ERWIANA SULISTYANINGSIH v. TSUI YUN BUN BARRY AND ANOTHER

HCA 2256/2015

[2018] HKCFI [463]

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2256 OF 2015

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DECISION ON COSTS

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1.  On 28 December 2017, I handed down a judgment after trial in this action (“the Judgment”). This decision should be read together with the Judgment. I shall use the same terms, expressions and abbreviations in this Decision as I did in the Judgment.

2.  In the Judgment, I ordered that the Transfer be set aside under section 60 of the Conveyancing and Property Ordinance (Cap 219). By reason of the Transfer, the 1^st defendant became the sole owner of the Property.

3.  In this action, the 1^st defendant had filed a Defence dated 26 March 2016 jointly with the 2^nd defendant (see §17 of the Judgment).  However, the 1^st defendant did not participate in the trial because in a witness statement dated 23 December 2016, he said:

“ 3. As I do not intend to take any further actions to defend the claims of the Plaintiff herein any longer with a view to saving legal costs, I decide to make this statement to confirm my intention and agreement to withdraw the Defence herein so far as it relates to me. In other words, I will take a neutral stance.

4. From now, I will not attend any court hearings in this action or the trial of this action.

5.     However, of course, if at the end of the day, the court finds that the transfer was not fraudulent conveyance or was not made with the intention to defraud any creditors of the 2^nd defendant, and the transfer is not set aside, then I get to keep the whole of the property.  On the contrary, if the transfer is to be set aside, I will respect that decision of this Honourable Court.”

4.  The trial took place before me on 15 November 2017.  The plaintiff appeared by counsel, Mr Tony Ko.  The 2^nd defendant appeared in person and the 1^st defendant did not appear and was not represented.  The opening submissions of Mr Ko, and the cross-examination of the 2^nd defendant, finished within the day.  The 2^nd defendant did not cross-‌examine the plaintiff.  There were no other witnesses.

5.  Closing submissions were made before me by the 2^nd defendant and Mr Ko on 23 November 2017.  That finished in the morning.

6.  In the Judgment, I said:

“ 54. Since the Transfer was a disposition of property at nil consideration by the 2^nd defendant when insolvent (or would thereby became insolvent) with the result that her creditors, including future creditors such as the plaintiff, were clearly subjected to at least a significant risk of being unable to recover their debts in full, I am entitled to, and I do, draw an inference of an intent by the 2^nd defendant to defraud creditors on her part.

55. The above is sufficient for the purpose of this case but I will go further. In all the circumstances of the case as referred to in §§45 – 51 above, I find that the Deed was made by the 2^nd defendant as a matter of fact for the specific purpose of putting into train the Transfer with the actual intention of putting the Property out of the plaintiff’s reach in the light of her imminent civil claim. … The conclusion that the Transfer was actually made with the actual intention of defrauding the plaintiff in the sense of defeating her claim is unavoidable, and I so find.

…

57. It is also clear to me that the intention I infer and find at §§54 and 55 above must have been shared by the 1^st defendant, being a willing and co‑operative party to the Transfer with full knowledge of all the facts.  I so find.”

7.  In the Judgment (at §63), I also ordered the 2^nd defendant to pay the plaintiff’s costs of the action.

8.  By letter dated 5 January 2018, when the Judgment had not been sealed, solicitors acting for the plaintiff applied for an order that the 1^st defendant shall also be liable for the plaintiff’s costs of the action jointly and severally with the 2^nd defendant.

9.  Referring to my findings at §§54 and 57 of the Judgment, the plaintiff submits that even though the 1^st defendant said he was taking a neutral stance, he was effectively putting the plaintiff to proof of her case.  He did not apply for, and was not granted, leave to withdraw his Defence.  He did not submit himself to judgment or admit that the Transfer was made with the intention to defraud creditors, but instead said that he would keep the Property if the plaintiff did not prove her case.  It is unjust, the plaintiff says, for the 1^stdefendant to escape liability for costs when he participated in the Transfer with full knowledge, and was as blameworthy as the 2^nd defendant.

