PACIFIC HARBOR ADVISORS PTE LTD AND ANOTHER v. WINSON FEDERAL LTD AND OTHERS

HCMP 1149/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1149 OF 2015

______________________

______________________

______________________

_______________

DECISION
(on Costs)
_______________

Introduction

1. This is an argument in relation to costs of an originating summons issued by the 3^rd defendant (D3) for leave to appeal out of time against a summary judgment granted by this court to the plaintiffs. The originating  summons was subsequently withdrawn by the 3^rd defendant.

Brief Background

2. The summary judgment was granted on 1 August 2014 in HCA 1257/2013 against Winson Federal Limited (D1), and/or the executor of the estate of Cho Yuk Kei Carlos (D2), for only those monetary claims in the amended statement of claim (“O14 Judgment”)[1].

3. The companies D1, D4 and D7 in the Main Action directly or indirectly hold a PRC company which holds 100% of a piece of property in Shenyang PRC, which Carlos and D3 had sought to develop into a luxury 5 star hotel, serviced apartments and a series of related amenities (the “Shenyang Project”).

4. The facts have been set out in the O14 Judgment.  Briefly, there were 2 agreements dated 2 June 2008 (“Loan Agreements”) under which P1 loaned UD $ 38m to D1 in relation to the Shenyang Project. Carlos had executed a guarantee of all sums due pursuant to the 2 Loan Agreements.  Subsequently, D1 defaulted on interest payments, and as a result P1 entered into agreements to amend the 2 Loan Agreements by principally extending the repayment deadline to 4 December 2009. 

5. On 4 December 2009, D1 defaulted on the loan, failing to repay any part of the loan and most of the interest due thereon.

6. Under the O14 Judgment, D1 and D2 were ordered to make repayments.  By then the principal and interest stood in excess of UD$81m.

7. After the O14 Judgment, Ps were unable to secure a settlement of the judgment debt, and they then issued a summons on 26 February 2015 for receivership and management.  On 3 March 2015, this court ordered receivership and management over D2’s shares in D1 and the companies D4, D6 & D7 (‘Receivership Order”).

8. On 17 March 2015, D3 took out a summons for leave to appeal the Receivership Order (“Leave Summons”), which led to a hearing on 15 May 2015 (“Hearing”).  This court later handed down a judgment on 22 May 2015 dismissing D’s Leave Summons (“Leave Judgment”).

9. D3’s Leave Summons was dismissed for mainly the following reasons:

(i)  Leave to appeal was unnecessary as the Receivership Order was equitable execution of a final judgment;

(ii)  D3 had no locus standi to appeal as it was D2’s shares that were subject of the Receivership Order, and only D2 had the right to appeal.

The Present Proceedings

10. On 12 May 2015, 3 days prior to the Hearing, D3 issued the originating summons herein (“OS”), listed for a hearing date before this court on 19 June 2015, for an extension of time for D3 to serve a notice of appeal against the O14 Judgment.  For some reasons D3 also sought time for service of the OS on Ps be abridged.

11. The OS was supported by an affirmation of D3’s solicitor Chan Kin Wo dated 11 May 2015 (“CKW’s Affirmation”) which had exhibited an audio recording of a telephone conversation between D3’s mother and Mr Wayne Ang earlier in May 2015 and a 42 page transcript, with parts in Chinese (the “Transcript”) [2].  The audio recording and the Transcript were fresh evidence D3 was trying to adduce to support D3’s contention that Mr Ang was making a restructuring proposal and that Mr Ang had said that D1 could repay whatever amount of interest whenever it wanted to.

12. At the Hearing, I had remarked that, in view of O 59 r 2B of the Rules of the High Court (Cap 4A), I did not think I would have the power to extend time for an appeal against the O14 Judgment.  Counsel then appearing for D3, Mr Earl Deng, however, informed the court that there was a recent judgment of the Court of Appeal making it clear that the court below did have such a power.

