LAU LEUNG WA AND ANOTHER v. LAU YUE KUI AND ANOTHER

HCAP 10/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE ACTION NO. 10 OF 2001

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Before: Hon Chung J in Court

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DECISION ON COSTS

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1.  The trial of this action took place on 4 to 8 and 11 to 15 July and 24 and 25 August 2005.  In a Judgment handed down on 10 March 2006 (“the Judgment”), I dismissed the plaintiffs’ claims sought in the writ and made a costs order nisi pursuant to RHC Ord. 42 r. 5B(6) that the costs of this action be paid by the plaintiffs to the defendants to be taxed if not agreed.  The Judgment spans over some 37 pages and contains more than 100 paragraphs, dealing with various issues raised by the pleadings.

2.  By way of a summons dated 24 March 2006, the plaintiffs seek to vary that costs order nisi to the following effect:-

“The costs of this action up to and including 4 July 2005 be paid by the defendants to the plaintiffs but the costs of this action thereafter be paid by the plaintiffs to the defendants, to be taxed if not agreed”: para. 8, plaintiff’s submissions on costs.

3.  The parties consented to that application to be dealt with in the manner set out in the consent summons dated 12 April 2006.  Essentially, respective written submissions were to be lodged with court and served according to different prescribed time limits.  If no party applies for a hearing within 7 days after the plaintiff’s reply submissions, the application is to be determined on the basis of their written submissions.

4.  The agreed steps were undertaken by the parties.  The plaintiffs’ reply submissions were lodged with court on 5 June 2006.  No application for a hearing has been made up to today.

5.  It appears undisputed that the usual rule regarding costs in civil litigation is that costs should follow the event: Ord. 62 r. 3(2).  It also appears the plaintiffs accept that the rule can only be departed from where there are special circumstances to justify a departure: para. 8, plaintiff’s submissions on costs.

6.  The relief sought in the Amended Statement of Claim dated 25 April 2005 was:-

(a) as against D1:-

(1) he be removed as the administrator of the estate;

(2) the plaintiffs be appointed as co-administrators of the estate;

(3) an account of the estate be rendered;

(4) damages for mal-administration of the estate, including damages for breach of fiduciary duty and duty of due diligence;

(5) a declaration that he is not entitled to any remuneration as the administrator of the estate;

(6) a declaration that the continued engagement of D2 as the solicitors for the estate is incompatible with the best interest of the estate;

(7) a taxation of D2’s costs for work which D2 might have performed in relation to the estate be procured forthwith (but see also sub-para. (c)(1) below);

(b) as against D2:-

(1) damages for (i) breach of fiduciary duty and negligence, and (ii) breach of trust as a constructive trustee;

(2) an account of the trust properties received by him to be rendered;

(c) as against both defendants:-

(1) the 3 fee agreements entered into between them be set aside;

(2) costs of this action;

(3) interest on any sum found due.

Save that the claim against D2 for breach of the professional duty of reasonable care and skill was abandoned at trial, all other claims for relief were pursued to the end.

7.  This application is based in short on the following facts.  D1 did not indicate his willingness to seek the taxation of D2’s costs payable under one of the fee agreements (called “the Nov 95 agreement” in the Judgment) until 29 April 2005.  It was only 4 days before the trial commenced that D1 agreed to D2’s offer to render a bill in relation to another of the fee agreements (called “the Nov 94 agreement” in the Judgment).  An itemized bill in relation to the Nov 95 agreement was only produced on the first day of trial (see para. 4 and 5, plaintiff’s submissions on costs).

8.  By virtue of the above facts, so the plaintiffs contend in their submissions on costs, the special circumstances which justify this application are:-

“It is clear that the Court is much impressed by the fact ‘no excessive fees can be charged under the said fee agreements’ … in reality the consideration that the fees in question can be taxed only becomes relevant when [the defendants] had taken substantive steps towards taxation” (para. 3);

“But for the bringing of this Action, fees which would otherwise be payable, if not already paid, in accordance with the tenor of [the] said fee agreements would not now be examined by the taxing master.  But the offer of taxation … only came from the Defendants so close to the trial” (para. 7).

