XCHRX NORMAN CHUI PAK MING AND ANOTHER v. ROBERT LEUNG SAI LUN AND OTHERS

HCMP 7845/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 7845 OF 1999

--------------------------------------------

In the Estate of LEUNG WAI KIT, ROGER also known as ROGER WAI KIT LEUNG, also known as LEUNG KWAI SUM, Deceased

--------------

DECISION

--------------

1. This is an application by the Administrators of the Estate of Roger Leung Wai Kit ("the Deceased") for an order, commonly known as a Beddoe order, that they be at liberty to institute an action against the 5th, 6th and 8th Defendants and that they be indemnified out of the Estate for the costs that may be incurred by them in the action.

2. At the hearing on 29 September 2000, at the parties' request, I first heard submissions from counsel for all parties on the proposed Beddoe order before hearing only from counsel for the Administrators on the strengths and weaknesses of their case in the intended action.

The Parties

3. The Administrators are two solicitors who were appointed administrators of the Estate pursuant to a consent order dated 17 March 1997. Neither of the Administrators has any personal interest in the Estate.

4. The Defendants are the beneficiaries of the Estate. The 1st to 4th Defendants are the Deceased's children by his marriage to the late Lucia Tse. After her death, the Deceased married the 5th Defendant, by whom he subsequently had 3 children, who are the 6th, 7th and 8th Defendants. All the defendants are sui juris.

5. It has been held by the Court of Final Appeal that the Deceased died intestate. Although the 1st to 4th Defendants had asserted that the Deceased had made a Will on 27 July 1967 leaving the Estate to them, that Will was executed before the Deceased's registry marriage to the 5th Defendant in 1985 (albeit after his Chinese customary marriage to her in 1966). The Court of Final Appeal held that, even on the assumption that the Will was authentic, it would have been invalidated by the subsequent registry marriage of the Deceased to the 5th Defendant. Accordingly, the Deceased's estate falls to be distributed in accordance with the intestacy laws.

6. The Defendants' respective shares in the Deceased's estate are such that the 1st to 4th Defendants' shares total 28%, and the 5th to 8th Defendants' shares, 72%.

The intended action

7. The intended action is against the 5th Defendant, the 6th Defendant and the 8th Defendant. A detailed draft Statement of Claim has been settled by a Queen's Counsel in London and has been exhibited to the joint affirmation of the Administrators. His opinion has also been exhibited but pursuant to a consent order between the parties to these proceedings, this opinion has been closed to all defendants.

8. The draft Statement of Claim is extremely detailed and pleads, amongst other things, the Deceased's business and family lives and his character. The picture painted is of an intelligent businessman who was very successful but extremely stringent with his money, even towards himself and his family. It is alleged that he mistrusted the 5th Defendant and that even during his final illness, he expected to recover, so that it would have been out of character for him to have made any gifts to the 5th Defendant.

9. Briefly, the intended claims against the 5th Defendant relate to the following:-

(1) that when the Deceased was seriously ill in hospital 2-3 months before his death, she procured him to sign a cheque for HK$1m in her favour;

(2) that 2 months before the Deceased's death, she procured him to sign a bank mandate continuing his HSBC current and fixed deposit accounts (then held in his sole name) as an account in joint names with her. Subsequently, she withdrew the funds in the joint accounts and placed them in an account held in her sole name;

(3) that when the Deceased was "clinically dead", she instructed Citibank to retitle 3 joint accounts which the Deceased held with her in her sole name; after his death, she treated the funds in those and a fourth Citibank account as her own.

10. The causes of action intended to be pleaded against her is that the Deceased signed the HSBC mandate under mistake, with the result in law that the mandate was void; alternatively, that he intended only that she have access to the joint accounts for convenience, with the result that whilst she was a joint tenant at law, the accounts were held on a resulting trust for the Deceased; alternatively, that if the Deceased did make a gift of the funds in the HSBC accounts to her, that he did so under the actual undue influence of the 5th and/or 6th Defendants, or the presumed undue influence of the 5th Defendant. It is also intended to be pleaded against the 5th Defendant that her actions in withdrawing the funds from the accounts amounted to a breach of trust or fiduciary duty.

11. The total amounts intended to be claimed against the 5th Defendant are in the region of HK$62m and HK$10m in foreign currency, together with interest.

