCFI 2609

HCMP 1682/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1682 OF 2016

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MISCELLANEOUS PROCEEDINGS NO 1568 OF 2017

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(Heard Together)

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DECISION ON COSTS
(To vary costs order nisi)

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Introduction

1.  This Court’s Judgment in these two proceedings was handed down on 23 July 2019.  For convenience, paragraph numbers referred to below are the paragraphs in the Judgment.

2.  In paragraph 114, I made an order nisi on costs according to the result of each issue at the hearing.

3.  On 5 August 2019, the 1^st to 3^rd plaintiffs in HCMP 1682/2016, also the 1^st to 3^rd Defendants in HCMP 1568/2017 (collectively “the 3 Executrices” [1]), took out a summons in each proceedings seeking variation of the said order nisi.  On the same day, the 1^st defendant in HCMP 1682/2016, also the 4^th defendant in HCMP 1568/2017 (“Fionne Choy”), took out two summonses in similar terms [2].  I directed that the applications be dealt with on paper, with directions on respective filing of written submissions by the parties.

4.  While I shall deal with the costs on each issue in sequence below, I should first set out the general principles on costs in administration proceedings, which are in Order 62, rule 6(2) of the Rules of the High Court:

“ Where a person is or has been a party to any proceedings in the capacity of trustee, personal representative or mortgagee, he shall, unless the Court otherwise orders, be entitled to the costs of those proceedings, in so far as they are not recovered from or paid by any other person, out of the fund held by the trustee or personal representative or the mortgaged property, as the case may be; and the Court may otherwise order only on the ground that the trustee, personal representative or mortgagee has acted unreasonably or, in the case of a trustee or personal representative, has in substance acted for his own benefit rather than for the benefit of the fund.”

5.  In the present proceedings, the 3 Executrices and Fionne Choy (collectively “the 4 Executrices”) participated in their capacity as executrices of the Deceased’s estate.  Therefore, unless this Court otherwise orders, the 4 Executrices shall be entitled to costs of these proceedings out of the estate if such costs are not recovered from other parties.  However, the situations where this Court may order the 4 Executrices to bear the costs of the proceedings personally are limited to two: (1) where the 4 Executrices have acted unreasonably, or (2) where the 4 Executrices has in substance acted for their own benefit rather than the benefit of the Deceased’s estate.

6.  Lewin on Trusts (19^th edition) at [27-112] to [27-114] referred to some instances where the trustees would be as having acted unreasonably or in substance acted for their own benefit rather than the benefit of the trust.  These instances include inequitable conduct or misconduct, violation or culpable neglect of duty, caprice and obstinacy, neglect, negligence or carelessness, unreasonable conduct in the proceedings, acting in a partisan manner to some beneficiaries against others, adopting an excessive role in proceedings by contesting claims which ought to be contested by others and not the trustees, or which ought not to be contested at all, making application for the purpose of obtaining advantage to the trustee himself, such as approving self-dealing transaction or retaining a profit, and setting up or defending trustee’s own private interest against the trust.  Paragraph 62/6/1 of Hong Kong Civil Procedure 2019 referred to Chan Gordon v Lee Wai Hing (No 2) [2011] 2 HKLRD 1029 (HCMP 1596/2008, 20 April 2011) where an administrator was found to have been compromised in his neutrality.  In other words, he had acted without impartiality.  Hence, he was found to have acted unreasonably, disentitling him to costs out of the estate.

Costs of the First Issue

7.  In paragraph 59, I disallowed the additional remuneration to Fionne Choy proposed by her and the 3 Executrices.

8.  Paragraph 114(1) provided costs of the First Issue be paid by the 3 Executrices and Fionne Choy personally, jointly and severally to the 4 Beneficiaries (namely, the 2^nd to 5^th defendants in HCMP 1682/2016, also the 1^st to 4^th plaintiffs in HCMP 1568/2017), to be taxed if not agreed; and the Deceased’s estate do indemnify the 4 Beneficiaries’ costs if not recovered as a result of taxation.

9.  The 4 Executrices ask that the said costs order nisi be varied that the Deceased’s estate do indemnify the 4 Beneficiaries’ costs and the 4 Executrices’ costs of the First Issue, such costs of the 4 Executrices to be taxed on a trustee basis if not agreed by the 4 Executrices and all the beneficiaries of the Deceased’s estate.  In a nutshell, they ask for costs be borne by the Deceased’s estate instead. 

10.  The subject matter of the First Issue is whether to allow additional remuneration, on top of what had already provided for in the Deceased’s will, to Fionne Choy for her personal use. 