13. Notwithstanding what Mr Deng had informed this court, it would appear that 4 days after the Hearing, on 19 May 2015, D3’s solicitors wrote to seek the consent of Ps and D2 for D3 to withdraw the OS with no order as to costs[3].

14. On 20 May 2015, Ps’ solicitors responded, and proposed that costs should be made to them on an indemnity basis[4]. 

15. On 21 May 2015, D2’s solicitors also responded and stated that the originating summons was “totally misconceived”, noting that the court below would not have the power to extend time for lodging an appeal in the circumstances, and seeking costs for the OS and the withdrawal summons totalling HK$12,000[5].

16. On the same day, D3’s solicitors wrote to Ps to explain that the OS was issued and upon counsel’s advice and upon perusal of a recent Court of Appeal case Chee Fei Ming v Director of Food and Environmental Hygiene CACV 219/2014, 20 April 2015, and that although they had doubts whether the OS should be heard before this court, the court clerk had confirmed to them that the OS was to be fixed before this court, and that it was not until the Hearing that they noted that the OS should not be heard by this court, and then another court clerk had told them they should fix it before the Court of Appeal.[6] They further proposed to pay HK$4,000 towards Ps’ costs.

17. On 26 May 2015, Ps’ solicitors wrote to say that that nothing in Chee Fei Ming could be construed as supporting the proposition that the court below had the power to grant an extension of time for an appeal, and they rejected D3’s offer of HK$4,000 for costs and repeated that D3 should be liable for costs to Ps on an indemnity basis[7].

18. On the same day, D3 took out a summons in these proceedings to withdraw the OS (“Withdrawal Summons”) and, also issued an originating summons in HCMP 1285/2015 seeking leave from the Court of Appeal to appeal against the O14 Judgment out of time (“HCMP 1285/2015 Summons”).

19. The HCMP 1285/2015 Summons was heard substantively before the Court of Appeal on 15 July 2015.  Judgment was handed down by the Court of Appeal on 21 August 2014, 2 days after the present hearing and the Court of Appeal declined to extend time for D3 to appeal, and held, among other things,  D3 had no locus standi to appeal as the summary judgement was not made against him, and even if he had, the Court of Appeal declined to exercise the discretion of allowing the extension of time, having considered (1) the substantial length of the delay (2) the reason advanced for the delay; (3) the chances of success if an appeal were allowed to proceed out of time; and (4) the prejudice, if any, to the intended respondents.

The Parties’ respective positions on costs

20. Although D3 had originally proposed no order as to costs, D3 had later accepted that he had to pay Ps’ costs of the OS and the Withdrawal Summons, but Mr Au, D3’s Counsel, submitted that (1) costs of the OS and the Withdrawal Summons be granted on a party to party basis and (2) that such costs to exclude costs incurred for the work done that could be used in HCMP 1285/2015.

21. Ps, however, submitted that (1) costs of the OS and the Withdrawal Summons should be granted on an indemnity basis and (2) that such costs should  not exclude costs incurred for the work done that could be used in HCMP 1285/2015.

General Principles on Indemnity Costs

22. Mr Au had referred this court to the case Choy Yee Chun (The Representative of the Estate of Chan Pui Yiu) v Bond Star Development Ltd [1997] HKLRD 1327, where Stock J, as he then was, had quoted what had earlier been summarized in Overseas Trust Bank Ltd v Coopers & Lybrand (a firm) and Another [1991]1 HKLR 177 by Godfrey J, as he then was, in relation to when  taxation on an indemnity basis could properly be ordered, namely where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner; and it was further said that “Litigants who conduct their cases in bad faith, or as a personal vendetta, or in an improper or oppressive manner, or who cause costs to be incurred irrationally or out of all proportion as to what is at stake, may also expect to be ordered to pay costs on an indemnity basis if they lose, and have part of their costs disallowed if they win” [8].

23. Ps’ Counsel Mr Kam, however, submitted that indemnity costs could be ordered in not only those situations as summarized above.

