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HCA 1131/2019
[2026] HKCFI 3077
IN THE HIGH COURT OF THE
HONG KONG SPECIAL ADMINISTRATIVE REGION
COURT OF FIRST INSTANCE
ACTION NO 1131 OF 2019
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BETWEEN
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Wu Qiuhong |
Plaintiff |
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and |
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China Baoli Technologies Holdings Limited, Formerly Known as China Gamma Group Limited |
1st Defendant |
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China Rich Securities Limited |
2nd Defendant |
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| Before: |
Hon Fung J in Court |
| Dates of Hearing: |
2-4 and 13 March 2026 |
| Date of Decision on Costs: |
29 May 2026 |
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DECISION ON COSTS
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1. This is the decision on costs upon the discontinuance of the action by the Plaintiff. The 1st Defendant is claiming costs on the indemnity basis.
Background
2. The Plaintiff was a Mainland resident and she applied for immigration to Hong Kong through the Capital Investment Entrant Scheme (“CIES”) in 2012.
3. Under the CIES, the applicant was required to invest at least HK$10 million in permissible investment asset classes.
4. The 1st Defendant was incorporated in Bermuda, and was listed on the Main Board of the Hong Kong Stock Exchange.
5. The 2nd Defendant was incorporated in Hong Kong and was licensed by the Securities and Futures Commission to conduct Type 1 (dealing in securities) activities.
6. On 20 August 2013, the 1st and 2nd Defendants entered into the Placing Agreement. The 1st Defendant was to issue HK$300 million of Placing Notes (“Notes”). The 2nd Defendant was appointed the sole and exclusive placing agent for the 1st Defendant to procure placees to subscribe for the Notes of the 1st Defendant.
7. Under the Placing Agreement, although it was the placee who purchased the Notes, the 2nd Defendant would be registered as the Noteholder (subject to provisions for transfer of title). The registered Noteholder would be treated as the absolute owner for all purposes, and no transfer of title would be effective unless and until registration. The principal and interest of the Notes would be paid to the Noteholder.
8. In September 2013, the Plaintiff agreed with the 2nd Defendant to purchase 5 Notes of the 1st Defendant totalling HK$10 million for CIES.
9. On 21 January 2019, the Plaintiff through her solicitors Messrs Zhang Lawyers issued a letter to the 1st Defendant demanding HK$11,073,611.11 being allegedly the outstanding principal and interest of the Notes because of breach to pay interest by 1st Defendant since 2017.
10. The 1st Defendant’s lawyers maintained that the Plaintiff had no locus standi under the Placing Agreement.
11. On 24 June 2019, the Plaintiff commenced the action against the 1st Defendant. The basis of the claim was that the Plaintiff had contributed the principal of the Notes. Although the 2nd Defendant was entitled to the benefits of the Notes as the Noteholder, the Plaintiff was the beneficial owner of the Notes and/or the disclosed principal of the Noteholder, and was entitled to enforced the Notes directly.
12. Although the 2nd Defendant was also sued, no relief was claimed against the 2nd Defendant in the Statement of Claim, and it was sued such that all the parties were before the Court. The 2nd Defendant had neither filed any Acknowledgment of Service nor Defence.
13. The 1st Defendant’s Defence was that the Plaintiff was not the registered Noteholder and was not entitled to sue.
14. The 1st Defendant also counterclaimed that in the event the Plaintiff were entitled to any relief, the 1st Defendant was entitled to a set-off of HK$3,889,615.60 as the Plaintiff (through the 2nd Defendant or her agents) had received a cashback payment from the 1st Defendant in relation to the Notes (“Cashback Scheme).
15. On 22 October 2019, the 1st Defendant took out a summons to strike out the Plaintiff’s Statement or Claim, which was superseded by another summons taken out on 13 December 2023 to strike out the Amended Statement of Claim on want of locus standi. The striking out summons was dismissed by a Master on 5 April 2024.
16. Separately, on 4 December 2020, the 1st Defendant as plaintiff sued the 2nd Defendant herein in another action HCA 2038 of 2020 claiming indemnity in full in relation to the claim by the Plaintiff in the action herein. HCA 2038 of 2020 was later settled between the 1st Defendant and 2nd Defendant herein.
17. During the opening for the 1st Defendant, Mr Burg indicated that the Counterclaim for the Cashback Scheme would no longer be pursued.
18. On 6 March 2026, after the opening by both parties, Mr Li, for the Plaintiff, applied to discontinue the action.
19. After some discussions on the terms of discontinuance, Mr Li agreed to the terms proposed by Mr Burg as follows:
“The Plaintiff be barred from commencing another action, claim or proceedings against the 1st Defendant on the same or substantially the same subject matter and/or cause of action as that pleaded in this action, or arising out of the same or substantially the same factual matrix.”
Discontinuance
20. Under O. 21 r. 3 of the Rules of High Court (“RHC”), the Court may order leave to discontinue an action be made “on such terms as to costs, the bringing of a subsequent action or otherwise as it thinks fit.”