12. Briefly, the claims intended to be made against the 6th Defendant are founded on allegations of her knowing (or dishonest) assistance in the 5th Defendant's breaches of trust or fiduciary duty. A number of documents preparatory to the execution of the joint account mandate and relating to the transfer of funds to the 5th Defendant's sole account appear to have been drafted by the 6th Defendant for the 5th Defendant.

13. The claim against the 8th Defendant is for repayment of the balance of US$1m which the Deceased had in 1994 and 1995 transferred to his (the 8th Defendant's) account in the United States. The 8th Defendant was then in his last two years of university there, and the 7th Defendant was in 1995 also in the United States reading for a post-graduate degree. It is not, or at least originally was not, alleged by the 8th Defendant that these funds had been provided by way of gift.

Materials considered

14. I have considered the materials marshalled by the Administrators which have been included in another closed exhibit to the joint affirmation of the Administrators. These materials include documents and statements from persons who were close to the Deceased other than the 1st - 4th Defendants. They also include Estate Duty affirmations made by the 5th Defendant, which on the face of it, are inconsistent with her present position regarding the content and timing of gifts that she alleged the Deceased made to her.

15. I have also considered the Affirmations of the 5th and 8th Defendants filed in opposition to the Beddoe application, the Answers given by the 5th Defendant to a Questionnaire sent to her by the Administrators, and correspondence from solicitors acting for the 5th - 8th Defendants. I have also take into account the possibility that, assuming the Will to have been authentic, the Deceased may not have been aware that it would be invalidated by his registry marriage to the 5th Defendant.

16. I have also received full written and oral submissions from Mr Ronny Tong SC Leading Counsel for the Administrators, in chambers in the absence of all the defendants.

Intended action against the 5th Defendant

17. Having considered the materials and Mr Tong SC's submissions, I take the view that, subject to consideration of the submission of injustice to the 5th- 8th Defendants (which I will deal with below), proceedings should be commenced against the 5th Defendant. In this decision, I should say no more than that on the basis of the materials which have been placed before me, it is reasonable and proper for the Administrators to institute the intended proceedings as part of their duty to get in the assets of the Estate.

Intended action against the 6th Defendant

18. As for the 6th Defendant, a claim against her in knowing assistance would only be necessary if there is a risk that the Estate would not be able to recover from the 5th Defendant.

19. The Estate is large, estimated at between HK$200m and HK$450m, and the 5th Defendant has the lion's share of it. Although the Court was told that there has already been some distribution from the Estate, Mr Tong SC has accepted that the risk of the Estate not being able to recover from the 5th Defendant is not great.

20. In those circumstances, proceedings against the 6th Defendant would not be necessary from a commercial aspect, and in view of the domestic context of the claim and the fact that professional administrators have been installed in control, I see no purpose in pursuing proceedings against the 6th Defendant simply as a deterrent to discourage others from acting in a similar fashion (cf Royal Brunei Airlines v Tan [1995] 2 AC 378, 387A).

21. It cannot be a proper consideration for this Court that if the 6th Defendant is joined as a party to the intended action, that she would be more likely to give evidence, or that the proceedings may be more amenable to a settlement.

22. Further, quite apart from there being nothing to gain for the Estate from suing an additional defendant, the Administrators would be incurring for the Estate the risk of additional costs (and of prolonging the hearing of the intended action) if the 6th Defendant were to instruct legal advisers separate from the 5th Defendant.

23. In the light of the above, I would decline to grant the order sought so far as the intended proceedings against the 6th Defendant are concerned.

Intended action against the 8th Defendant

24. As for the 8th Defendant, it has been accepted in correspondence (20 March 1997) from solicitors acting on his behalf that the US$1m had not been exhausted.

25. In her Answer to the Administrators' Questionnaire, the 5th Defendant expressly asserted that "the sum of US$1m did not constitute gifts inter vivos ... nor was an Estate Duty Donee Affirmation required" (Answer 22.1). These Answers have been confirmed on behalf of the 8th Defendant. The 5th - 8th Defendants' case (at least in the Answers) was that the funds were for "education, and training and related expenses of the 6th, 7th and 8th Defendants".