24. Mr Kam referred the court to Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 where it was held, among other things, that an award of indemnity costs was not confined to cases brought with an ulterior motive, for an improper purpose, or where there was some deception or underhand conduct on the part of the losing party, and that it was undesirable to attempt to define the circumstances in which such order would be made, and the discretion was not to be fettered beyond the requirement that indemnity costs must be “appropriate”[9].

25. Mr Au had argued that the Town Planning Board case was a case in the judicial review context and that indemnity costs were allowed because the successful party was acting to secure the manifest public importance, the limited finances of it which were dependent on public donations.

26. In the case of Technnicon Engineering Limited and Chan Lee Kwok Trading as Lewa & Company, DCCJ 607/2007, unrep, 28.09.07, M Chan J had ordered costs on an indemnity basis to the defendant who successfully struck out the plaintiff’s action when the defendant was the wrong party to be sued.  As M Chan J had pointed out, the question was whether reasonable steps could have been taken by the plaintiff to identify the proper party to be sued and to be named as the defendant in the action commenced.  She was of the view that before issuing the writ, the plaintiffs’ solicitors should have conducted the necessary business registration search as any reasonable firm of solicitors would have done to verify the details of the registration of the business known as Lewa & Company and to compare such details with the details of the limited company of similar name which was the proper party to the alleged claim. 

27. Mr Au however pointed out that there was a delay for almost 2 months in the above case before the plaintiff realized the problem. 

28. In Lam Lai Wah Susanna v Pacific Century Insurance Co Ltd [2003] 2 HKC 520, the Court of Appeal ordered costs on an indemnity basis where the respondent’s solicitors had deposed in an affirmation that was “obviously wrong”, namely that the respondent had made all reasonable and practicable efforts to serve a statutory demand on the applicant but in fact no attempt had been made to contact the applicant at any of the 4 insurance companies where the applicant had been working, such addresses being known to the respondent.

29. Mr Au, however, submitted that the solicitors in the above case, for 2 years, did not pay heed to ample cogent evident that were available to them such that they could serve a bankruptcy petition to the appropriate addresses.

30. The above cases were pre the Civil Justice Reform.  In the case of Technicom Interiors Design Engineering Ltd and Tse Yuet Yi and Lam Chuen Chee Peter, DCCJ 5965/2008, unrep, 02.11.10, DDJ Roy Yu, as he then was, had expressed the view that after CJR, the new Order 62 rule 5(1)(e) would allow the court greater flexibility to give indemnity costs when the conduct of the parties so justified.

31. Mr Kam also relied on the more recent case Huge Dragon Corp Ltd v The Incorporated Owners of Lung Man Oasis [2014] 3 HKLRD 286 (CA) where it was said as “demonstrated by numerous authorities and now enshrined in Order 62 rule 5(1)(e) of the Rules of the High Court, the conduct of the party against whom indemnity costs are sought is cogently relevant” [10].  In that case, the defendant issued an application for leave to appeal to the Court of Final Appeal which was entirely devoid of merit, and that it should never have been launched.  The defendant had argued that it had no alternative but to take out the application before expiry of time in order to preserve its rights and then it sought advice from senior counsel which took time, and that acting on such advice, they then applied for leave to withdraw its application for leave to appeal to the Court of Final Appeal.  They were granted leave to withdraw but costs on indemnity basis were ordered against them.  The Court of Appeal held that senior counsel’s advice was unnecessary to illustrate that no point of great or general importance could in this case possibly arise; and that no exceptional circumstances existed which would trigger the “otherwise” ground.

32. Mr Au had tried to distinguish the Huge Dragon case that it was a case where the factual matrix did not warrant the paying party any appeal at all.

33. Each case will depend on its own facts. However, having considered various authorities, to summarise, the cases in which indemnity costs may be ordered are no longer restricted to those situations set out in Choy Yee Chun, following Overseas Trust Bank Ltd, and as held in Huge Dragon conduct of the party against whom indemnity costs are sought is cogently relevant.  With this in mind, I turn to the present facts.  

