LO KAI SHUI v. HSBC INTERNATIONAL TRUSTEE LTD AND OTHERS

HCA 404/2018

[2022] HKCFI 1109

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 404 OF 2018

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D E C I S I O N

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A.  INTRODUCTION

1.  There are the following applications before the court on the question of costs:

(1)  The 1^st and 5^th defendants’ (collectively, “Trustee”)  summons dated 21 June 2021 (“Trustee’s Summons”)  seeking to vary the costs order nisi in the Judgment of this court dated 1 June 2021 (“Judgment”);

(2)  The 2^nd (“KS”)  and 4^th defendants’ (collectively “KS Defendants”)  summons dated 22 June 2021 (“KS Defendants’ Summons”)  seeking to vary the costs order nisi in the Judgment.

2.  Further, by summons dated 15 June 2021 (the “Lu’s Directions/Leave Summons”), the plaintiff (“Lu”)  applied to the court for the following:

(1)  A direction pursuant to Order 59, rule 21(3)  of the Rules of the High Court (“RHC”) as to whether the orders in the Judgment made upon Lu’s summons dated 19 August 2019 (the “Amendment Order”)  and Lu’s summons dated 29 July 2020 (the “O15 r14 Order”)  are orders determining in a summary way the substantive rights of a party to an action within the meaning of Order 59, rule 21(1)(a)  RHC such that Lu may lodge an appeal against those orders as of right and without leave;

(2)  Insofar as is necessary, an order that Lu shall have an extension of time of 28 days from the date of the order to be made to serve a Notice of Appeal appealing from the Amendment Order and the O15 r14 Order; and

(3)  In the alternative, insofar as is necessary, leave to appeal from the Amendment Order and the O15 r14 Order.

B.  THE TRUSTEE’S SUMMONS AND THE KS DEFENDANTS’ SUMMONS ON COSTS

3.  The 1^st and 5^th defendants seek the following orders:

(1)  Costs of and occasioned by the 1^st defendant’s Strike Out Application, KS’s Strike Out Application, Lu’s O15 r14 Application, and Lu’s application to amend his Statement of Claim (collectively, “Applications”)  to be borne by Lu on an indemnity basis, such costs are to be taxed if not agreed with certificate for 2 counsel to the 1^st defendant and KS, and to be paid forthwith[1].

(2)  Costs of, occasioned by and incidental to the claims which have been struck out pursuant to the Judgment to be borne by Lu on an indemnity basis, such costs to be taxed if not agreed with certificate for 3 counsel to the 1^st defendant, and to be paid forthwith.[2]

4.  Similarly, the KS Defendants seek the following order:

(1)  The costs of and occasioned by the four summonses before the court on 3-4 November 2020 and 15-16 December 2020 be borne by Lu on an indemnity basis, with certificate for 2 counsel to KS, to be paid forthwith; and

(2)  The costs of and occasioned by and incidental to the claims that have been struck out by the Judgment be borne by Lu on an indemnity basis, such costs to be taxed if not agreed with certificate for 2 counsel for the KS Defendants, and to be paid forthwith.

B1.  Taxation on indemnity basis

B1.1  Striking Out Applications and claims which have been struck out

5.  The following principles regarding an award of costs on an indemnity basis are well established (see for example: Society for Protection of the Harbour Ltd v Town Planning Board (No 2) (2004)  7 HKCFAR 114):

(1)  The court’s discretion to award indemnity costs is not fettered or circumscribed beyond the requirement that indemnity costs must be “appropriate” (Town Planning Board (No 2)§17).

(2)  What makes it appropriate is the existence of some “special and unusual features” connected with the case but which can otherwise extend to any matter relating to the litigation, the parties’ conduct in it and the circumstances leading to the litigation (Town Planning Board (No 2)§§15, 18).

6.  As this court pointed out in paragraphs 51 to 187 of the Judgment, Lu has clearly abused the judicial process by seeking to (a) re-litigate a substantial number of issues which have already been raised and decided in Madam Lo’s Actions, and (b) mount a collateral attack upon this court’s findings on those issues.  The Trustee and KS have succeeded in striking out a substantial part of Lu’s claims on this ground.