9.  The plaintiffs also say the following in their reply submission on costs:-

“The Court could not have reached [the conclusion set out in para. 3, plaintiffs’ submissions on costs (quoted above)] if [the defendants had not proceeded with taxation belatedly]” (para. 2);

“[If the defendants had not proceeded with taxation], the Court would in all probability … [have ordered a bill to be delivered] … ” (para. 5 and 6);

“[The defendants proceeded with taxation not as] a routine or innocuous exercise … ” (para. 7);

“[For the purpose of this application] … the Plaintiffs accept that on the construction of s. 56 [Legal Practitioners Ordinance (Cap. 159)] , they are wrong … [and they] cannot complain that they be penalized on costs for maintaining that understanding despite the tactical positions taken by the Defendants at the beginning of trial.  But they should not be penalized in relation to the period before that… the Court should bear in mind … First, D2 stated on record for the first time at trial that he had not received a single cent in respect of the fees payable … Second, … the rest of the issues did not really take up any significant portion of the Court’s time and attention.  They stood and fell together with the main claim” (para. 9 and 10).

10.  In brief, I agree with the defendants’ submissions on costs and disagree with those of the plaintiffs.  I will elaborate on some of the matters below.

11.  The plaintiffs’ arguments (summarised above) are premised on a distorted view of their pleaded case (which they maintained and attempted to establish at trial) as well as an erroneous interpretation of the Judgment.

12.  The relief sought in their pleading has been set out above.  The causes of action have been summarised in the Judgment:-

“3. The plaintiffs' principal claim against D1 in this action is based in short on his alleged:-

(a) breach of fiduciary duty as an administrator (in equity);

(b) breach of duty of reasonable diligence (in tort);

(c) negligence (in tort).

4. Apart from the principal claim, the plaintiffs also seek to remove D1 as an administrator and to bar him from later claiming remuneration for his work done in that capacity.

5. The plaintiffs’ claim against D2 in this action is based essentially on his alleged:-

(1)   beach of professional duty of reasonable care and skill (in tort);

(2)   breach of duty of loyalty and fidelity (in equity);

(3)   knowing assistance in the breach of D1’s duties of administrator (in equity).

The plaintiffs no longer pursue the cause of action set out in sub-para (1) above at the time of trial”.

The Judgment also said:-

“113.  The plaintiffs also argue that, because of the delay in proposing taxation of the fees, the defendants are disentitled from claiming taxation should be the preferred remedy.

114.  The argument is difficult to comprehend.  First, this is not a case where the plaintiffs have agreed to taxation of the fees upon the remedy being proposed by the defence.  The claim that the fees payable are gross and manifestly excessive is maintained throughout, despite the proposal to tax having been made.  In pursuing that claim, it is part of the plaintiffs; arguments that taxation is unavailable as a matter of law and, in any event, the remedy is inadequate (for the reasons set out above).

115.  Second, delay in proposing taxation of fees has not been put forth as a breach of duty either in equity or in tort”.

13.  The above passages are not quoted for the purpose of showing that they represent the whole of my reasons for dismissing the plaintiffs’ claims.  Quite on the contrary, they demonstrate that those claims (and the issues raised by the parties’ pleadings) were quite different in nature (and much wider in scope) from what the plaintiffs now seek to present in their submissions on costs.

14.  Even the taxation referred to in the plaintiffs’ submissions on costs was not that sought by them at trial.  The former was one under s. 56, Cap. 159; the latter was a taxation of costs after the fee agreements have been set aside by the court (see the relevant paragraphs in the Judgment).

15.  By virtue of the above matters, I do not find any valid reason to depart from the usual rule.  This application is dismissed.  There will accordingly be a costs order absolute in terms of the earlier costs order nisi.

16.  There is no apparent reason to depart from the usual rule that costs should follow the event.  There will also be a costs order nisi that the costs of this application are also to be paid by the plaintiffs to the defendants to be taxed if not agreed.

Mr Anderson Chow SC leading Mr Albert Yau & Ms Eva Sit, instructed by Messrs Hau, Lau Li & Yeung, for the Plaintiffs

Mr Chan Chi Hung SC leading Mr Jeremy S K Chan, instructed by Messrs Chui & Lau, for the 1^st Defendant

Mr Dennis G Yu SC, instructed by Messrs Philip Chan & Co., for the 2^nd Defendant

HCAP 10/2001

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE JURISDICTION

ACTION NO. 10 OF 2001

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RULING  ON  CROSS-EXAMINATION

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1.  This is the ruling on D1’s objection to the plaintiffs’ intended cross-examination effectively about the averment at para. 21, D1’s Defence which reads:-

“Before the 1^st Fee Agreement was entered into, [D1] was advised by [D2] that the 1^st Fee Agreement was reasonable, and that if the fees payable by the Estate under the 1^st Fee Agreement were later complained to be in any way unreasonable, the matter could be referred to the Court for quantification as to what is or would have been a reasonable fee in the circumstances”.