11.  It was submitted on behalf of Fionne Choy that it was in fact the 3 Executrices who applied for the additional remuneration and she had only made an affirmation in relation to this issue in response to an affirmation filed on behalf of the 4 Beneficiaries.  This is not a fair submission.  Firstly, during the substantive hearing, counsel for the 3 Executrices and counsel for Fionne Choy both made submissions on why Fionne Choy should be given additional remuneration.  Secondly, the application should be assessed in context.  As mentioned in paragraphs 19 to 22, before the application was made, with the consent of the 3 Executrices, Fionne Choy had received the proposed additional remuneration for 11 years from 2004 to 2014.  It was only after the commencement of HCMP 1682/2016 that Fionne Choy refunded the additional remuneration that she had already received to the Deceased’s estate pending the Court’s direction.  Therefore, in my view, both the 3 Executrices and Fionne Choy were partisan in the proposal which is rejected by the Court.

12.  More importantly, I cannot see how the additional remuneration was not proposed for the personal benefit of Fionne Choy.  The money was proposed to be made to her for her personal use and not subject to any condition. 

13.  I also cannot see how the purpose of paying additional remuneration to Fionne Choy was rather for the benefit of the Deceased’s estate.  There is no evidence on, and counsel for the 3 Executrices and counsel for Fionne Choy did not identify, any specific purpose which was said to be a which the Deceased’s estate may derive from making payment of additional remuneration to Fionne Choy.  Counsel for Fionne Choy suggested that if an executrix had concerns with meeting her daily living expenses, it would jeopardize the time and/or resources the executrix could spend on administering the estate.  This assertion is rather bald.  Even assuming its logic is correct, no evidence was identified as a support of such an assertion.  And the Court did not hear any evidence which showed Fionne Choy had difficulty in meeting her daily living expenses. 

14.  If the beneficiaries are required by the executrices to come to the Court to debate a question which concerns only one of the executrices’ own benefit rather than the interest of the estate, this would be a weighty factor for the Court to exercise its discretion under Order 62, rule 6(2) not to order the executrices’ costs be paid out of the estate.  The rationale is well explained in Henley v Philips (1740) 2 Atk 48 at paragraph 4:

“ Where a trustee is merely a trustee, and there is any act to be done by him, it is very commendable in him to be cautious, but where he has a private interest of his own separate and independent from the trust, and obliges cestui que trust to come into this court, merely to have the point relating to his private interest determined at the expense of the trust; this is such a vexatious behaviour in him, that for example’s sake he will be decreed to pay the whole costs of the suit.”

15.  Counsel for the 3 Executrices submitted a number of points to explain why the costs incurred in this issue (ie whether Fionne Choy as one of the executrices should be given additional remuneration) should be borne by the estate.

16.  Firstly, they submitted that the law regarding the executrix’s remuneration and the operation of section 60 of the Probate and Administration Ordinance and the inherent jurisdiction of the Court is unclear.  I disagree.  Even if the legal question involved in the issue is not simple, this is not a relevant consideration in Order 62, rule 6(2) of the Rules of the High Court.

17.  Secondly, they submitted that the 3 Executrices had taken a neutral stance in this issue.  Looking at what the 3 Executrices had done as mentioned above, their conducts could hardly be described as neutral: Before making the current application, the 3 Executrices had allowed the payments of additional remuneration to Fionne Choy for 11 years, without consulting or seeking any comment from the beneficiaries (although the payments were returned by Fionne Choy after the commencement of the current application).  After making the current application, the submissions made on behalf of the 3 Executrices were clearly advocating for the granting of the additional remuneration.

18.  Thirdly, they submitted that remuneration was a matter that must be dealt with by the Court and could not be approved by the 3 Executrices.  This submission ignored the fact that they allowed the payments in the first place and it was only after 11 years that they made the current application upon the 4 Beneficiaries’ complaint.

19.  In my view, the reasonable steps that the 3 Executrices should have done was they should have first informed all the beneficiaries the proposal of paying additional remuneration to Fionne Choy and its basis and sought their comment.  When it was clear that some of the beneficiaries objected to the proposed additional remuneration, the 3 Executrices should have sought legal opinion.  If the legal opinion was supportive of the proposed additional remuneration, the 3 Executrices should have circulated it among the beneficiaries and invited further comment in light of the legal opinion.  Thereafter, if, notwithstanding the legal opinion, no consensus between the beneficiaries and the executrices could be reached, then the 3 Executrices would stand on a much solid ground in taking out the current application. 

