LAM YIN KWAN AND OTHERS v. DANNY HOR YAT FUNG AND ANOTHER

HCA1633/2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1633 OF 2007

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BETWEEN

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RULING ON COSTS

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1.  After trial on the hearing of the issue of liability only, I found for the plaintiff and gave judgment to the plaintiff against the defendant on the issue of liability with damages to be assessed. That judgment was in written form dated 3 June 2011.

2.  In that judgment, I made the usual costs order nisi that the defendants pay the plaintiffs the costs of the plaintiffs’ claim on the issue of liability including the trial on liability to be taxed if not agreed.

3.  The plaintiffs now apply to vary that costs order nisi to the extent that the costs awarded to the plaintiffs in respect of the trial on the issue of liability be taxed on an indemnity basis (alternatively on common fund basis) if not agreed.

Basis for asking for indemnity/common fund costs

4.  The plaintiffs put forward 4 factors as being the basis upon which they seek to ask for indemnity costs, alternatively common fund costs:

(1)  the 1^st defendant fabricated a bogus defence and attempted to make good such defence by knowingly giving dishonest evidence at trial, but which was contradicted by contemporaneous events and documents;

(2)  in the original Defence dated 8 May 2008, the defendants failed to particularize any specific facts to support their allegation that the oral Agreement upon which the plaintiffs’ claim was based had not been reached.  Such particulars only emerged later in the Amended Defence dated 29 September 2009, being an attempt to fabricate unmeritorious allegations to boost up the defendants’ case;

(3)  the defendants deliberately decided not to adduce relevant witnesses who would have been available to give evidence to substantiate their alleged case and an adverse inference that they were trying to hide the truth from the court should be drawn against the defendants; and

(4)  the defendants had chosen a most unreasonable way to escape from the oral Agreement reached between them by misusing the Companies Court in HCCW286/2007 to present a petition to wind up Meda.

Decision

5.  There is no dispute between the parties that the court has a broad discretionary power to direct the taxation of the receiving party’s costs on a basis which the court considers to be appropriate to the case, including on a party and party basis or on an indemnity basis.

6.  In this respect, it is the conduct of the parties which would largely be the determining factor for the court to look at when coming to a decision.

7.  In assessing the conduct of the parties, considerations include:

(a)  whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b)  the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c)  whether a claimant has succeeded in his claim, in whole or in part, or whether he has exaggerated his claim; and

(d)  the conduct before, as well as during the proceeding, will be material.

8.  The first three factors relied on by the plaintiffs are really different ways of saying the same thing, namely, that the defendants (in particular the 1^st defendant) had attempted fabricate evidence and had been dishonest with the court in his evidence in an attempt to make good his bogus defence which was ultimately rejected by the court.

9.  This is wholly encapsulated in my written judgment in this matter at paragraph 100 wherein I said:

“100. I found the 1^st defendant to be not only an unreliable witness, but also a dishonest witness so much so that I reject not only the explanation given by the 1^st defendant in his attempt to explain away why he sent those emails to his client in which it was clearly stated by him that a decision had been reached to split the Meda Group in the way stated therein, but also reject all his evidence where they conflict with the evidence given by the 1^st and 2^nd plaintiffs.”

10.  However, taken in isolation, that in itself will not necessarily warrant an order for costs to be taxed on a more generous scale than that of party and party.  That this is so had been recognized and stated by Stock J (as he then was) in the case of Choy Yee Chun v Bond Star Development [1997] HKLRD 327 where Stock J said at page 1336:

“Of course there will in most litigation be evidence which a court rejects, and it is far from rare that a court will find that evidence has been deliberately untruthful. Such a finding will not necessarily in itself warrant an order for costs upon either of the bases alternative to party and party taxation. But there will be cases – and it is true that they will be the exception and not the rule – where the conduct of a party in a case is of a more venal kind, where the conduct of the litigation has in some sense been wicked, and in such a situation the exceptional power can quite properly be applied.”

11.  As for the fourth factor relied on by the plaintiffs, it was submitted by counsel for the defendants that it was a right of the defendants, as the minority shareholder, to wind up Meda on the grounds of oppressiveness.

12.  That argument misses the point entirely. 

13.  The point made by the plaintiffs is to the effect that having agreed orally to the splitting up of the Meda Group, the conduct of the defendants in using or misusing the judicial process to wind up Meda in order for the defendants to wriggle out of the oral agreement for the splitting up of the Meda Group is conduct of the kind which the court should express its disapproval by an appropriate cost order.

14.  It was that conduct of the defendants which forced the plaintiffs to bring this action for breach of the oral agreement by the defendants.  And it was that conduct of the defendants coupled with the manner in which the 1^st defendant went about defending the case brought by the plaintiffs upon the oral agreement (i.e. factors one, two and three) which warrants a costs order beyond that of party and party costs.

15.  I have no difficulty accepting that submission by the plaintiffs on the basis that it is the conglomerate effect of all four factors which would make it appropriate in the special circumstances of this case to award cost on a more generous scale than party and party costs.

16.  However, in coming to a decision as to whether the costs order ought to be varied to common fund costs or to indemnity costs, I should also take into consideration that throughout the negotiations between the parties which took place between 4 and 22 May 2007 culminating in the final agreement on 22 May 2007 to split the Meda Group in the manner alleged by the plaintiffs, nothing was put into writing and/or signed by the parties thereto to evidence the various steps of what had been agreed between them.  These negotiations and agreements were effectively commercial decisions arrived at between businessmen.

17.  Had such decisions between the parties, as and when they were made, been reduced into written form and signed by all concerned, it would have made it less easy for the defendants in their attempt to wriggle out of such agreement.  That is generally the effect of written agreements and/or contracts.  In so saying, I am not even alluding to formal written agreements, but rather hand-written notes of what has been agreed as and when agreed by the parties and acknowledged by them in one form or another as being agreed between them.

18.  Here that was not done.  While the reason for that may well be that the plaintiffs trusted the 1^st defendant to be a man of his word, this case has shown such trust to be misplaced.  More importantly, the lack of documentary evidence to prove the agreement reached between the parties has made the litigation to be longer (by having to prove the oral agreement by way of oral evidence) and therefore incurring more legal costs and expenses.

19.  Had the agreement between the parties for the splitting up of the Meda Group been evidenced in writing and that the defence put up still resulted in a full blown trial, I would have had no hesitation in ordering indemnity costs.

20.  Taking into account this lack of documentary evidence of what had been agreed between the parties during their negotiations, I am of the view that the proper costs order in this case is to vary the cost order nisi to order that the costs awarded to the plaintiffs are to be taxed on common fund basis if not agreed, rather than on an indemnity basis.

21.  Accordingly, the costs order nisi will be varied only to that extent.

22.  The costs of this application to vary will also be to the plaintiffs to be borne by the defendants on the same basis, namely to be taxed on common fund if scale not agreed.