LEE SAI NAM v. LI SHU CHUNG AND ANOTHER

HCA 1711/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 1711 OF 2009

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D E C I S I O N

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1.  On 9 December 2015, I handed down judgment after a 20-day trial in the present case (“the Judgment”). The same definitions and abbreviations in the Judgment are adopted here. I found in favour of the Father, Seline and Yuen Hing on liability. Failing on that front, Ken’s counterclaim lost its footing and was dismissed. I made a nisi order that the Father shall have its costs of the action, including those of defending the counterclaim against him; and Seline and Yuen Hing shall have their respective costs of defending the counterclaim. Costs include those that have been reserved, and shall be taxed, if not agreed. The parties had 14 days to apply to vary the nisi order, and in that event, the matter might be disposed of by way of paper ruling.

2.  On 22 December 2015, the successful parties filed their respective summonses for variation of the nisi costs order.  Upon consultation with the parties, I gave directions for the lodging of written submissions and paper disposal of the applications.  The last submission was lodged in February 2016.

3.  By their respective summonses, the Father, Seline and Yuen Hing ask that the costs awarded nisi to them respectively to be taxed on indemnity basis.  The Father and Seline also ask for certificate for 3, or alternatively, 2 counsel representing them.

INDEMNITY COSTS

4.  O.62, r.28(3) of the Rules of the High Court provides that the court may direct costs awarded to be taxed on the common fund or indemnity basis.  In order to obtain such order, the receiving party should show that the case has some special or unusual features.  The classic case is the presence of ulterior motive or underhand conduct on the part of the paying party.  It may be that the proceedings were scandalous or vexatious, or initiated or prosecuted maliciously or for an ulterior motive or in an oppressive manner or in such circumstances as to constitute an affront to the court: see Overseas Trust Bank Ltd v Coopers & Lybrand (a firm) & Peat Marwick, Mitchell & Co (a firm) & Anor (third parties) [1991] 1 HKLR 177 at 133E-F.

5.  Litigants who conducted 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: see Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at 1335 (citing Sung Poo Kee Ltd v Pak Lik Co [1996] 3 HKC 570 at 575).

6.  However, the circumstances in which such an order may be made are not defined or confined. The discretion is not to be fettered or circumscribed beyond the requirement that such an order must be appropriate: see Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114 at §§12-17[1].  What constitute appropriate circumstances in this context is fact-sensitive.  The conduct of the paying party is cogently relevant.  This could be where the proceedings in question should never have been brought or defended but the party nevertheless unreasonably and unjustifiably persisted: see Huge Dragon Corp Ltd v Lung Mun Oasis (IO) [2014] 3 HKLRD 286 at §13, or where the losing party continued to pursue a misconceived claim without objectivity, and it was called into question whether this was motivated by personal grudge against the successful party and thus an abuse of process: see Wu Mei Sam v Pui Ying Middle School of Hong Kong [2015] 4 HKLRD 864[2] at §§21-23.

7.  It was submitted on behalf of the Father, Seline and Yuen Hing that Ken’s conduct of his case was disproportionate and oppressive so as to warrant sanction by indemnity costs.  On behalf of Yuen Hing, it was submitted that it could fairly be concluded that Ken’s counterclaim and his conduct of it involved his possible pursuit of economic gain at the expense of the other family members and personal grudge against them, which was much more than merely consequential upon the Father’s claim against him.  Such was misuse of legal proceedings, which should attract the court’s signal of it displeasure by indemnity costs order against him.

8.  The Father’s side highlighted features which, they said, reflected poorly on Ken’s case and his conduct of it, if not themselves signs of abuse.  I summarise a few below:

(1)  Ken came up with the alleged oral profits sharing agreements only by way of belated amendment to the pleading.  Further allegations in that respect beyond the pleading were still made at the trial.  The assertions were eventually rejected as being incredible.

(2)  Both the Father’s side and Ken’s side had amended their respective pleadings several times.  But those by Ken were inexplicable and failed to stand the test of trial.  The rounds of substantial changes in his case, including withdrawal of admission, and the attribution of those changes to the alleged multiple failure of his former legal representatives were rejected as wholly incredible.

(3)  Ken called some witnesses, whose pretence of neutrality and independence from Ken was far from truthful.  That was exposed only during the trial, and their evidence duly not preferred.