20.  In contrast, what the 4 Executrices had done were — (for the 3 Executrices) allowing the payments of additional remuneration for 11 years, (for Fionne Choy) receiving the payments for her personal use for 11 years, without ever consulting the beneficiaries, (for the 3 Executrices) applying for the Court’s direction only upon the 4 Beneficiaries’ complaint, and (for Fionne Choy) refunding the remunerations previously received only after the current proceedings had been commenced.  I would not say these conducts were reasonable.  If necessary, I would also hold that these unreasonable conducts amount to an additional basis for disallowing the costs incurred under this issue to be paid out of the Deceased’s estate under Order 62 rule 6(2).

21.  Fourthly, it was submitted that the originating summons in HCMP 1682/2016 was issued by the 3 Executrices for the benefit of the Deceased’s estate because in addition to the First Issue, the Executrices sought directions on other matters such as the amount of further interim distribution to be made.  This is non sequitur.  Seeking directions on other matters for the benefit of the estate do not mean asking for additional remuneration to be paid to Fionne Choy personally is in the interest of the estate. 

22.  Fifthly, it was submitted that the First Issue arose out of ambiguity in the will of the Deceased.  I disagree.  In paragraph 17, I have held that the meaning of the relevant clause of the will providing for Fionne Choy’s remuneration is clear.

23.  Sixthly, it was submitted that if costs are imposed upon the executrices, it would set a bad precedent as future administrators would be apprehensive in seeking the Court’s guidance.  I disagree.  I have explained in details above the facts of the present case and the conducts of the 4 Executrices which led to my decision that under Order 62, rule 6(2) they should bear the costs of the First Issue instead of the estate.

24.  Fionne Choy also submitted that the remuneration requested by Fionne was nominal compared to the estate and the rates of the new administrators.  I do not consider that the proposed additional remuneration ($50,000 per annum for 11 years) was so nominal to the extent that the considerations in Order 62, rule 6(2) (ie whether the trustee or personal representative has acted reasonably, or whether the trustee or personal representative has in substance acted for his own benefit rather than for the benefit of the fund) can be ignored or departed from.

25.  In conclusion, the 3 Executrices’ applications and Fionne Choy’s applications for variation of the cost order nisi set out in paragraph 114(1) are refused and I made an order absolute in terms of paragraph 114(1).

Costs of the Second Issue

26.  In paragraph 76, I held that the costs and expenses incurred in the PRC Proceedings (as referred to in paragraph 60) shall not be allowed to be borne by the Deceased’s estate and shall be borne by the 4 Executrices personally.

27.  In paragraph 114(2), I made an order nisi that costs of the Second Issue be paid by the 4 Executrices personally, jointly and severally to the 4 Beneficiaries, to be taxed if not agreed; and the Deceased’s estate do indemnify the 4 Beneficiaries’ costs if not recovered as a result of taxation.

28.  Same as their variation applications in respect of the First Issue (see paragraph 9 above), the 4 Executrices ask for the costs of the Second Issue be borne by the Deceased’s estate instead.

29.  The only ground upon which the 3 Executrices said the costs of the Second Issue should be borne by the estate is that the PRC Proceedings were commenced solely for the benefit of the estate.

30.  On the other hand, Fionne Choy regurgitated the argument that the 4 Executrices’ original act in including Billy Yung as part of the PRC Proceedings was not unreasonable.

31.  These arguments are a repeat of what the 4 Executrices argued at the substantive hearing.  After hearing these arguments, for the reasons set out in paragraphs 70 to 75, I rejected them.  Particularly in paragraph 75, I held that section 60 of the Trustee Ordinance does not relieve the 4 Executrices from being held personally liable for the costs of the PRC Proceedings because the 4 Executrices did not give any explanation why none of the pre-action legal advices was produced to this Court, and no cogent reason was given why Billy Yung was sued in the first place, which led to the withdrawal of the entire PRC Proceedings.  As a result, the costs of the PRC Proceedings were completely wasted.

32.  Given the finding that it was the 4 Executrices who wasted the costs of the PRC Proceedings, I do not see how the circumstance can justify allowing them to recoup the costs in respect of this issue from the Deceased’s estate.

33.  Therefore, the 3 Executrices’ applications and Fionne Choy’s applications for variation of the costs order nisi set out in paragraph 114(2) are refused and I made an order absolute in terms of paragraph 114(2).

Costs of the Third, Fourth and Fifth Issues

34.  In paragraph 114(3) to (5), the order nisi was made in the following terms:

“ (3) Costs of the Third Issue be paid by the 4 Beneficiaries personally to Fionne Choy and the other three executrices, to be taxed if not agreed; and the Deceased’s estate do indemnify Fionne Choy’s costs and the other three executrices’ costs if not recovered as a result of taxation.