26. All these three defendants have now finished their university courses and are working. The 5th Defendant has said that no further education or training for any of her children is foreseeable. Thus, even on the case of the 5th - 8th Defendants, the purpose for which the 8th Defendant had been authorised by the Deceased to expend the funds has lapsed, and the balance would have to be returned to the Deceased and on his death, his Estate.

27. In her Affirmation filed in opposition to the Beddoe order, however, the 5th Defendant said that "it is my belief that the money was remitted for the education and living expenses of Alfred and my other children. The Deceased had set up a trust for the education of the children of Robert. It is thus not surprising that the Deceased would also make gift for the education of Alfred and my children. I am told by Alfred and verily believe that the Deceased did not mention anything [sic] specific purpose for which the money was to be held by Alfred at any time". This suggestion that the funds were a gift appears to be inconsistent with the assertion made in the Answers.

28. In the circumstances, given that the 8th Defendant has not provided any information to the Administrators on the amount of the funds left, and in the light of the matters set out above, it is reasonable and proper for the Administrators to institute proceedings against the 8th Defendant for declaratory relief in respect of the funds, and for an account and for payment of any sum found due upon the taking of the account.

Submission of injustice to D5 - D8

29. However, that is not the end of the matter. It was submitted on behalf of the 5th - 8th Defendants that injustice would be caused to them if the Administrators' costs of the intended action were to be borne by the Estate as a whole.

30. Their argument, put briefly, is that if the Administrators' intended action is unsuccessful, and costs are to be borne by the Estate, the 5th - 8th Defendants would in effect have to bear 72% of the costs of the unsuccessful action against the 5th and 8th Defendants, and the 5th Defendant says (which I accept for present purposes) that all her children are opposed to the intended proceedings.

31. Mr Tang SC submitted that the intended action was a "squabble between beneficiaries", that the position that ought to be adopted by the Administrators should be that of an interpleader in hostile litigation between two camps of beneficiaries, and that if the 1st to 4th Defendants wished to seek to recover the funds, the Administrators should simply lend their names to those beneficiaries to start an action. If the 1st to 4th Defendants were not prepared to institute an action at their own expense, then no action should be instituted at all.

32. I agree with that submission to the extent that the Court should take into account the possibility of injustice to any of the beneficiaries before deciding whether or not to grant a Beddoe order.

In re Evans, deceased

33. In In Re Evans, deceased [1986] 1 WLR 101, the plaintiff was one of 6 nephews and nieces of the deceased who died intestate. He (the plaintiff) was 72 years old, and had worked for many years on a farm and had lived all his life in a house which belonged to the deceased. The plaintiff claimed that the deceased made certain promises to him and his wife during the deceased's lifetime and claimed to be beneficially entitled to the whole estate.

34. The administrator (who was one of the other nephews) asked for a Beddoe order for leave to defend the action and to institute a counterclaim for possession of the premises, and that he be indemnified out of the estate for the costs.

35. The plaintiff objected on the ground that if he succeeded in the action, the administrator's costs would have to come out of what would be an estate which was his and his alone, and his farm and house would have to be sold to meet the costs as those premises formed the bulk of the estate. The other nephews and nieces would have started by risking nothing and would have ended by losing nothing.

36. The master dismissed the administrator's application for a Beddoe order on the undertaking given by the plaintiff that he would join the other nephew and nieces as defendants in the action so that they could defend the action if they wished but at their own expense.

37. On the administrator's appeal from the master, the deputy judge granted a Beddoe order until the completion of discovery. He followed Sir Robert Megarry V-C's decision in In re Dallaway, deceased [1982] 1 WLR 756, where the facts were similar to those in Evans, save that the plaintiff there alleged that his deceased brother had orally promised to leave his entire estate to him by will. The deceased did leave a will, but left the estate equally between all his brothers and sisters. Sir Robert Megarry V-C gave the executor bank a Beddoe order subject to any order made by the trial judge.

38. On the plaintiff's appeal from the deputy judge, the Court of Appeal allowed the appeal and remitted the case to the master for further consideration on the understanding that the undertakings to join the other nephew and nieces be renewed. The Court of Appeal held that it was a matter for discretion depending on the facts of each case whether the administrator should be indemnified out of the estate for the costs of an action, regardless of the outcome, but that in cases where the beneficiaries were sui juris and capable of deciding whether to pursue or defend a claim, the potential injustice of such an indemnity to the beneficiary-litigant had to be balanced by countervailing considerations of some weight, such as the merits of the case, before it would be right for the claim to be pursued or defended at the cost of the estate.

