IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 687 OF 2000 (ON APPEAL FROM HCMP7845/99)

Transcription

1 CACV 687/2000 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF APPEAL CIVIL APPEAL NO. 687 OF 2000 (ON APPEAL FROM HCMP7845/99) BETWEEN NORMAN CHUI PAK MING Plaintiffs HERBERT TSOI HAK KONG (JOINT ADMINISTRATORS OF THE ESTATE) and ROBERT LEUNG SAI LUN Defendants DENNIS LEUNG SAI TAT ERIC LEUNG SAI CHEUNG LINA LEUNG SEEN YEE LEUNG MAY LING JACQUELINE LEUNG SEEN MAN REBECCA LEUNG SEEN WEI ALFRED LEUNG SAI KIT Before: Hon. Rogers, VP, Woo and Le Pichon JJA in Court Date of Hearing: 14 March 2001

2 - 2 - Date of Judgment: 14 March 2001 Date of Handing Down of Reasons for Judgment: 23 March 2001 R E A S O N S FOR J U D G M E N T Hon Le Pichon JA: This is an appeal from an order made by Yuen J on 5 October 2000 in a Beddoe application by the joint administrators of the estate of the late Leung Wai-kit, Roger ( the deceased ). The administrators were given leave to institute an action against Leung May-ling and Alfred Leung Sai-kit, being D5 and D8 to the application respectively, in terms of the statement of claim exhibited to the affirmation and affidavit of the administrators dated 21 December Such leave was limited and does not extend to any steps after the completion of discovery. The appeal was brought by D5 and her children, D6 to D8. At the hearing the appeal was dismissed. The reasons appear below. Introduction The administrators who were the plaintiffs in the Beddoe application are two solicitors appointed administrators pursuant to a consent order dated 17 March 1997 and have no personal interest in the estate. The defendants to the Beddoe application were and are the beneficiaries entitled to the estate under the intestacy rules. The deceased married twice. D1 to D4 are the four children from his first marriage. After the death of his first wife in 1963, he married D5 (who is his widow) and D6

3 - 3 - to D8 are the three children of his marriage to D5. The deceased entered into a Chinese customary marriage with D5 in 1966 and entered into a registry marriage in 1985 at a time when the deceased was contemplating emigrating to Canada. The Court of Final Appeal has ruled that the deceased died intestate. Although a Will appears to have been executed in 1967 leaving the estate to D1 to D4, even if authentic (which was disputed), the Will would have been invalidated by the subsequent registry marriage. Under the intestacy rules, D5 is entitled to the first $500,000 in the estate plus one-half of the balance. The estate in the present case is thought to be worth between $200 million and $450 million. D5 is thus entitled to a fraction over 50 per cent of the estate and each of the seven children to a little over 7 per cent each. The Action The action which the judge authorised the administrators to institute consists of claims against D5 and D8. As against D5, they relate to events which occurred when the deceased was seriously ill in hospital during the two to three months immediately prior to his death, namely, that: 1. D5 procured the deceased to sign a bank mandate continuing his HSBC Current and Fixed Deposit accounts which for many years had been in the deceased s sole name as an account in joint names with D5, that after the execution of the bank mandate, the funds were withdrawn and placed in an account in D5 s sole name; 2. D5 caused Citibank to retitle three joint accounts which the deceased held with her in her sole name and that after the