2.  The question put to D1 (which is under consideration) was related to whether D1 should have asked for an interim bill from D2.  The plaintiffs admit that this question (and others following the same vein) is intended to test D1’s credibility as regards the pleaded oral advice quoted above.

3.  Several grounds of objection have been raised by D1, including the lack of prior notice (by way of pleading or the plaintiffs’ opening), and the resultant lack of opportunity to respond thereto (by way of properly preparing the witnesses and/or other evidence).

4.  It is also argued by D1 that this matter has at least implicitly been admitted by the plaintiffs in the Reply.  In this connection, D1 refers to para. 1, 2 and 5 of the Reply the material parts of which state:-

“This is the Reply to the key contentions raised in the Defence of [D1].  For ease of reference, a brief summary of the contention of the relevant Defence will appear in italic … ”;

“The Plaintiffs join issue with the Defence … save for what is admitted herein”;

“That [D1] has been advised by [D2] and reasonably believed that he was entitled to refer the fees payable … for taxation …

The Plaintiffs contend that [D1’s] freedom to have the costs taxed, contrary to the advice of Philip Chan & Co., would be significantly fettered by the fact that he entered into special agreements with the solicitors … ”.

5.  It is trite law that there is a deemed joinder of issues even if no reply has been filed or served: RHC Ord. 18 rr. 13 and 14.  Under Ord. 18 r. 13(2), an admission can be by way of necessary implication.  Likewise, an admission can also be made in a reply: Ord. 18 r. 14(4).

6.  The main issue in this ruling is whether an implied admission relating to the oral advice said to have been given by D2 has been made in the Reply.  I find that there is.

7.  For this reason, I rule that the plaintiffs cannot cross-examine D1 for the purpose of testing his credibility about whether there was an advice pleaded in para. 21, D1’s Defence.

Mr Anderson Chow, SC leading Mr Albert Yau & Ms Eva Sit, instructed by Messrs Hau Lau Li & Yeung, for the Plaintiffs

Mr Chan Chi Hung, SC leading Mr Jeremy SK Chan, instructed by Messrs Chui & Lau, for the 1^st Defendant

Mr Dennis G Yu, instructed by Messrs Philip Chan & Co., for the 2^nd Defendant

HCAP 10/2001

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE JURISDICTION

ACTION NO. 10 OF 2001

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R U L I N G

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1.  D1 asks for leave to file and serve a witness statement of Mr Norman Chui of solicitor, not as an expert giving his opinion as to the fees usually charged by probate solicitors in Hong Kong, but as a factual witness stating facts relating to the legal advice he gave to D1 in October 2000.

2.  The application is opposed by the Plaintiffs.  Among the grounds put forth in opposition, the Plaintiffs say that the facts stated in the witness statement are irrelevant to the issues in this action.

3.  As stated above, the legal advice given by Mr Chui to D1 took place in October 2000.  However, the fee agreements which are the subject matter of this action were entered into between D1 as administrator and D2 in 1994, 1995 and July 2000 respectively (much earlier than October 2000).

4.  Two of the more important issues in this action are (a) whether the terms of the fee agreements are reasonable and (b) whether D1 reasonably believed he properly entered into the fee agreements.

5.  In such circumstances, I agree with the Plaintiffs that the legal advice given in October 2000 cannot be relevant to whether D1 acted under a reasonable belief that he should (or could) enter into the fee agreements.

6.  It may be argued that the obtaining of legal advice is relevant as evidence tending to show D1 had in fact borne in mind the matters pleaded, for example, in paragraphs 20-21 of the Defence.  This is a matter of credibility and, as such, it is a collateral issue.  Evidence cannot be adduced for the purpose of establishing such an issue.

7.  I also agree with the Plaintiffs that, in any event, giving leave to D1 to adduce such evidence at this stage may prejudice them in that, at the very least, there is a likely possibility that the trial needs to be adjourned.

8.  For the above reasons, the application for leave is refused.

HCAP 10/2001

 IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

PROBATE JURISDICTION

ACTION NO. 10 OF 2001

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RULING  ON  SPLIT  TRIAL

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1.  This ruling deals with the plaintiffs’ application that there be separate trials of issues of liability and damages.  The application is opposed by D1 and D2.