7.  This by itself is good reason for the court to order that the costs of the Striking Out Applications and the claims which have been struck out be taxed on an indemnity basis.

8.  To the extent that further reasons are needed, I accept there are three other factors which provide additional justification for an award of indemnity costs.

9.  First, Lu has all along been legally represented by counsel and solicitors, and must have known that he ran the risk of abusing the judicial process by commencing the present proceedings and pursuing the Overlapping Claims.  However, Lu chose to take this risk by maintaining the Overlapping Claims and taking every conceivable point in his attempt to oppose the Striking Out Applications.

(1)  As this court pointed out in paragraph 60 of the Judgment, the extent of the overlap between the issues decided in Madam Lo’s Actions and the issues in the present proceedings is “substantial”.

(2)  The similarity of the arguments advanced in the two sets of proceedings is also striking.  For example, even Lu was unable to point to any material difference between the Conflict of Interest Claim as advanced by Madam Lo and himself: see paragraph 68 of the Judgment.

(3)  Lu must have known that he was advancing substantially the same claims and arguments as Madam Lo, given his close involvement in Madam Lo’s Actions, as found in paragraphs 95 and 97 of the Judgment.

(4)  In the circumstances, Lu must have realized that he was attempting to take a “second bite at the cherry” and that this might involve an abuse of the judicial process.

10.  Second, Lu’s decision to maintain the Overlapping Claims and oppose the Striking Out Applications was wholly without merit.  This is not a case where Lu fell foul of the doctrines of res judicata and abuse of process merely because of some legal technicality.  All of the arguments deployed by Lu against the Striking Out Applications were clear non-starters.

11.  Third, Lu’s abuse of process has caused the Trustee and the KS Defendants to suffer substantial prejudice, and has wasted the court’s time and resources.

(1)  As this court noted in paragraphs 4 and 124 of the Judgment, the effect of Lu’s attempt to take a second bite at the cherry is to cause the Trustee to have to defend itself twice over in litigation of a grand scale.  As a result of the Striking Out Applications, the parties have been able to avoid the time, effort and legal costs associated with a full-blown trial of the Overlapping Claims.

(2)  However, the Trustee and the KS Defendants have still had to incur substantial time and costs in dealing with the Overlapping Claims to date, including (a) filing of lengthy pleadings, (b) provision of extensive discovery, and (c) dealing with several hard-fought interlocutory applications, each involving multiple counsel teams and dozens of bundles.

(3)  The time and cost incurred by the Trustee and the KS Defendants in dealing with the Overlapping Claims goes far above and beyond that of a normal litigant faced with re-litigation of decided claims.

(4)  The court also has undoubtedly had to divert substantial time and resources away from other cases and other members of the public as a result of these proceedings.

12.  As for the costs of and occasioned by and incidental to the claims that have been struck out by the Judgment, given the court’s findings that the claims were vexatious and oppressive and an abuse of process, with the result being that the Trustee and the KS Defendants need not defend those claims, it would naturally follow from the court’s findings that the costs already spent on having thus defended these claims have been wasted, and should be awarded to the Trustee and the KS Defendants on an indemnity basis and payable forthwith.

B1.2  O15 r14 and Amendment Applications

13.  As to the O15 r14 Application and the Amendment Application, while these are ostensibly separate and distinct from the Striking Out Applications, they are clearly incidental to the Striking Out Applications and the claims which have now been struck out:

(1)  Lu took out the O15 r14 Application in an attempt to circumvent the common law doctrines of res judicata and abuse of process which formed the basis of the 1^st defendant’s application to strike out the Overlapping Claims.[3]

(2)  The primary aim of the Amendment Application was to expand upon and refine the Overlapping Claims.[4]

14.  In the circumstances, costs of the O15 r14 and Amendment Applications should also be taxed on an indemnity basis.

B2.  Certificate for 3 counsel

15.  The 1^st defendant only asks for a certificate for 3 counsel in relation to the costs of and incidental to the claims which have been struck out.[5] I accept that such an order is justified, proportionate and appropriate having regard to (inter alia)  the complexity of the matter, the volume of the evidence involved and the sums at stake.