39. In Evans, the injustice and hardship that would be suffered by the plaintiff-beneficiary was particularly severe. If he succeeded, he would have had to pay 2 sets of legal costs (his own and the estate's) and in the process, lose his farm and home, when the other beneficiaries had nothing to lose.

Reason for Beddoe order in present case

40. That case serves as a guide to the considerations that the Court must bear in mind in a Beddoe application, but it is quite different on the facts, so the decision in that case cannot be regarded as appropriate in the present case. In the present case, the other beneficiaries have something to lose from the Estate (to which they are entitled to 28%) by way of costs if the intended action fails. The risk of incidence of costs is by no means all one-way. Further, the Administrators in the present case are not in a position to sit back and let the other beneficiaries defend the action. They cannot join the 1st - 4th Defendants as plaintiffs, unlike the plaintiff-beneficiary in Evans who was in a position to give an undertaking to the Court to join the other beneficiaries as defendants.

41. The starting point for the Court's consideration is that the Administrators have marshalled substantial materials and have taken advice from Leading Counsel both in London and Hong Kong. On the face of those materials, including materials emanating from the 5th Defendant herself, they have a reasonable case that assets of the Estate are in the 5th and 8th Defendants' hands. It is the duty of administrators to get in the assets of the estate, not the duty of beneficiaries, be they "majority" or "minority" beneficiaries.

42. In my view, it would be a wrongful exercise of this Court's discretion if it were to release the Administrators from that duty in the light of the case that has been made against the 5th and 8th Defendants, and to leave it to the other beneficiaries to assume 100% of the incidence of costs in an action which will no doubt be expensive. An administrator's duty to each beneficiary is the same. "Minority" beneficiaries have as much right to the proper exercise of administrators' duties as do "majority" beneficiaries.

Alsop Wilkinson v Neary

43. Mr Tang SC submitted that this was a "squabble between beneficiaries" and was in effect hostile litigation between beneficiaries, so that the Administrators should assume the position of an interpleader (cf Alsop Wilkinson v Neary [1996] 1 WLR 1220). I cannot agree.

44. It is clear from Lightman J's judgment in that case that a distinction was drawn between "trust" disputes, "beneficiary" disputes and "third party" disputes.

45. The present case is not a "trust" dispute such as that in Alsop Wilkinson when the legal estate was held by the trustees either under the express trust of a settlement or under a resulting or constructive trust which would have vitiated the express trust. The Administrators here are not holding onto funds, not knowing who those funds really belong to. They have, after considering the materials available and taken legal advice, reasonably come to the conclusion that the 5th and 8th Defendants are holding onto the Estate's funds and are seeking to recover them.

46. Accepting Mr Tang SC's interpretation of the definition of "third party" disputes in that case, the present case is still a "third party" dispute, involving the 5th and 8th Defendants in their capacities, not as beneficiaries, but as persons allegedly liable to the Administrators in the course of their administration of the Estate. The proper course to be taken by the administrators in such a dispute was set out at p1224 D-G of the report of Alsop Wilkinson and is the course that has been taken by the Administrators here.

47. I do not therefore see the value of Mr Tang SC's suggestion that the Court directs that if a Beddoe order is to be made, that it be withheld for a period to enable the 5th Defendant to consider whether to offer to place the funds with the Administrators and to institute proceedings herself. However, as Mr Tong SC and Mr Merry have not voiced any objections to this suggestion, I would be prepared to direct that the order not be perfected within a period of 7 days from the date of this Decision and to give the parties liberty to apply.

Order

48. I would therefore give an order in terms of paragraph 1 of the Originating Summons save in respect of the 6th Defendant and save that the Plaintiffs shall not take any steps in the said action after completion of discovery and inspection of documents without the leave of the Court. The Plaintiffs shall be at liberty to apply for further directions then.

49. I would further give an order in terms of paragraph 2 in respect of costs properly incurred by them pursuant to the order in paragraph 1.

50. I would give an order nisi in terms of paragraph 3.

51. I would further direct that the closed materials which have been filed remain closed until further order and that the hearing of the intended action be listed before another judge who should not have sight of those materials.

52. This order is not to be perfected within a period of 7 days from the date of this Decision.