(4)  The introduction of the evidence of Mazars was futile.  The evidence per se could not prove the existence of the alleged oral profits sharing and distribution agreements.  The witnesses from Mazars also reinforced the discretionary nature of the Father’s distributions of the profits.  As far as what the entries in the ledgers meant, the evidence of Mazars’ interpretation, as a third party, could not override what the Father, as the maker, meant (though objectively assessed).

(5)  The past calculations and distributions of profits recorded by the Father in the ledgers as studied by Mazars was deployed to work out the various alleged profits sharing and distribution formulae by way of reverse engineering.  The evidence was clear that Ken never informed Mazars of the alleged agreements.  The exercise turned out to be futile even for his purpose.  The exposure of the mistakes in his formalae was testament.  The introduction of evidence on the basis of such forensic exercise only served to prolong the trial and to escalate costs.

(6)  The reliability of the alleged minutes of the family held on 31 October 2008 and the secret tape-recording of the meeting between Ken and the Father in December 2008 as the self-serving evidence of the alleged admission by the family members and the Father was rejected.  Those were consecutively engineered by Ken, including taking advantage of the aged father who was known to him to be suffering bilateral impaired hearing ability.

(7)  Misconceived contentions and arguments were raised.  Arguments such as the admissibility of evidence (as per the witness statements on the Father’s side) with reference to the presumption of advancement were dismissed as being misconceived.   The contention of the illegality of the Luen Tat trust arrangement in the 1980s was never pleaded and was dismissed.

(8)  Since the previous adverse findings in respect of Ken’s alleged entitlement to PTTC as well as Pak Tat by the Companies Court[3], the renewed attempt with adjusted factual contentions in the same respect in the present case was again ruled against Ken.

(9)  Despite the court’s previous rulings against him in his application for discovery prior to the trial, Ken repeatedly criticised the Father’s side for failure to make discovery; and even attempted to make voluminous discovery on the 11^th day of the trial.  The attempt was rejected.

(10)  The contention that the Father, Seline, Richard and Yuen Hing were liable to account for substantial overpayment of profits by Luen Tat was not a pleaded claim.  Nor was Richard was even a party to the pleaded counterclaim.  Any cause of action as alleged would have belonged to Luen Tat.  Such assertions should not have been raised during the trial.

(11)  By her 6^th affirmation dated 23 December 2015, Seline gave an account and produced documentary evidence of telephone messages and letters to the Father, which were said to be harassing, berating and threatening him in relation to the continuation of the present case.

9.  On behalf of Ken, it was submitted that there was no finding of actual dishonesty on his part.  As mentioned, the circumstances warranting the consideration of indemnity costs are not defined or confined.  The discretion of the court is not be fettered by whether such factual finding must exist.  Having said that, I still need to find the affront or abuse of process, over and above the preference of a party’s case to the other or the dismissal of a case for being (wholly) incredible on the evidence, before the circumstances could be said to afford as appropriate and warrant an indemnity costs order.

10.  The starting point is that substantial part of the dispute in the present case rested upon the evaluation of the oral evidence from the two sides of the dispute in respect of events over years.  As apparent from the Judgment, the case and how it was put forward, including the pleadings, formed part of the consideration of the relative credibility of the parties’ respective case.  The analysis as set out in the Judgment did not suggest observations over and beyond similar exercise in any given case.

11.  I say the same in respect of the assessment of the credibility of the witnesses for Ken.  The alleged minutes of the family meeting dated 31 October 2008 was rejected, because it was considered unreliable for the reasons set out in the Judgment. The secret tape-recording of the conversation between Ken and the Father may be questionable morally.  But the reality was that it was not a concocted piece of evidence.  The dispute lied in what were said, which, as explained in the Judgment, could not be better judged except by the court listening to it.  This I did, and made the relevant finding adverse to Ken as a result.

12.  The evidence from Mazars was substantial, and they proved to be futile for Ken’s purpose for reasons as explained in the Judgment.  However, it came to exist as contemporaneous evidence of verification of the calculations in the Father’s ledgers prior to litigation.  Ken was criticised for “reverse engineering” in that he put those formulae forward as the alleged agreements.  But the fact was that he asserted the alleged oral profits sharing agreement in any event, and, as held, the evidence from Mazars did not serve to prove that assertion.  That Ken lost on his reliance on such evidence, including the mistakes he made in the formulae, were part and parcel of the consideration of the evidence in assessing the relative credibility of the parties in this respect.