B3.  Conclusion on the costs summonses

16.  For the reasons set out above, I make an order in terms of the relief sought by respectively the 1^st and 5^th defendants and the KS Defendants as set out in paragraphs 3 and 4 above.

17.  I further order that the costs of the Trustee’s Summons and the KS Defendants’ Summons be paid by the plaintiff to respectively the 1^st and 5^th defendants (with a certificate for 2 counsel)  and the KS Defendants, such costs are to be paid forthwith.

C.  LU’s DIRECTIONS/LEAVE SUMMONS

C1.  Regarding the Amendment Order

18.  In the Judgment, this court disposed of Lu’s application for leave to amend the Statement of Claim (the “Amendment Application”)  in the following manner:

(1)  Some of the proposed amendments[6] (ie Lu’s “Consequentially Disallowed Amendments”)  were disallowed on the ground that they were ancillary or related to claims which were liable to be struck out pursuant to the res judicata and abuse of process doctrines.  As the plaintiff expressly accepts at the hearing, the relevant grounds of appeal against this part of the Judgment are set out in the draft Notice of Appeal for the Amendment Application (“Draft Amendment NOA”)  §§1-3 and 17.

(2)  Other amendments[7] (the “Independently Disallowed Amendments”)  were disallowed independently from the Striking Out Order.  These, the court found, related specifically to: (1) the definition of “allies”; (2) the threat posed by these “allies”; and (3) injunctive relief against KS relating to the “allies”.[8]  They are subject matter of the Draft Amendment NOA, §§4-16.

(3)  Some of the proposed amendments[9] which were not opposed were allowed.

C1.1  Leave to appeal is required

19.  Since the refusal of leave to amend the Statement of Claim is an interlocutory decision, leave is required pursuant to sections 14AA(1)  and (2)  of the High Court Ordinance, Cap 4 (“HCO”)  unless the judgment or order falls within one of the exceptions set out in Order 59, rule 21 RHC.

20.  In the present case, Lu relies upon Order 59, rule 21(1)(a), read together with Order 59, rule 21(2)(i)  RHC.  However, the dismissal of the Amendment Application is not a judgment or order determining Lu’s substantive rights in a summary way because, firstly, the Consequentially Disallowed Amendments set out in paragraph 18(1)  above do not introduce any “new claims” or “new issues”.  Instead, as this court pointed out, they are merely ancillary to the Overlapping Claims which were struck out.[10] Further, Lu’s reliance on Excel Concrete Ltd v The Concrete Producers Association of Hong Kong Limited, HCA 938/2011 (unrep, 27/09/2013)  cannot assist him because it was common ground in that case that the refused amendments did introduce new issues (see §15), which according to Order 59, r 21(2)(i)  would render the order refusing the amendment to be an order “determining in a summary way the substantive rights of a party”.

21.  Further, Lu’s contention that the Independently Disallowed Amendments set out in paragraph 18(2)  above introduce a new issue is also wrong.  The definition of “allies” and the threat posed by those “allies” were in issue even before the Amendment Application.[11]  Lu has merely put forward a new list of alleged allies in the proposed amendments, but that is not a new issue.  Contrary to Lu’s assertion, the court’s use of the word “introduction” in paragraphs 214(1)  and 214(2)  of the Judgment plainly does not mean that this is a new issue.

22.  In the premises, I rule that the Amendment Order does not determine in a summary way the substantive rights of a party, meaning that leave to appeal is required.

C1.2  Legal principles on leave to appeal

23.  The principles on granting leave to appeal are well established.  Leave to appeal is not lightly granted and the first tier application serves an important function for the parties as well as for the court.  Leave can only be granted if the court is satisfied that (a) the appeal has a reasonable prospect of success; or (b) there is some other reason in the interests of justice why the appeal should be heard.  Reasonable prospects of success involve the notion that the prospects of succeeding must be “reasonable” and therefore more than “fanciful”, without having to be “probable”.