Discussion

34. Mr Au had submitted that once D3 realised that the OS should have been listed before the Court of Appeal, his solicitors wrote to Ps and D2 to withdraw the OS, namely D3 had within 4 days of knowledge written to withdraw the OS.  Although initially, D3 had suggested no order as to costs, he later did offer to pay costs to Ps and D2.  Mr Au also pointed out that D2 had not sought costs on indemnity basis.

35. Mr Au also pointed out that Ps did not seek costs on the indemnity basis at the hearing before the Court of Appeal in HCMP 1285/2015.

36. However, there was nothing wrong procedurally with the issue of the HCMP 1285/2015 Summons.  As pointed out by Mr Kam, that an application for leave to appeal out of time should be made to the Court of Appeal ought to have been known to D3’s legal team, as he had instructed two counsel for the Hearing.  Mr Kam had referred to paragraph 59/2B/2 in the Hong Kong Civil Procedure 2015 Volume 1 (“White Book”) in his skeleton submissions.

37. Paragraph 59/2B/2 in the White Book is in fact in relation to out of time application in relation to applications for leave to appeal against interlocutory and other judgments/orders of the court stipulated under Order 59 r 2B. 

38. The O14 Judgment was a final judgment for Ps’ monetary claims and D3, if he had the locus, would not have needed any leave to appeal from this court had such appeal been lodged within time, namely 28 days from the date of the O14 Judgment[11].

39. Paragraph 59/4/7 of the White Book, however, has set out that the court below can only make an order abridging or extending time limit for appealing if the application to that court is made before the expiration of the time limit.

40. D3’s solicitors had admitted in their letter of 21 May 2015 to Ps’ solicitors that they “had had doubts whether it should be heard before the Hon Madam Justice B Chu” and that they did cause their clerk to confirm with a court clerk the day the OS was filed.

41. What I fail to understand is that if D3’s solicitors indeed had doubts, why did they not check the rules and the White Book and carried out research themselves instead of simply asking the court clerk. 

42. In any event, notwithstanding D3’s solicitors’ doubts, when this issue was raised by this court at the Hearing, their Counsel Mr Deng did not express any doubts and in fact informed the court that there had been a recent decision from the Court of Appeal which indicated that this court had power to extend time to appeal.  There was no authority produced by D3 at the Hearing to support what was being submitted.

43. The decision referred to by Mr Deng later turned out to be Chee Fei Ming.

44. As pointed out by Mr Kam, which I agree, there was nothing in Chee Fei Ming that supported D3’s case that the OS could be listed before this court or that this court had power to extend time. 

45. At the present hearing, Mr Au seemed to try to explain that it was only stated in Chee Fei Minh that a separate summons had to be taken out under miscellaneous proceedings for an application for leave to appeal out of time, and that there was no indication therein as to whether such summons should be listed in the Court of First Instance or the Court of Appeal. 

46. There was no explanation from D3 as to why his legal team had not conducted any research prior to the issue of the OS.  It was also not quite clear as to why D3 needed to seek abridgement of time for the service of the OS on Ps when the hearing was on 19 June 2015, more than a month after the issue of the OS, unless D3’s legal team had intended to list it at the same time as the Hearing.

47. On the same day that the OS was filed, D3’s Counsel lodged their skeleton submissions, making various references to the OS and CKW’s Affirmation to support D3’s Leave Summons and the Stay Summons.  As I pointed out in the Leave Judgment, Mr Deng seemed also to be applying at the Hearing for a stay of the Receivership Order pending the determination of the OS even though the Stay Summons was in relation to a stay pending an appeal against the Receivership Order[12].  Anyway, the steps taken by D3 in issuing the OS shortly before the Hearing appeared to this court to be a tactical step in order to try and bring the fresh evidence to this court’s attention, and to support D3’s Leave Summons and Stay Summons.