4 - 4 - deceased s death, she treated the funds in those accounts and a fourth Citibank account as her own; 3. D5 procured the deceased to sign a cheque for HK$1 million in her favour. The claims against D5 total some HK$72 million. In brief, the basis of the claim in respect of the HSBC accounts is that the mandate was executed by the deceased under a mistake; alternatively, that there was a resulting trust on the basis that access to the joint accounts was for convenience only; alternatively, if there was any gift of the funds in the HSBC accounts to D5, it was made by the deceased under the undue influence (actual or presumed) of D5 and that the withdrawal of funds from the accounts by D5 amounted to a breach of trust or fiduciary duty. The claim against D8 relates to two payments of US$500,000 each which the deceased caused to be transferred to D8 s account in the United States in 1994 and 1995 at a time when D8 was halfway through his tertiary education in the United States and D7 was reading for a post-graduate degree. The claim is based on a resulting trust. Accordingly, broadly speaking, the aggregate value of the claims against D5 and D8 is HK$80 million. The Proceedings Below The documents filed in support of the Beddoe application included a draft statement of claim settled by Queen s Counsel in London of some 76 pages in length, the Estate Duty Affirmation and Form ED12 affirmed by D5, a Schedule of Requests for Information and Documents served on D5, D6 and D8 in October 1998 and the answers thereto provided by D5 in October 1999, a closed exhibit (of well over 400 pages) to

5 - 5 - the affirmation and affidavit of the administrators consisting of the principal documents relied upon in the action and the most recent draft witness statements of witnesses and a further closed exhibit being the written opinion of David Lowe, QC, of the English Bar on the prospects of success of the claims. In accordance with the general practice, the closed exhibits (being privileged material) were not served on the defendants who are not entitled to access to such material filed in support of the application. See Re Moritz [1961] Ch The judge heard submissions from counsel for all parties on the administrators application and then adjourned the proceedings into chambers to hear only from counsel for the administrators. She had the benefit of detailed submissions, both oral and written, regarding the strengths and weaknesses of the action. In the light of the evidence placed before her and the submissions of Mr Tong, SC, for the administrators, the judge concluded as follows: 1. As regards the claims against D5 that, subject to the consideration of the submission of injustice to D5 to D8, it was reasonable and proper for the administrators to institute proceedings against D5 as part of their duty to get in the assets of the estate; 2. as regards the claim against D8, the judge noted that D5 s affirmation dated 16 February 2000 filed in opposition to the Beddoe order to the effect that the US$1 million was a gift for the education of D6 to D8 appeared to be inconsistent with her answer some four months earlier to item 22.1 of the administrators questionnaire filed. The answer was to the

6 - 6 - effect that the sums did not constitute gifts inter vivos nor was an estate duty donee affirmation required. The judge also concluded that it was reasonable and proper for the administrators to proceed against D8 in respect of those sums. The judge then turned to consider the submission made on behalf of D5 to D8 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. Although D7 and D8 did not file any evidence in the Beddoe application, the judge was prepared to proceed on the basis that D5 and all her children were opposed to the intended proceedings by the administrators so that they would in effect have to bear 72 per cent of the costs of the action even if the administrators were to be unsuccessful. It was submitted that the action was nothing but a squabble between beneficiaries, that the position the administrators ought to adopt should be that of an interpleader in hostile litigation between rival beneficiaries and that if D1 to D4 wished to recover the funds, they should do so at their own expense with the administrators lending their names to those beneficiaries to start the action. The judge agreed 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. She then went on to consider the decision of the English Court of Appeal in In re Evans, decd. [1986] 1 WLR 101, where the decision of Sir Robert Megarry V-C in an earlier case, viz: In re Dallaway, decd. [1982] 1 WLR 756 was distinguished. The factual situations in both cases were similar but the courts reached differing decisions. The judge, whilst accepting that in In re Evans, decd. served as a guide to the considerations that the court must bear

7 - 7 - in mind in a Beddoe application, found that the facts in the present case were quite different so that that decision could not be regarded as appropriate. She went on to say this: 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. 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. The judge also rejected the submission that this was a squabble between beneficiaries (considered in Alsop Wilkinson v Neary [1996] 1 WLR 1220) which, being hostile litigation between beneficiaries, required the administrators to assume the position of an interpleader. Mr Tang, SC, for D5 to D8 criticised the passage from the judgment set out above in that it showed that the judge had applied the wrong principle of law and further that she was wrong in holding that the present case was not, in reality, a squabble between beneficiaries. The Applicable Law The injustice point The leading authorities are In re Dallaway, decd. and In re Evans, decd. which I now propose to consider in some detail. In In re Dallaway, decd. the deceased left his estate between his 10 brothers and sisters equally. One of the brothers and his wife claimed that