C1.3  Draft Amendment NOA §§1 to 3 and 17 (Grounds 1 and 4)

24.  The 1^st and 5^th defendants do not oppose the grant of leave to appeal in relation to these grounds of appeal.

25.  The core issue upon which these grounds stand or fall is whether Lu is barred from advancing the Overlapping Claims on the grounds of res judicata and abuse of process: see paragraphs 208-210 of the Judgment.  That is an issue which Lu is entitled to raise as of right as part of his appeal against the Striking Out Order.

26.  In the circumstances, the 1^st and 5^th defendants accept that it would be appropriate for paragraphs 1 to 3 and 17 of the Draft Amendment NOA to be heard together with Lu’s appeal against the Striking Out Order.

27.  I regard the concession by the 1^st and 5^th defendants as correctly made.  As submitted by Lu, one “other reason in the interests of justice why the appeal should be heard” is that the basis of the Amendment Order was the Striking Out Order.  The Striking Out Order is under appeal as of right in CACV 329/2021.  Cases “where the matter will be going to the Court of Appeal anyway” may constitute “some other reason in the interests of justice why the appeal should be heard”: The Yerrid Law Firm v Qiansbaizi Trading Ltd[2021] HKCFI 1578 at §§13-15 per DHCJ Paul Lam SC.  If Lu were successful on his “as of right” appeal, it follows that the basis for disallowing the Consequentially Disallowed Amendments would fall away.  To deprive Lu of leave to appeal from the Amendment Order would therefore pre-empt and unjustly deny Lu of the fruits of any success he might have on his appeal from the Striking Out Order.

28.  In the premises, I would grant the plaintiff leave to appeal on paragraphs 1 to 3 and 17 of the Draft Amendment NOA.

C1.4  Draft Amendment NOA §§4 to 16 (Grounds 2 and 3)

The concept of “Allies” (Draft Ground 2)

29.  In my view, it is not reasonably arguable that the court fell into any error in failing to allow Lu to amend its definition of “Allies”.  All the matters which Lu wants permission to argue on appeal have no reasonable prospects of success: they were canvassed at first instance and rejected by the court:

(1)  As is obvious from just reading the proposed amended definition, the proposed amendment to “Allies” was an expansion of persons and entities who are said to have constituted a threat to the Trust. Lu’s reference at §4 of the Draft Amendment NOA to other parts of the pleadings is irrelevant especially since those parts of the pleadings alleged that certain people were acting in concert with KS, as opposed to the different concept of being KS’s “Allies”.

(2)  Under §5 of the Draft Amendment NOA, Lu wants to rehearse the argument that his case now is different from Madam Lo’s and thus there is nothing wrong with his proposed definition of “Allies”.  This argument ignores the finding (and the effect thereof), in the Judgment, that it is an abuse of process for Lu as Madam Lo’s privy, to try to now run a case that is the same, similar, slightly different, or contradictory to Madam Lo’s Actions (ie the Raised and Raiseable Issues points).  Lu cannot, through the guise of trying to fit himself into “gaps” of Madam Lo’s Actions seek to say he is not barred.  This has already been held as abusive and is plainly unarguable.

(3)  It is not reasonably arguable for Lu to contend that this court erred in holding that amendments that were bound to fail would be disallowed (§6 of the Draft Amendment NOA): see paragraphs 218 and 220 of the Judgment.  This court has analysed precisely how Lu’s attempt to define “Allies” was bound to fail (whether as a matter of simple arithmetic or otherwise), and the suggestion that this court erred in failing to have regard to expert evidence (§6(5)  of the Draft Amendment NOA)  is unarguable as Lu ignores the analysis in paragraph 219 of the Judgment that it is abusive for Lu to try to re-litigate matters already decided in Madam Lo’s Action.  See further paragraphs 173 to 177 of the Judgment where the court set out the significance of the previous findings to explain why it would be an abuse of process for Lu to re-run allegations of KS having a competing shareholding etc given the previous findings, and the fact that there was no expert evidence in Madam Lo’s Actions does not make the present attempt at re-litigation (including through the amendments)  any less abusive.