48. As mentioned earlier, 4 days after the Hearing, D3 wrote to indicate he was withdrawing the OS, and 4 days after the Leave Judgment was handed down, D3 issued the Withdrawal Summons.

49. I accept what was submitted by Mr Kam, D3 had demonstrated a total disregard for procedure and due process.

50. In any event, D3’s legal team should have conducted proper legal research prior to the issue of the OS.  D3’s solicitor was informed of the audio recording on 4 May 2015[13].  D3’s legal team had had about 8 days before issuing the OS to conduct research, which in my view was more than sufficient, and if they were still in doubt, they should have waited and issued the OS after they had completed proper research.

51. Having considered D3’s conduct, I have come to the view that this is an appropriate case for costs to be ordered on an indemnity basis.

52. Mr Au had argued that there should be an exclusion of costs incurred for the work done for the OS that could have been used for the HCMP 1285/2015 Summons, or otherwise D3 could be penalized twice over.

53. Ps strenuously opposed Mr Au’s submission in this respect.  Mr Kam submitted that there was no authority or practice to suggest that this was how taxation would operate, and that the OS and HCMP 1285/2015 Summons were two entirely discrete applications and there was no reason whatsoever why Ps should wait until the final determination of the HCMP 1285/2015 Summons before it was allowed to receive its costs in relation to the OS.  Also, Mr Kam said the reality was that much of the work was in fact done twice and that little work already done was used again.

54. When Mr Kam made the above submissions, the Court of Appeal had not yet handed down its judgment in HCMP 1285/2015.  As I have mentioned earlier, the Court of Appeal’s judgment was handed down about 3 days after the hearing before this court.  The HCMP 1285/2015 Summons had been dismissed and D3 had been ordered by the Court of Appeal to pay Ps’ costs of the HCMP 1285/2015 Summons, such costs to be taxed, and on party and party basis.

55. Mr Kam had pointed out that Ps’ legal team had already spent time on (1) perusing the papers (2) translating the Transcript (3) researching the law (on, for example, filing appeals out of time and the admission of new evidence) (4) considering the merits of the application (5) instructing counsel to locate the authority referred to at the Hearing (6) conducting numerous meetings with their legal team and (7) drafting an affirmation in opposition.

56. In light of the Court of Appeal having already handed down its judgment and made an order for taxation of costs, in my view, at the time of taxation of costs for the HCMP 1285/2015 Summons, there would be an opportunity for D3 to raise the issue on whether there had been any duplication of work or whether any work had already charged.

57. In any event, in light of the Court of Appeal having ordered that costs to be taxed, I am of the view that the costs of the OS and the Withdrawal Summons in these proceedings should also be taxed rather than summarily assessed, but on indemnity basis.  I am also of the view that if practicable, that the taxation to take place at the same time as the taxation of the HCMP 1285/2015 Summons, or immediately prior thereto, or thereafter, before the same taxing master.

Conclusion

58. In light of what I have said above, my order is thus:

(i)  D3 shall pay Ps the costs of the originating summons issued in these proceedings on 12 May 2015 and also the costs of the summons issued on 26 May 2015, including the hearing before this court on costs on 19 August 2015, with certificate for counsel;

(ii)  Such costs shall be taxed on an indemnity basis, and I direct that, if practicable, the taxation to take place at the same time as the taxation of the HCMP 1285/2015 Summons, or immediately prior thereto or thereafter, before the same taxing master.

 

 

[1] See B:77-1 to 77-69

[2] B:31-77

[3] B:78, B:79

[4] B:80-81

[5] B:84-85

[6] B:82

[7] B:90-91

[8] At 1334E-1335D in Choy Yee Chun, and 182G-183C in Overseas Trust Bank Ltd

[9] See Holding (3), at pg 115

[10] At para 13

[11] Time expired on 28 September 2014 due to the court vacation

[12] At para 62, B:77-18

[13] See para 10, B:21