(4) The Deceased’s estate do indemnify the 4 Beneficiaries’ costs and the 4 Executrices’ costs of the Fourth Issue, such costs to be taxed if not agreed by the 4 Executrices and all the beneficiaries of the Deceased’s estate.

(5)   The Deceased’s estate do indemnify the 4 Beneficiaries’ costs and the 4 Executrices’ costs of the Fifth Issue, such costs to be taxed if not agreed by the 4 Executrices and all the beneficiaries of the Deceased’s estate.”

35.  The 3 Executrices and Fionne Choy ask the Court to add that the taxation is to be proceeded on a trustee basis.

36.  The trustee basis of taxation is described in Order 62, rule 31 of the Rules of the High Court:

“ (1)  This rule applies to every taxation of the costs which a person who is or has been a party to any proceedings in the capacity of trustee or personal representative is entitled to be paid out of any fund which he holds in that capacity.

(2)  On any taxation to which this rule applies, no costs shall be disallowed except in so far as those costs or any part of their amount should not, in accordance with the duty of the trustee or personal representative as such, have been incurred or paid, and should for that reason be borne by him personally.”

37.  The 4 Executrices participate in these proceedings in their capacity as executrices of the Deceased’s estate.  The costs provided for in paragraph 114(3) to (5) shall be on the trustee basis in accordance with Order 62, rule 31.

38.  The 4 Beneficiaries raised no disagreement.  Counsel for them only said stipulation of the taxation basis added little.  For clarity, I am prepared to add the phrase “on a trustee basis” after the phrase “to be taxed” in each of paragraph 114(3), (4) and (5), and I made an order absolute in terms of paragraph 114(3), (4) and (5) as so varied.

Costs of the Sixth Issue

39.  In paragraph 109, I held that professional administrators, independent of any member of the Deceased’s family, should be appointed in place of the 4 Executrices.

40.  In paragraph 114(6), I made an order nisi that costs of the Sixth Issue be paid by the 4 Executrices personally, jointly and severally to the 4 Beneficiaries, to be taxed if not agreed; and the Deceased’s estate do indemnify the 4 Beneficiaries’ costs if not recovered as a result of taxation.

41.  The 3 Executrices ask for costs of the Sixth Issue be paid by the 4 Beneficiaries personally to the 4 Executrices. As an alternative, they (together with Fionne Choy, as her primary application) asks for an indemnity from the Deceased’s estate of costs of the parties.  In further alternative, the 4 Executrices ask for no order as to costs on the Sixth Issue.

42.  In administration proceedings, if the court considers a situation falling within what was described as the third class of cases in Re Buckton [1907] 2 Ch 406, it may make a cost order following the event.  As explained by Kekewich J in the first complete paragraph at page 415 of Re Buckton:

“ There is yet a third class of cases differing in form and substance from the first, and in substance, though not in form, from the second. In this class the application is made by a beneficiary who makes a claim adverse to other beneficiaries, and really takes advantage of the convenient procedure by originating summons to get a question determined which, but for this procedure, would be the subject of an action commenced by writ, and would strictly fall within the description of litigation. It is often difficult to discriminate between cases of the second and third classes, but when once convinced that I am determining rights between adverse litigants I apply the rule which ought, I think, to be rigidly enforced in adverse litigation, and order the unsuccessful party to pay the costs. Whether he ought to be ordered to pay the costs of the trustees, who are, of course, respondents, or not, is sometimes open to question, but with this possible exception the unsuccessful party bears the costs of all whom he has brought before the Court.”

43.  The principle from Re Buckton was adopted by Poon J (as Poon CJHC(Ag) then was) in Re Estate of Lee Da Kor [2010] 1 HKLRD 415 at paragraph 39.

44.  In my view, whether a party is successful should not depend only on the result of the order made by the court, but also on whether the grounds of his/her claim have been validly made out.  I should still also consider the circumstances of the case and the conducts of the parties. 

45.  Having read written submissions of the parties, I wish to highlight the following matters which I have taken into account on the question of costs:

(1)  It was the 4 Beneficiaries who took out the originating summons in HCMP 1568/2017 seeking removal of the 4 Executrices.

(2)  The application was vigorously contested between the parties, no different from a hard-fought adversary litigation.

(3)  In terms of result, the 4 Beneficiaries succeeded.  As mentioned in paragraph 37 above, under the Judgment, the 4 Executrices were ordered to be replaced by professional administrators from KPMG.