8 - 8 - a few years prior to his death the deceased had already agreed to leave them his entire estate by will including a farm which was his only substantial asset and commenced an action against the sole executor which was a bank which in turn made a Beddoe application. The claimant proposed that the bank be authorised to defend the action on terms that if the defence failed, the bank s costs would only be taken out of the estate to the extent that they could not be recovered from the other beneficiaries. This was opposed by the bank who sought a full Beddoe Order. The claimants had argued that if a Beddoe Order was made, the whole of the costs would fall on the claimants and that would be most unjust. In the result, the Vice-Chancellor made a Beddoe Order but subject to any order made by the trial judge to cater for the possibility that material might emerge subsequently which would make it unreasonable for the bank to continue to defend or counter-claim. In reaching his conclusion, the Vice-Chancellor took into account the following considerations: First, in Beddoe applications the court has to form a view about the prospects of success or failure. After noting some obvious difficulties the claimants faced, he concluded that a claim with such a history required to be scrutinised with considerable care. (The weaknesses of the claim were plainly evident from the facts stated at page 759 D-E of the judgment.) Secondly, he took it to be axiomatic that, acting with proper prudence, executors should take proper steps to protect their testators estate against adverse claims. However, if the adverse claim extends to the whole of the estate there would be nothing of it which executors could indemnify themselves for costs. But in the case of trustees, the court retains a discretion to allow the trustees to take their costs out of the fund before handing it over to the successful litigants. He saw no reason to distinguish between trustees and executors in that respect. Thirdly, he considered that a case of this sort should be approached by considering,

9 - 9 - first, the general rule and then examining whether any difference was made by the particular circumstances of the case. He could not see that the fact that the claimant was also a beneficiary under the will made any difference. Had the claimant not been a beneficiary, no question of requiring the beneficiaries to indemnify the executor or to contest the claim themselves would arise and in pursuing his claim, the claimant would know that if he succeeded, the executor would in all normal circumstances be able to recover the costs out of the fund before handing it over, and the claimant would have to make his calculations on that footing. The existence of a beneficial interest did not appear to have any relevant bearing on their status as litigants in relation to the executor s costs. In this regard, the Vice-Chancellor observed: I can see no rational basis upon which it could be said that litigants who are beneficiaries should be entitled to an order which will preserve for them the corpus in dispute, while litigants who are not beneficiaries should be entitled to no such order. The facts in In re Evans, decd. were similar to those in In re Dallaway, decd. but the court reached a different conclusion. The plaintiff in In re Evans, decd. was one of six nephews and nieces of the deceased entitled on his intestacy. The administrators were another of the deceased s nephews and his wife. The plaintiff claimed to be entitled to the entire estate based on certain promises and assurances alleged to have been made to them by the deceased during his lifetime. The administrators served a defence and counter-claimed for possession. The administrators then issued an originating summons seeking a full Beddoe order. The master declined to make the order and upon the undertaking by the 1st plaintiff to add the remaining four beneficiaries as defendants, the summons was dismissed. Upon appeal, the deputy judge did not agree with the master that In re Dallaway, decd. was distinguishable and he made a Beddoe order down to the completion of discovery.

