The Court of Appeal in Hong Kong has recently reaffirmed the nature of the Beddoe jurisdiction in Jong Yat Kit (as Sole Administrator of the Estate of Li Chung (Deceased) v Lee Man For and Ors (unrep, CACV 147/2017,  HKCA 235). In adopting its previous decision in Re Mong Man Wai, Deceased  4 HKC 179, this case provides a reminder to defendant beneficiaries that the Beddoe jurisdiction is not a trial. Although a beneficiary defendant may be heard in such an application, the focus of the Beddoe court is the protection of the trust or estate’s interest such that a worthwhile claim should not be left unpursued for want of indemnity from the trust or estate against the trustee or personal representative’s potential exposure to costs. We consider the decision further below.
Where a trustee or administrator engages in litigation in the course of administering the trust or the estate, he is usually entitled to an indemnity out of the trust or estate funds for all charges and expenses properly incurred by him in the course of such litigation. However, there is always the risk that the beneficiaries may argue that it was not proper for a trustee or administrator to pursue the litigation and that he should be deprived of his indemnity. To avoid this risk, a trustee or administrator may apply to court for a Beddoe order authorising him to proceed with the litigation, in which case the trustee or administrator will be assured of his indemnity. The trustee or administrator is the plaintiff and the beneficiaries (including any beneficiary bringing or defending the proceedings in which the trustee wishes to take part) are the defendants in the Beddoe application.
Before passing away, the deceased opened a bank account (the “Account“). The 2nd defendant was an authorised signatory of the Account. Among other transactions, the 2nd defendant authorised the withdrawal of a total of HK$36.9 million from the Account to his and his wife’s personal accounts, of which HK$20 million was claimed to be gifts from the deceased. The plaintiff, representing the intestate estate of the deceased, sought a Beddoe order to pursue claims against the 2nd defendant and his wife for the recovery of the sums. The first instance judge granted the order sought in relation to the 2nd defendant. The 2nd defendant appealed. (The application against the 2nd defendant’s wife failed because the Court took the view any claim was time-barred.)
The Court of Appeal’s decision
The Court of Appeal had to consider the extent to which a court hearing a Beddoe application would entertain defendants’ submissions of facts and evidence in seeking to persuade the court not to grant a Beddoe application. Among others, the Court of Appeal made the following findings:
- The Court of Appeal first noted that a plaintiff in a Beddoe application need only show a reasonably arguable case on merits. Moreover, in quoting from its previous decision in Re Mong Man Wai, Deceased, it further noted that a court hearing a Beddoe application would be slow to receive submissions from the defendant beneficiary on the merits of the main action unless it can be readily demonstrated that, similar to strike-out, the trustee’s proposed proceeding was wholly devoid of merits.
- The Court of Appeal then rejected the 2nd defendant’s argument that there was no evidence of any breach of fiduciary duties on his part by merely being an authorised signatory. In particular, it was for the 2nd defendant as a fiduciary to explain the withdrawals in his or his wife’s favour in such a way that the deceased or his estate no longer has any beneficial interest in the sums concerned. Whether he could successfully do so depended on the facts and evidence, which was a matter that should be left for trial, not a Beddoe application.
- The 2nd defendant further prayed in aid for the presumption of advancement, but the Court of Appeal reiterated that was a matter of evidence and drawing of inferences, and from the point of view of a Beddoe application, that could not be the “knock-out” point that the 2nd defendant needed to demonstrate.
- In relation to the 2nd defendant’s point that the recovery of the money paid into his wife’s account was, as with the claim against his wife, time-barred, the Court of Appeal first observed that this turned on whether the money was ever “in possession of the trustee, or previously received by the trustee and converted to his use“: section 20(1)(b) of the Limitation Ordinance (Cap. 347), and ruled that given their husband-wife relationship, it must be a question of evidence as to whether the 2nd defendant had possession of the money; possession under the ordinance includes the trustee having control over the property, even when it was not under his physical possession.
Beneficiaries should think carefully about intervening in Beddoe applications, particularly when they are an opposing party to the trustee in the main proceeding.