(4)  It is not reasonably arguable for Lu to suggest that the court erred in holding that his proposed definition of “Allies” lacked particularity (§7 of the Draft Amendment NOA): objectively, the definition was deficient for the reasons set out at paragraph 222 of the Judgment.  Relatedly, the suggestion at §10 of the Draft Amendment NOA that the court erred regarding lack of particularity not being a sufficient reason to exclude the amendments is clearly unarguable in light of the well-established law in this area, that it is incumbent on the party seeking an indulgence to provide full particulars and it is not good enough to say they can be provided later.  This principle was applied at paragraphs 217 and 226 of the Judgment.

(5)  Lu’s attempt to say that the court erred in failing to take sufficient account of Master Kate Li’s ruling (§8 of the Draft Amendment NOA)  has no reasonable prospects: the court has assessed the significance of the ruling on the matter before the court (paragraph 227 of the Judgment).

(6)  It is not reasonably arguable for Lu to contend that the court was wrong in disallowing the amendments regarding proposed injunctive relief (§9 of the Draft Amendment NOA), when the court applied the trite legal principle regarding the need for specificity in prohibitory injunctions given their serious consequences (paragraphs 231 to 233 of the Judgment)  and Lu does not contend otherwise.  The suggestion that there was nothing wrong with how he defined “Allies” in the context of the undisputed law is plainly unarguable.

The “Proxies” and “Loose Shares” (Draft Ground 3)

30.  Again, I am of the view that none of the proposed arguments under this head have any reasonable prospects of success and the matter should not be permitted to proceed further:

(1)  As with all the other proposed grounds, Lu is basically attempting to re-run each and every argument below which were rejected by the court.

(2)  In the exercise of the discretion of whether to allow or reject the proposed amendments, this court decided to exclude the proposed amendments regarding proxies and loose shares on the grounds that Lu’s proposed amendments regarding proxies and loose shares (a) lack particularity in terms of who this may have included in the past without any temporal restriction and will remain open indefinitely as long as KS is Chairman (paragraph 223 of the Judgment); (b) is based on a fundamental misunderstanding of how proxies work in the real world and specifically in this case (paragraph 224 of the Judgment); and (c) were not central to the issue and lacked proportionality if KS would have to trawl through years of proxies, without allowing the real issues to be determined (paragraph 225 of the Judgment).

(3)  In making the decision, this court specifically referred to the well-established Ketteman principles in support of its reasoning and balancing exercise (see: paragraph 225 of the Judgment).

31.  For the above reasons, I refuse to grant the plaintiff leave to appeal on paragraphs 4 to 16 of the Draft Amendment NOA.

C2.  Regarding the O15 r14 Order

C2.1  Leave to appeal is required

32.  It is not in dispute that leave to appeal is required unless it can be shown that the decision to dismiss the O15 r14 Application is a judgment or order determining in a summary way the substantive rights of the parties within the meaning of Order 59, rule 21(1)(a)  RHC.

33.  In this regard, it is well established that Order 59, rule 21(1)(a)  only applies to judgments or orders which by itself dealt with the parties’ substantive rights.  That rule has no application to procedural orders which have the collateral effect of summarily determining the substantive rights of a party: see Lubiano Nancy Almorin v Director of Immigration (No 2) [2019] 3 HKLRD 393 at §16 (Chow J, as he then was).

34.  The dismissal of the O15 r14 Application did not, by itself, have the effect of striking out Lu’s claims or determining any of the factual or legal issues pleaded in the Statement of Claim.  Lu’s claims were struck out by reason of the separate doctrines of res judicata and abuse of process.

35.  Taking Lu’s case at its highest, the dismissal of the O15 r14 Application only had the collateral effect of preventing Lu from mounting a procedural defence to the Striking Out Applications.  That type of judgment or order does not fall within the scope of Order 59, rule 21(1)(a)  RHC.  I agree that leave to appeal is therefore required.