10 After reviewing the decision in In re Dallaway, decd., Nourse LJ made the following points (at 106H-107D): First and foremost, every application of this kind depends on its own facts and is essentially a matter for the discretion of the master or judge who hears it. The application is heard in chambers and the claimant is excluded from any consideration of the merits of the action which are discussed before the court in much the same way as they would have earlier been discussed with counsel in his chambers...it would be quite natural for the court to act on a view of the matter which was not fully expressed in a judgment delivered in open court. Secondly, in In re Dallaway, decd. Sir Robert Megarry V.-C. clearly had serious reservations about the prospects of the claimant s success in the action. This is a most important question to be considered in deciding whether the action or its defence should be financed at the cost of the estate. To take an extreme example, suppose that it was clear that the action was a blackmailing one, although not one which could be struck out before trial. The court might well take that as a powerful reason for making the order sought. Thirdly, the proposal made in In re Dallaway, decd. was not, as here, that the other nine brothers and sisters should be joined as defendants to the action, but that they should give the bank an indemnity against its costs. That was clearly an unworkable proposal, whereas the proposal here is one to which, like the master, I can see no real objection. On these three grounds it seems to me that In re Dallaway, decd. [1982] 1 W.L.R. 756 is distinguishable from the present case. (emphasis added) Two matters may be noted. First, In re Dallaway, decd. was distinguished and not overruled. The considerations Sir Robert Megarry V-C took into account were thus valid considerations. Second, it is, I think, readily apparent from that passage that the difference in the court s assessment of the prospects of the respective claimant s success in those actions accounted for the differing conclusions reached in those two cases despite factual situations that were similar. This view is reinforced by the following passage in the judgment of Nourse LJ (at 107F-H): In my view, in a case where the beneficiaries are all adult and sui juris and can make up their own minds as to whether the claim should be resisted or not, there must be countervailing considerations of some weight before it is right for the action to be pursued or defended at the cost of the estate. I would not wish to curtail the discretion of the court in any future case but, as already indicated, those considerations might include the merits of the action.... We have not so far considered the evidence as to the merits of the action. It is possible, although it seems unlikely, that it may be so strongly against the chances of the plaintiffs success as to satisfy us that the order which was made by the deputy judge was correct. If it does not go that far, I am of the opinion that his order cannot be sustained.

11 There Nourse LJ was plainly saying that a Beddoe order down to discovery would have been appropriate if the court was of the view that the plaintiffs case was unlikely to be successful. Turning to the passage in the judgment of Yuen J which was the focus of Mr Tang SC s criticisms, the statement that it is the duty of administrators to get in the assets of the estate and not the duty of beneficiaries is obviously correct: even Mr Tang had to agree that as a principle of law, that statement cannot be faulted. The judge also formed a view of the merits of the administrators case. She had the benefit of the closed exhibits and the chamber s hearing from which all the beneficiaries were excluded. She also took into account what had emanated from D5 herself, namely the Estate Duty Affirmation and Form ED12 as well as the October 1999 answers referred to earlier, noting D5 s seemingly inconsistent assertions. In the light of all that, the judge came to a view on the merits which as Nourse LJ had observed, was a most important question to be considered in deciding whether the action or its defence should be financed at the cost of the estate. Mr Tang SC, accepted that the administrators have a reasonable case. He went on to say that D5 and D8 also have a reasonable defence. Therefore it was unjust for the judge to have made a Beddoe order. But the basis of the assertion that D5 and D8 have a reasonable defence is not readily apparent. The judge certainly made no mention of it. Rather, she noted the inconsistencies in the assertions of D5 as regards the reason for the transfer of US$1 million to D8. Had the administrators case against D5 been weak, she would not have concluded that it was reasonable and proper for them to institute proceedings against D5.