21. The Hong Kong Civil Procedure 2026 §21/5/12 stated that:
“The court has complete discretion as to the terms upon which it may grant leave to a plaintiff or defendant, as the case may be, to discontinue or withdraw the whole or part of the action or counterclaim, and will be careful to see that the defendant is not deprived of some advantage which he has already gained in the litigation he has gained is preserved: Covell & Partners v French Wool Ltd [1977] 1 WLR 876, 879E-F; Bonita Co Ltd v Chark Yuk Ying Brenda [2022] 2 HKLRD 920 per B Chu J §38)”
22. And the Hong Kong Civil Procedure 2026 §21/5/12 stated that:
“If a plaintiff allows an action to proceed until shortly before trial and then decides to withdraw the claims, unless the plaintiff can show good reason why the discontinuance should not be on terms that prevent the plaintiff relitigating the claims, the order for discontinuance should be made on terms that prohibit the plaintiff recommencing the claims. Generally, this will provide a defendant with all the protection from the risk of re-litigation that is required.”
23. And as stated in Trend Publish (HK) Ltd v Vivien Chan & Co (A Firm) [1996] 2 HKLR 227 per Keith J (as he then was) at 231I-J:
“The resurrection of actions which have been discontinued is something to be avoided if at all possible, and I see no reason at all why the plaintiff’s sensible decision to discontinue these proceedings should not be treated as bringing the dispute between it and the defendant to an end once and for all. In my view, the master should have made the discontinuance of the action conditional upon the plaintiff not commencing another action on the same or substantially the same subject-matter as the present action.”
24. It had never been fully explained why the Plaintiff did not claim any substantive relief against the 2nd Defendant, nor on what basis the 1st Defendant had settled its claim against the 2nd Defendant in HCA 2038 of 2020. Be that as it may, as the Plaintiff eventually agreed to the terms proposed by the 1st Defendant as set out above, I see no reason why the Plaintiff should not be barred from re-litigating the matter against the 1st Defendant.
Indemnity Costs
25. In the Hong Kong Civil Procedure 2026 §21/3/2, the judge hearing the application for discontinuance has to decide on the issue of costs and in particular on which basis the costs should be taxed. The starting point is that the party seeking to withdraw its action should pay the costs of the other party (§21/5/12A).
26. The Plaintiff did not resist costs per se, save that the 1st Defendant asked for costs on an indemnity basis.
27. The Court has an “unfettered and uncircumscribed” discretion in determining whether to order costs on an indemnity basis. An award of indemnity costs is not confined to cases brought with an ulterior motive, or for an improper purpose, or where there was some deception or underhand conduct on the part of the losing party. Other factors, such as the reasonableness of the conduct of the parties, may need to be taken into account. It will be open to the Court to use the indemnity costs award to achieve a fairer result for the successful party (Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 at §§13-17, 23).
28. In Three Rivers District Council v The Governor and Company of the Bank of England [2006] 5 Costs LR 714 per Tomlinson J (as he then was) set out the guiding principles as to whether indemnity costs should be ordered:
“(1) The Court should have regard to all the circumstances of the case and the discretion to award indemnity costs is extremely wide (§25(1)).
(2) The Court can and should have regard to the conduct of an unsuccessful claimant during the proceedings, both before and during the trial, as well as whether it was reasonable for the claimant to raise and pursue particular allegations and the manner in which the claimant pursued its case and its allegations (§25(4)).
(3) Where a claim is speculative, weak, opportunistic or thin, a claimant who chooses to pursue it is taking a high risk and can expect to pay indemnity costs if it fails (particularly when taken in combination with the fact that a defendant has discontinued only at a very late stage in the proceedings) (§§25(5), 25(8)(d)).”
29. Mr Burg submitted that the 1st Defendant had made it clear to the Plaintiff that she had no locus as early as the pre-action stage. It should have been so obvious to the Plaintiff as the Placing Agreement was by way of deed, and its provisions had made it clear that only the Noteholder, i.e. the 2nd Defendant, and no other unregistered person was entitled to any benefit under the Placing Agreement. As such, beneficial ownership or disclosed principal was of no avail to the Plaintiff.
30. Although I have not had the occasion to rule on the point, the argument must proceed on the basis that since the Plaintiff had discontinued the action, she must be taken as no longer insisting on the legal propositions on locus by her legal advisors.
31. Be that as it may, the consideration of indemnity costs must take into all the conduct of the parties and must be fair in all the circumstances.
32. The 1st Defendant had made a counterclaim on the Cashback Scheme. Upon initial enquiry of the sanctity of the cashback of about $3 million as the Plaintiff was required to have made a minimum investment of HK$10 million under the CIES, it was intimated by Mr Burg that there was a so-called “loop hole” in the CIES and the matter would be made clear upon the cross-examination of the Plaintiff, which had not taken place as the counterclaim was no longer pursued and the action was discontinued. In the absence of any satisfactory explanation of the Cashback Scheme, I see it as a factor militating against the 1st Defendant in the conduct of the case.
33. By the same token, I do not see it justified to order any part of the costs to be on an indemnity basis.
34. In the event, I shall order only standard party and party costs and not indemnity costs to be paid by the Plaintiff to the 1st Defendant, to be taxed if not agreed.
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(Barnabas Fung)
Judge of the Court of First Instance
High Court |
Mr Dickson S P Li, Mr Bache Sit and Mr Immanuel Fong, instructed by Zhang Lawyers, for the Plaintiff
Mr Alexander Burg, instructed by Mok & Co, Solicitors, for the 1st Defendant
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