13.  As to certain conduct of the trial on the part of Ken, his attempt to adduce further documentary evidence on the 11^th day of the trial was disposed of on the spot with costs reserved.  The costs order made at the end included that against him.  The advance of arguments in respect of legal presumptions, illegality (without proper pleading) and the purported claim against the Father’s side including Richard, who was not a party to the counterclaim, were no doubt dismissed.  But I would be slow to conclude that they, and the consequential escalation of costs, were so out of proportion as to constitute affront to the court or abuse of process.

14.  As to the dispute in respect of Pak Tat, it should be noted that I proceeded to consider the factual allegations of Ken, and ruled against him without adjudicating on the contention whether it was an abuse of process (res judicata).  The finding on the basis of the allegations and evidence in this respect was again the result of assessment of the relative credibility of the parties, like any given case.

15.  The affirmation of Seline referred to was dated after the Judgment has been handed down.  That further evidence would be adduced for the present purpose was not actually indicated even during the court’s consultation with the parties on the directions necessary for the paper disposal.  It is in my view not legitimate or fair to take that into account like this for the present purpose.

16.  All considered, including those features highlighted by the Father’s side, I would still refrain from finding the necessary affront and abuse to take this case out of the cases of ordinary hostility or conflicting assertions and contentions that would have warranted an indemnity costs order.

CERTIFICATE FOR COUNSEL

17.  This is between the Father and Seline on one side and Ken and Joseph on the other. Both sides were represented by leading counsel.  Ken and Joseph did not oppose certificate for 2 counsel for the Father and Seline.  The only real question is whether their engagement of 3 counsel should be certified.  Mr William Wong and Mr Kwong have been instructed and handling the present action (and some, if not all, related actions).  Mr Wong Yan Lung, leading counsel for the Father and Seline, was engaged for the trial.

18.  Reference was made to the significance of the present trial (to the litigants and the other related litigations), the value at stake and the extensiveness of the factual dispute.  They are relevant.  The parties also engaged themselves in the exercise of comparing the aggregate years of experience of the counsel team acting for the respective sides.  This is not helpful, as the concern in that case should have been the choice of counsel (at early stage) instead of an exercise of topping up in terms of aggregate years of experience.

19.  All considered, with no disrespect, I am not persuaded to certify the engagement of 3 counsel for the Father and Seline.  This in no way reflects any reservation at all about the most able assistance received by this court throughout the trial or compromises the court’s gratitude for that.

VARIATIONS SOUGHT BY KEN AND JOSEPH

20.  The request by Ken and Joseph for variation of the nisi costs order was made in the absence of a cross application but was included in their submissions in opposition of the applications by the Father, Seline and Yuen Hing.  How this was considered possible or appropriate defies understanding.  With respect, I agree with what Stone J said in UDL Holdings Limited & Anor v Leung Yuet Keung & Anor, HCA 4409/2002 (19 January 2009):

“45. As I understand the situation, notwithstanding the date of the judgment containing the order nisi......, no move whatever was made by the successful defendants to vary this order nisi until the plaintiffs themselves sought a variation.

46. Whilst the matter has not been expressed thus, the defendants’ underlying assumption is that by means of the plaintiffs’ application so to vary, the plaintiffs thereby have rendered the costs issue at large, with the result that there is no necessity to ask for an extension of the 21 day period as prescribed for a variation application, nor indeed to proffer any explanation for the delay, and that the defendants thereby are entitled to put forward their own plea for a variation.

47. With respect, I consider that this approach is neither permissible nor appropriate.

48. It seems to me that in principle an application to vary a costs’ order nisi is ‘party-specific’, by which I mean that, absent any cross-application within the prescribed period by the opposing party in whatever terms may be considered appropriate, the approach of the respondent to any variation application as properly constituted is confined to resisting the application and to upholding the order nisi as originally made, and I fail to see why the fact of a variation application by one party in effect gives the opposing party carte blanche to make its own distinct and substantively different variation application out of time.

49. Of course, it remains open to the party which is out of time to seek leave to extend time to make such variation application, but no effort has been made to do this in this case, and for my part I wish to give the lie to the apparent idea that a cross-application simply can be ‘tacked on’, as of right, to a properly-constituted application. In my judgment it cannot. And in the current instance the court has been given no material upon which to exercise any discretion to extend time, even had it been asked to do so, which it has not.