12 The interpleader point Mr Tang SC, submitted that this was in reality a squabble between beneficiaries, referring to Lightman J s classification in Alsop Wilkinson v. Neary [1996] 1 WLR 1220 at 1224B. It is relevant to look more closely at what Lightman J meant by a beneficiaries dispute. According to his classification, it is a dispute between the trustees and 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. It is clear that the present case is not a beneficiaries dispute within Lightman J s categorisation. Later on in his judgment (at 1224G), he went on to say that a beneficiaries dispute is regarded as ordinary hostile litigation in which costs follow the event and do not come out of the trust estate citing Hoffmann LJ in McDonald v. Horn [1995] ICR 685, 696; [1995] 1 All ER 961, 971b. There Hoffmann LJ was referring to the third of the categories of trust litigation mentioned by Kekewich J In re Buckton, Buckton v. Buckton [1907] 2 Ch. 406 at Those relate to cases in which a beneficiary is making a hostile claim against the trustees or another beneficiary. It is plain that the present case does not involve a beneficiaries dispute within Kekewich J s classification. It is not a claim by a beneficiary against a trustee nor a claim by a beneficiary against another beneficiary. D1 to D4 have no claim as such against D5 to D8. The claim is one which properly vests in the administrators who, if successful, would recover assets which would augment the estate and so in that sense benefit the beneficiaries entitled under the deceased s intestacy.

13 Nor do I see that the problem can be overcome by D5 submitting to D1 to D4 taking over the claims from the administrators as proposed by Mr Tang SC. Unlike the plaintiff-beneficiaries in In re Dallaway decd. and in In re Evans, decd. D1 to D4 have no personal claim that they could assert. The claims that exist can only be asserted by the administrators on behalf of the estate as a whole. It is therefore incorrect to treat D1 to D4 as having an interest equivalent to broadly 28 per cent of the value of the estate s claims against D5 and D8. For one thing, if the claims were successful, there would undoubtedly be estate duty implications and these implications will not be confined to D1 to D4 s interest in the claims. Mr Tang SC, also placed reliance on the following passage in the judgment of Lightman J in the Alsop Wilkinson case (at 1225 C-D): In a case where the dispute is between rival claimants to a beneficial interest in the subject matter of the trust, rather the duty of the trustee is to remain neutral and (in the absence of any court direction to the contrary and substantially as happened in Merry s case [1898] 1 Ch. 306) offer to submit to the court s directions leaving it to the rivals to fight their battles. I do not see that those observations are apposite on the facts of this case: that passage is referable to a trust dispute, i.e., where trust property is held by trustees and there are rival claimants to it. Here, the subject matter of the claims is not vested in the trustees. Indeed, it will only become trust property as part of the estate if they were successful in their claims against D5 and in D8. Accordingly, the observation that the trustees (in the circumstances envisaged by Lightman J in that passage) should remain neutral... leaving it to the rivals to fight their battles simply does not apply in the present case. Similarly, the observation of Hoffmann LJ in McDonald v. Horn to the effect that in a case which does not involve the construction of

14 a trust instrument but rather a dispute over the beneficial ownership of the trust property, the proceedings may be more akin to an interpleader can offer him no comfort. It should be mentioned that in the course of the hearing, Mr Tang SC, made an offer on behalf of his clients. They are willing to pay the amount in issue to the administrators and to start proceedings to claim that back. It is unclear on what basis the administrators would be holding the moneys in question. It would not appear that it is being suggested that the sums are to be paid over on the basis that forms part of the estate of the deceased. I do not see on what basis the court could direct the trustees to accept these sums. It would not appear to be a proposal that has been properly thought through and is not one that I, for my part, consider appropriate for the court to entertain. In conclusion, in my judgment, the judge s exercise of her discretion in making a Beddoe order until completion of discovery was unassailable and in accordance with established principles. Costs In this case, there is no reason why costs should not follow the event. The question remaining is whether such costs ought to be on an indemnity basis rather than a party and party basis. An order on the latter basis would leave the shortfall, so far as the administrators costs are concerned, to come out of the estate and so far as D1 to D4 are concerned, to be borne by them personally.