C2.2  Leave should not be granted

36.  Lu’s intended grounds of appeal plainly fail to cross the merits threshold of having “a reasonable prospect of success”.  The crux of his argument is that:[12]

(1)  Order 15, rule 14 confers upon this court the power to make an order which “would pre-empt and exclude any finding that he was a privy of any of the parties to Madam Lo’s Actions or was bound by the judgment in Madam Lo’s Actions under the doctrine of res judicata”; and

(2)  Lu is entitled to apply for and obtain such an order even if the 1^st defendant does not rely upon Order 15, rule 14 as a basis for striking out.

37.  However, this contention is plainly wrong for the reasons which this court has analysed in paragraphs 193 to 207 of the Judgment.

38.  Without repeating each of those points, it is plain from the wording of Order 15, rule 14 RHC that the type of order contemplated therein is an order that the beneficiary shall not be bound by a judgment or order by virtue of Order 15, rule 14.  In other words, what is contemplated is an order negating the specific effect of Order 15, rule 14 in appropriate cases where the trustee or administrator does not adequately represent the beneficiary’s interests.

39.  There is nothing in the wording of Order 15, rule 14 or the surrounding provisions which suggest that the rule was intended to confer upon the court a general power to order that a beneficiary shall not be bound by a judgment or order on any and all bases, including the common law doctrines of res judicata or abuse of process.

40.  Certainly, Order 15, rule 14 does not purport to exclude the common law doctrines of res judicata or abuse of process either expressly or by necessary implication, as required by law: see paragraphs 195 to 203 of the Judgment.

41.  Nor has Lu been able to point towards any other valid reason justifying the grant of leave to appeal:

(1)  The contention that leave should be granted, no matter how bad the appeal grounds are, because there will be a separate appeal to the Court of Appeal on a separate application only needs to be stated to be dismissed.  Yerrid Law Firm (supra)  does not support Lu’s argument because in that case leave was sought in relation to grounds which were “identical” to grounds which the 2^nd defendant therein was entitled to raise as of right: see §15.  That is not the case here because the appeal in relation to the Striking Out Applications and the intended appeal in relation to the O15 r14 Application raise different legal issues, unlike the situation regarding the Consequentially Disallowed Amendments as analysed above.

(2)  Nor does the intended appeal raise any controversial legal points of general and public importance.  Lu’s suggestion that the interpretation of Order 15, rule 14 RHC has very real practical significance in trusts litigation fundamentally ignores the context in which this court was asked to deal with it.  As pointed out by the court, (1) the 1^st defendant sought to strike out the offending paragraphs in the Statement of Claim on the basis of the doctrines of res judicata and abuse of process, and not on the basis that Lu was bound by the Judgment in Madam Lo’s Actions, and (2) the raising of the Order 15, rule 14 issue by Lu was a blatant attempt to divert attention from the real issues in the Striking Out Applications.[13]

C3.  Conclusion and disposition of Lu’s Directions/Leave Summons

42.  For the foregoing reasons, I dispose of Lu’s Directions/Leave Summons in the following manner:

(1)  I dismiss the application for a direction that the plaintiff is entitled to appeal as of right against the decision to dismiss the Amendment Application and the O15 r14 Application;

(2)  I grant leave to appeal in relation to the Amendment Application on the grounds set out in paragraphs 1 to 3 and 17 of the Draft Amendment NOA;

(3)  I refuse leave to appeal in relation to the Amendment Application on the grounds set out in paragraphs 4 to 16 of the Draft Amendment NOA; and

(4)  I refuse leave to appeal in relation to the O15 r14 Application.

43.  As to costs, I order that the costs of Lu’s Directions/Leave Summons be paid forthwith by the plaintiff to the 1^st and 5^th defendants (with a certificate for 2 counsel)  and the KS Defendants, save that the costs of the application for leave to appeal on the grounds set out in paragraphs 1 to 3 and 17 of the Draft Amendment NOA be costs in the cause of the appeal.

44.  Lastly, I express my gratitude to counsel for their helpful assistance in this matter.