(4)  However, none of the grounds of the removal advanced by the 4 Beneficiaries (such as breach or dereliction of duties and negligence) were accepted by this Court.  Such grounds form no basis for the replacement of the 4 Executrices.  Having decided that the 4 Executrices should be replaced to avoid the deep friction or hostility, this Court mentioned in paragraph 110 that:

“ The said conclusion having been reached, it is not necessary for the Court to make findings on other grounds advanced by Mr Chan for removing the 4 Executrices, or to decide on their validity, save for the avoidance of further disputes, no wrongdoings have been found on any of the 4 Executrices which led to their replacement by professional administrators.”

(5)  It is therefore obvious that there has been no finding of wrongdoings on any of the 4 Executrices.

(6)  As pointed out by Counsel for Fionne Choy in paragraphs 120 and 121 of his written closing submissions for the substantive hearing, it was in response to this Court’s inquiry on whether the breakdown in relationship would affect the administration of estate that the parties, including the 4 Beneficiaries, made submissions on this ground.

(7)  Paragraph 106 sets out the events which in my judgment demonstrated the breakdown in relationship and animosity between the 4 Executrices and the 4 Beneficiaries.  It can be readily seen from the description of those events that both parties contributed to the undesirable situation.

46.  In light of the considerations set out in the preceding paragraph, and particularly, as explained in paragraphs 109 and 110 of the Judgment, that the replacement was ordered for the best interest of all the beneficiaries, with no finding of wrongdoings on any party to these proceedings, in my view, neither the 4 Beneficiaries nor the 4 Executrices should be taken as the successful party of this part of the proceedings.  The breakdown in relationship and animosity between the 4 Executrices and the 4 Beneficiaries is a lose-lose situation contributed by all parties.

47.  I therefore consider appropriate that the costs of the Sixth Issue should be borne by the Deceased’s estate.

48.  I make the following order absolute in place of the order nisi in paragraph 114(6):

“ The Deceased’s estate do indemnify the 4 Beneficiaries’ costs and the 4 Executrices’ costs of the Sixth Issue, such costs of the 4 Executrices to be taxed on a trustee basis if not agreed by the 4 Executrices and all the beneficiaries of the Deceased’s estate.”

Costs which were reserved

49.  I am asked to deal with two sets of costs which were reserved in the previous hearings: firstly the order of Chow J made on 11 October 2017 in HCMP 1682/2016, after deciding to adjourn most of the issues in HCMP 1682/2016 to be heard together with HCMP 1568/2017; and secondly the order also of Chow J made on 20 October 2017 under HCMP 1682/2016, after directing interim distribution to be made, with costs be reserved pending the determination of HCMP 1568/2017.

50.  For both sets of costs, I would order that the parties’ costs be indemnified by the Deceased’s estate, with such costs of the 4 Executrices to be taxed on a trustee basis if not agreed by the 4 Executrices and all the beneficiaries of the Deceased’s estate.  As to the first set of costs, there is no dispute that the estate should indemnify the parties.  As to the second set of costs, interim distribution is clearly a matter of administration of the estate.  There were disagreements on the timing and amount of the distribution, which had been resolved.  In my view, such disagreements did not go so far to the extent that any party should be held liable for unreasonable conduct and deprived of costs.

Costs of the applications for variation

51.  Lastly, regarding the costs of the applications for variation of the costs order nisi, I consider fair to make the order in accordance with the result of the application on each issue, which is as follows:

(1)  Costs of the 3 Executrices’ and Fionne Choy’s applications for variation of the costs order nisi in respect of the First Issue be paid by the 4 Executrices personally, jointly and severally to the 4 Beneficiaries, to be taxed if not agreed; and the Deceased’s estate do indemnify the 4 Beneficiaries’ costs if not recovered as a result of taxation.

(2)  Costs of the 3 Executrices’ and Fionne Choy’s applications for variation of the costs order nisi in respect of the Second Issue be paid by the 4 Executrices personally, jointly and severally to the 4 Beneficiaries, to be taxed if not agreed; and the Deceased’s estate do indemnify the 4 Beneficiaries’ costs if not recovered as a result of taxation.

(3)  The Deceased’s estate do indemnify the 4 Beneficiaries’ costs and the 4 Executrices’ costs of the 3 Executrices’ and Fionne Choy’s applications for variation of the costs order nisi in respect of the Third, Fourth and Fifth Issues, such costs of the 4 Executrices to be taxed on a trustee basis if not agreed by the 4 Executrices and all the beneficiaries of the Deceased’s estate.

(4)  The Deceased’s estate do indemnify the 4 Beneficiaries’ costs and the 4 Executrices’ costs of the 3 Executrices’ and Fionne Choy’s applications for variation of the costs order nisi in respect of the Sixth Issue, such costs of the 4 Executrices to be taxed on a trustee basis if not agreed by the 4 Executrices and all the beneficiaries of the Deceased’s estate.

And I so order.