2.  The plaintiffs are two of the beneficiaries of an estate administered by D1.  D2 is the solicitor who assisted D1 to obtain grant of representation and to collect assets of the estate.  The plaintiffs’ main complaint in this action is related to the 3 fee agreements entered into between D1 (as the personal representative of the estate) and the D2.  Professional fees are payable to D2 by the estate under those agreements for the following types of work: applying for estate duty clearance and letters of administration, checking the devolution of title of various lots of land, ascertaining their particulars and instructing surveyors and other professionals to ascertain their sizes and areas.

3.  The plaintiffs complain in short that the 3 fee agreements are grossly unfair and unreasonable and the fees payable thereunder are excessive.  They allege that, in agreeing to the payment of such fees, D1 has breached his fiduciary duty and duty of due diligence and has acted negligently.  Similarly, they also allege that D2 has also breached his fiduciary duty, has acted negligently and knowingly assisted D1 in D1’s breach of duties.  The allegations are denied by the defendants.

4.  The relief sought in this action include the removal of D1 as the administrator of the estate and D2 as solicitors for the estate, the setting aside of the 3 fee agreements and damages for D1’s maladministration of the estate.

5.  This application is made on the basis that, if the plaintiffs should succeed in setting aside the 3 fee agreements, no assessment of damages is necessary.  On the other hand, if the plaintiffs’ claim should fail, the need for assessment would not arise either.  It is only if and when the court should find that D2 is entitled to full payment under the fee agreements and yet D1 has acted in breach of his duties that such a need would arise.

6.  The relevant legal principles are undisputed.  They are summarised in Hong Kong Civil Procedure 2004, para. 33/4/11:-

“Whilst the normal procedure should still be that liability and damages should be tried together, the court should be ready to order separate trials of the issues of liability and damages whenever it is just and convenient to do so …  However an order to separate trials … by way of exception to the general rule, is only to be made in exceptional cases where there was a clear line of demarcation between the issues of liability and quantum …

Where the issue of liability is separate and distinct from the issue of damages, litigants should take advantage of the facilities which are afforded of having the question of liability decided as a preliminary issue before the issue of damages … and this is especially so where the issue of damages is detailed and complicated and may have to be referred to an Official Referee or master … ”.

The parties herein differ as regards whether the factors outlined above apply to this action. 

7.  The defence argues in particular that the issues of liability and quantum cannot be separated.  It is submitted that the court will have to consider evidence about what are fair and reasonable fees chargeable for works similar to what was done or is to be done by D2 before the court can properly determine the merits of the plaintiffs’ claim.  If the court should find that an assessment of damages is necessary, similar evidence will have to be adduced and considered for that purpose.  Accordingly, there is an overlap between the evidence relating to liability and that relating to quantum.

8.  I disagree.  It is true that evidence about charges of solicitors for probate work may have to be considered in relation to the question of liability in this action.  However, any evidence which may be adduced by the defence for the purpose of disputing the plaintiffs’ claim as regards the 3 fee agreements is likely to be evidence which is aimed at showing that the fees charged by D2 are fair and reasonable.  By the time when an assessment of damages should become necessary, I would already have found in the plaintiffs’ favour on liability.  The evidence which may be adduced by the plaintiffs in support of their claim for damages against D1 would be aimed at showing that much lower rate(s) of charges and/or much less amount of work ought properly to be done by D2.  These two types of evidence are different.

9.  I also agree with the plaintiffs’ submissions that, because they only received D2’s itemised bill of costs yesterday, they cannot reasonably be expected to be able to deal with the question of quantum at this trial.

10.  Finally, having heard the defence argument that the plaintiffs have so far failed to state their case (in relation to liability) as regards what they consider to be the fair and reasonable amount of fees, I consider that the absence of such evidence is unlikely to prejudice the defence if I order liability to be tried separately.  On the contrary, the plaintiffs’ failure to adduce such evidence may assist the defence argument that there is no unfairness unreasonableness or excessiveness in the fees charged by D2 and that therefore the plaintiffs’ claim should be dismissed.

11.  For the above reasons, I will exercise my discretion and order a split trial between liability and quantum.

Mr Anderson Chow, SC leading Mr Albert Yau, instructed by Messrs Hau Lau Li & Yeung, for the Plaintiffs

Mr Chan Chi Hung, SC leading Mr Jeremy SK Chan, instructed by Messrs Chui & Lau, for the 1^st Defendant

Mr Dennis G Yu, instructed by Messrs Philip Chan & Co., for the 2^nd Defendant