50. Thus I am unable to agree with the contended effect of the defendants’ reliance, as outlined in its ‘Addendum to Defendants’ Submissions’, upon the terms of Order 42, rule 5B(6), which provides that “Where a written decision is given pursuant to this rule the Court may make therein an order nisi as to costs and, unless an application has been made to vary that order, that order shall become absolute 14 days after the decision is pronounced”, and the corresponding assertion, following upon citation of that Order, that “the order nisi has not become absolute due to the plaintiffs’ application to vary and therefore can be considered by the court afresh”.

51. The short point, it seems to me, is that the order nisi indeed can be reconsidered by the court, upon appropriate application within time, in terms of the variation proposed, but only in terms of that proposed variation, and that if and in so far as the opposing party wishes to canvass its own variation, for the reasons adumbrated in any specific application, the court can and will consider that variation also; however, as earlier indicated, what in my view it does not do is effectively to throw the entire issue costs’ issue open to general and unrestricted debate, and thereby relieve the opposing party from responsibility for the proper formulation, within time, of its own proposed variation.

52. Accordingly, if this view be correct, this ruling leaves the defendants’ application out of time and out of court for a variation in terms of the appropriate scale of the original costs’ order, and the application thus is rejected on this basis alone.

……”

21.  In the present case, I consciously made a nisi order as to costs instead of leaving the issue of costs at large and inviting the parties to make submissions[4].  It would therefore be for the parties to apply for variation of the nisi order, if they desire.  There was no indication whatsoever by Ken or Joseph of any intention to seek to vary the nisi costs order.  That was so even in the correspondence upon this court’s consultation with them on the directions for paper disposal as envisaged by the Judgment[5]. When they finally came to decide to seek to vary the nisi costs order, they still cared not to take out any application, let alone one for extension of time.  In the circumstances, what they may legitimately do is to respond to the applications by the Father, Seline and Yuen Hing and no more.

22.  In any event, the request for variation by Ken and Joseph, even if considered, would not have been acceded to.

23.  As far as Ken is concerned, it was argued that Yuen Hing ought not to have been represented separately because it was controlled by the Father and Seline, and they ran the same line of defence to the counterclaim.  Unlike issue as to authority, justification for separate legal representation may be raised as relevant to the issue of costs when the issue is under consideration.  It matters not whether it has been raised before.  However it is not immediately apparent that separate legal representation of a corporate body and its controlling shareholders or directors, being separate entities, in the present case was unreasonable.  That counsel for Yuen Hing essentially adopted the cross examination by counsel for the Father and Seline at the trial, as a considered approach in conduct of the trial, is not to be faulted.

24.  As far as Joseph is concerned, it was argued that he was but a nominal defendant.  As pleaded by him and observed by this court[6], there was no suggestion that Joseph was involved in the family business and dispute other than being the holder of shares in Luen Tat transferred by Ken in 2009.  The Father joined Joseph as a defendant because he was a necessary party for the purpose of the relief sought in respect of the shares in Luen Tat.

25.  However Joseph did not therefore become a nominal defendant as now described.  The fact was that Joseph never indicated a neutral stance whereby he would abide by any order of the court upon adjudication of the contest between the Father’s side and Ken.  Represented by the same legal team acting for Ken, Joseph put forward his defence putting the Father to proof of the claim in the original action.  He put in his witness statement testifying to his knowledge and belief that the shares in questions were owned by Ken.  The Father was required to prove their case against Ken as much as against Joseph.  The suggestion of no order as to costs between the Father and Joseph effectively means the former would be deprived of his costs of successfully proving the case against Joseph.  This cannot be right in principle, however much the costs incurred against Joseph were subsumed in the costs against Ken.

26.  The background and extent of Joseph’s involvement in this litigation may well justify the consideration of ordering the costs of the Father’s side against him to be borne by Ken.  However, this differs from what Ken and Joseph are seeking.  Nor is this sought by the Father’s side.

ORDER

27.  The nisi costs order dated 9 December 2015 is varied so that there is certificate for 2 counsel for the Father and Seline; and subject to that, the nisi order is hereby made absolute.

28.  The above event reflects no real success in the controversial aspects of the applications by the Father and Seline or Yuen Hing.  I therefore order that Ken and Joseph do have the costs of and occasioned by these applications, to be taxed, if not agreed.  This costs order is nisi and shall become absolute in the absence of application in 14 days.