15 The submissions made to this court were no different from those made to the judge below. The only additional authority cited was McDonald v. Horn which, as noted above, does not really assist the appellants case. The appeal did not concern unsettled or obscure principles of law. The submissions were not well-founded, based as they were on an incorrect premise of what a true beneficiaries dispute is about. The appeal had no apparent prospect of success from the outset. In those circumstances, it would be wrong to subject the estate to the additional costs of this appeal. In my view, no part of the shortfall of the administrators costs should fall on the estate. Accordingly, I would make an order nisi that costs be to the respondents to this appeal on the standard basis save that the administrators costs are to be on an indemnity basis. Hon Woo JA: I agree that the appeal should be dismissed for the reasons given by Le Pichon JA in her judgment. I would just add a few words as to how I see the order made by Yuen J. The order allows the administrators to incur costs out of the estate for bringing and prosecuting a claim against D5 and D8 to retrieve assets that the administrators consider, with counsel s advice, to form part of the intestate s estate, but only up to the discovery stage without the leave of the court. It is therefore clear that after discovery, the court s leave will have to be sought, when the court in the light of all the documents discovered is better able to re-examine the strength and weakness of the claim and the defence that will no doubt have been raised by D5 and D8. In those circumstances, it adds force to the order, for it is not a foregone conclusion that seems to be the basis of Mr Tang s arguments that the costs

16 of a lengthy and expensive action will have one way or another to be borne by D5 and D8, who belong to the camp of beneficiaries entitled to about 72% of the beneficial interest in the estate. I am afraid that I am unable to agree with the proposed order for costs. I, for my part, would make an order for costs as follows: (1) The respondents do have their costs against the appellants on the standard party and party basis; and (2) The administrators be entitled to have the shortfall of their costs, not recovered under (1) above, to be paid out of the estate, insofar as their costs have not been unreasonably incurred. I do not think that this appeal should be treated differently from any other usual case, so that the parties costs should not be awarded on the usual and standard basis. I do not see any justification to order costs on an indemnity basis against the appellants in favour of the administrators. I appreciate that when the administrators recoup the aforesaid shortfall from the estate, D1 to D4 will be out of pocket as to the extent of about 28% of the shortfall. However, D5 to D8 are affected by about 72% of the shortfall. That will be the natural result of a usual order for costs. No grounds, as I can see, such as the appeal being malicious, scandalous, vexatious or oppressive, justify an order for costs on an indemnity basis against the appellants. They should not be penalised for their institution and conduct of the appeal although they were attacking the exercise of a judge s discretion, or for the fact that most of the authorities they relied on in this appeal had been discussed in the court below. Nor should they be penalised by an indemnity basis costs order for their appeal against an order in favour of the

17 administrators. Administrators and trustees are treated differently by the courts for their role in respect of the trust estate in the sense that they are not involved in litigation for their own benefit, but that difference is already and sufficiently taken care of by their being allowed to be indemnified as to their costs out of the estate. In this case, it was the administrators who brought D1 to D4 into the proceedings, and of course correctly, to enable D1 to D4 to have their views made known to the court, and they are proper parties to the action. As such, D1 to D4 ought to be and in fact were respondents in this appeal. The main thrust of the appeal is against the administrators obtaining the Beddoe order. The fact that D1 and D4 are involved in the appeal should not be permitted to operate to the prejudice of D5 to D8 to order them to pay costs to the administrators on an indemnity basis, so as to save D1 to D4 from bearing the 28% of the shortfall. Hon Rogers VP: I agree with the judgement of Le Pichon JA and the order she proposes. The appeal will therefore be dismissed with an order nisi as to costs in the form proposed by Le Pichon JA. (Anthony Rogers) Vice-President (K H Woo) Justice of Appeal (Doreen Le Pichon) Justice of Appeal Mr Ronny Tong S.C. and Mr Nigel Kat, instructed by Messrs Bird & Bird, for the Plaintiffs/Respondents

18 Mr Malcolm Merry, instructed by Philip Chan & Co., for the 1st - 4th Defendants/Respondents Mr Robert Tang S.C. and Mr Nelson Miu, instructed by Messrs Ng, Lie, Lie & Chan, for the 5th - 8th Defendants/Appellants