10.  By way of written submissions in answer, the 1^st defendant emphasises that he was taking a neutral stance.  The stance he took as stated in his statement had the effect of reducing the costs of the action and there was nothing that he did which increased the costs of the action.  His neutral stance facilitated the claims of the plaintiff.  He says that as he had withdrawn the Defence, the plaintiff could have applied for judgment against him but she chose not to.  He had all along indicated that he would abide by and respect the decision of the court.  Further, he says that even though I found that the intention of the 2^nd defendant to defraud creditors was shared by him, as such a finding was part and parcel of the case against the 2^nd defendant, such a finding had no bearing on the costs and it did not add to the costs.  The 1^st defendant does not challenge the finding.

11.  The 1^st defendant further cited the decision of the Court of Appeal in Mak Ngun Tai v Fung Ming Ip (CACV 83/2017, 12 July 2017).  In that case, in granting an application for the appointment and administrator pendate lite, the Recorder ordered costs against both defendants.  In the Court of Appeal, Lam VP held that as the 2^nd defendant took a neutral stance in the application, the Recorder erred in awarding costs against her.

12.  In the written reply, Mr Ko argues that the 1^st defendant did not properly withdraw his Defence in clear and unequivocal terms (referring to Hong Kong Civil Procedure 2018 at §21/5/6), given his statement that he would keep the whole of the Property if the court found that the Transfer was not a fraudulent conveyance and was not made with the intention to defraud any creditors. 

13.  The plaintiff and the 1^stdefendant agreed that I should dispose of this application on paper without the need for a hearing.

Discussion

14.  In my judgment, the 1^st defendant has effectively withdrawn his Defence under Order 21, rule 2(2).  What was said in the witness statement is, in my judgment, sufficiently clear and unequivocal.  What he further said in the witness statement only meant that the plaintiff was to do whatever was necessary to obtain a judgment against him and if she was able to do that then he would abide by that judgment. 

15.  I do not think that if a defendant does not expressly admit liability, that is necessarily inconsistent with him not defending the action. He is simply leaving it to the plaintiff to do what would have to be done to obtain judgment.  He is neither admitting nor denying liability.

16.  Having said that, by leaving it to the plaintiff to do whatever is needed to obtain judgment, rather than submitting to judgment, if the plaintiff does succeed in doing so, then the ordinary rule is that the defendant will have to pay the plaintiff’s costs.

17.  The effect of a withdrawal by a defendant of the Defence filed is that he is deemed to have defaulted in the filing of his Defence, so that the provisions of Order 19 applies (Hong Kong Civil Procedure 2018, §21/5/6).  Order 19, rule 7 provides as follows:

“ (1) Where the plaintiff makes against a defendant or defendants a claim of a description not mentioned in rules 2 to 5, then, if the defendant or all the defendants (where there is more than one) fails or fail to serve a defence on the plaintiff, the plaintiff may, after the expiration of the period fixed by or under these rules for service of the defence, apply to the Court for judgment, and on the hearing of the application the Court shall give such judgment as the plaintiff appears entitled to on his statement of claim.

(2) Where the plaintiff makes such a claim as is mentioned in paragraph (1) against more than one defendant, then, if one of the defendants makes default as mentioned in that paragraph, the plaintiff may–

(a) if his claim against the defendant in default is severable from his claim against the other defendants, apply under that paragraph for judgment against that defendant,and proceed with the action against the other defendants; or

(b) set down the action for judgment against the defendant at the time when the action is set down for trial, or is set down for judgment, against the other defendants.”

18.  In a case like the present, where the claim of the plaintiff does not fall within any of rules 2 to 5 of Order 19, and where another defendant, against whom a non-severable claim has been made, is not in default, Order 19, rule 7(2)(b) applies, so that what the plaintiff is to do is to set down the action for judgment against the defaulting defendant at the time when the action is set down for trial against the non-defaulting defendant, to be heard at the same time.  What the plaintiff cannot do, in such circumstances, is simply to apply for judgment in default against the defaulting defendant on the basis of the statement of claim and without evidence (as in the case of the sole defendant, or all defendants, defaulting, under Order 19, rule 7(1), or in the case of severable claims against a defaulting defendant and a non-defaulting defendant, under Order 19, rule 7(2)(a)), but must establish the case against the non-defaulting defendant at the trial so as to get judgment against the defaulting defendant as well.  As the claim against the defaulting defendant is not severable from the claim against the non-defaulting defendant, the court cannot simply give judgment against the defaulting defendant irrespective of whether the plaintiff can establish the case against the non-defaulting defendant, because if the plaintiff does fail to establish the case against the non-defaulting defendant at trial and so no judgment is given against that defendant, no judgment should be given against the defaulting defendant on the one and the same (non-severable) claim.  Otherwise the court would be giving inconsistent judgments on one and the same claim, which cannot be correct.  This is why Order 19, rule 7(2), treats severable and non-severable claims differently.

19.  Thus, the establishment of the case against the non-defaulting defendant at trial is necessary for a plaintiff to obtain judgment against a defaulting defendant under Order 19, rule 7(2)(b).  The ordinary rule must be that all the defendants (defaulting or non-defaulting) are to be liable for the costs of the action including the trial jointly and severally.  The defaulting defendant may say that the need for the trial is only because the other defendant is defending the action, and if the latter does not then the matter can be dealt with under Order 19, rule 7(1), with minimal costs.  That may well be true but that can only be a matter between the defendants, and should not affect the plaintiff’s entitlement to costs as against both defendants.

20.  Thus, applying the above, the prima facie position is that the 1^st defendant is to be jointly and severally liable for the costs of the action with the 2^nd defendant.  The question is whether there is any matter in this case which should make me depart from the aforesaid position.

21.  I do not think there is.

22.  First, the 1^st defendant refers to his neutral stance, and argues that because the same amount of costs would have been occurred had the 2^nd defendant been solely defending all along, he should not be liable for costs even before he withdrew his Defence.  With respect, that cannot be correct.  Up to the date of withdrawal, both defendants were being sued and defending, and each must be liable for the costs up to that date.  A party is not liable only for any additional costs he or she generates, but all the costs he or she is responsible for.  If someone else is also responsible for any such costs, then both of them should be jointly and severally liable therefor.  For example, in a case of say ten defendants, who conduct a joint defence, a defendant cannot say the same amount of costs would have been incurred if only the other nine are sued or defending so that he does not have to bear any costs, because each one of them can make the same point and then no one will be liable for any costs.

23.  But even for costs incurred after the withdrawal, since he did not admit liability or submit himself to judgment, the plaintiff will have to conduct the trial to prove her case so as to obtain judgment against him (and the 2^nd defendant), and thus the plaintiff must pay the costs therefor (together with the 2^nddefendant).  Being the transferee under the Transfer, a judgment against the 1^st defendant is of course indispensable. 

24.  The 1^stdefendant says that his stance had the effect of reducing the costs of the action, and nothing was done by him to increase the costs.  But if that is true that only means that there are less costs for which he would have to be liable for, and not that for costs incurred to obtain judgment against him he does not have to pay for them.

25.  The 1^stdefendant then says that my finding that he also had the intention of defrauding creditors was part and parcel of the finding against the 2^nd defendant, with no additional costs incurred for the finding against him.  This is not correct because a judgment against him is as I said indispensable given that he was the transferee under the Transfer and until the Judgment the sole owner of the Property.  The 1^st defendant must be liable for the costs incurred to obtain the Judgment against him (jointly and severally with the 2^nd defendant in so far as any costs were incurred against them in common).  The fact that no additional costs were incurred is irrelevant.

26.  In so far as Mak Ngun Tai is concerned, in my judgment it is distinguishable.  In a case like the present, the 1^st defendant, found to have shared the relevant intention for the Transfer to be set aside, was responsible for the plaintiff’s need to commence, and to proceed with, the action and, after the withdrawal, whatever was done by the plaintiff to obtain judgment against him.  In Mak Ngun Tai, however, which was an application for the appointment of an administrator pendate lite, there was no suggestion that the 2^nd defendant was responsible for the fact that the application was being made by the plaintiffs, or the need for the application to proceed to a hearing.  I do not read that judgment as laying down any general rule that a party, having taken a neutral stance, would not be liable for any costs.  Each case must depend on its own facts and the court must exercise its discretion on costs accordingly.

27.  For the above reasons, I make the following order in place of the costs order made in §63 of the Judgment, namely that the 1^st and the 2^nd defendants are jointly and severally liable for and do pay the costs of this action to the plaintiff, to be taxed if not agreed.  I also make an order nisi that the 1^st defendant is also to pay the costs of the plaintiff in this application for variation of the costs order.  The plaintiff’s own costs are to be taxed in accordance with the Legal Aid Regulations.