JOHN ROBERT LEES and TSUI CHI CHIU, the Joint and Several Liquidators of GMF FINANCE LTD (in Creditors’ Voluntary Liquidation) v. CLOUTIER GUY EVON AND ANOTHER

CACV 84/2018

[2019] HKCA 607

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 84 OF 2018

(ON APPEAL FROM HCMP NO 3079 OF 2016)

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DECISION ON COSTS

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Hon G Lam J (giving the judgment of the Court):

1.  At the end of our judgment dated 22 January 2019 [2019] HKCA 105, we made an order nisi that there be no order as to the costs of the appeal before us, and that the costs orders below are to be left intact (subject to correcting certain inadvertent errors in those orders). The Master and the Deputy Judge had ordered the defendants to pay the costs of the plaintiffs on an indemnity basis. By summons dated 1 February 2019, the defendants have applied to us for a variation of the order nisi, in relation to costs below, so that the defendants need only pay the costs of the plaintiffs on the party and party basis instead of the indemnity basis.

2.  It appears that the courts below ordered indemnity costs because of the indemnity provisions in the Facility Letter and the Second Legal Charge, which in essence stipulate that the defendants shall reimburse GMF the expenses incurred in the recovery of any amounts due from the defendants.

3.  As Ms Mandy Yau submits on behalf of the defendants, such provisions do not fetter the court’s discretion as to costs. While in an ordinary case the contractual provision may provide the starting point of the discretionary exercise (see Bank of China (Hong Kong) Ltd v Twin Profit Ltd (2012) 15 HKCFAR 560, §21), in the present case the contract has been found unenforceable by virtue of s 18(1) of the Money Lenders Ordinance (Cap 163) subject to the court’s power to allow enforcement under s 18(3) to such extent and subject to such modifications as the court considers equitable.[1]

4.  Ms Yau relies on the fact that the Facility Letter had been found to contain irregularities and to have failed to comply with ss 18 and 27 of the Ordinance.  Reliance is also placed on the following finding in our judgment at §31:

“ GMF had deliberately structured the transaction in such a way that not only were fees and charges imposed in breach of s 27(1) and 3 instalments were in fact retained by GMF contrary to the Repayment Schedule, but also that the Memorandum prepared for the purpose of complying with s 18, which, as GMF knew, did not reflect the entire agreement between the parties, inevitably became incorrect.”

5.  The Deputy Judge had made criticisms of the originating summons and the supporting affirmations as being inaccurate.[2]  In our judgment, we also drew attention to the fact that the plaintiffs sought to recover a loan of $5,000,000 with interest at 19.192% p.a. and only made concessions when it became clear the defendants only received $4,754,252.05 upon drawdown.[3]  Moreover, as pointed out in paragraphs 26‑27 of our judgment, even the final position of the plaintiff, as adopted in the 3^rd affirmation of Tsui Chi Chiu and counsel’s skeleton arguments used below, was erroneous.  The overall sums found payable by the defendants as a result of our judgment are lower than the amounts ordered by the Master or the Deputy Judge.  These are, in our view, weighty reasons in support of the defendants’ position.

6.  On behalf of the plaintiffs Ms Connie Lee submits that none of these circumstances comes close to an exceptional case where costs were incurred as a result of improper, unreasonable or negligent conduct on the part of the plaintiffs or where there was any proof of unconscionability.  This may be readily accepted, but it does not make it inequitable not to give indemnity costs to the plaintiffs.  There is no suggestion of any improper conduct on the part of the defendants either in the transaction or the subsequent litigation.

7.  The plaintiffs also point out that the defendants never offered to repay the principal amount or any interest on the loan or any part thereof, so that the plaintiffs had no choice but to commence proceedings.  Further, the defendants had raised arguments which did not succeed, and the precise error in the rate of 18.1% p.a. adopted by the plaintiffs as found by this court was not raised by the defendants.  These matters are, in our view, reasons justifying an award of costs below in favour of the plaintiffs, which the defendants have indeed conceded, but not justification for the indemnity basis.

8.  The plaintiffs are correct to say that this court did not criticise the Liquidators personally for their conduct of the proceedings, but the absence of such criticism is not sufficient for awarding indemnity costs against the defendants when the contractual indemnity provision relied upon is prima facie unenforceable.

9.  Finally, Ms Lee referred to an offer by the plaintiffs dated 31 January 2019 to take a specified sum in full satisfaction of the costs below.  There was however nothing offered to lower the basis on which such costs were to be assessed.  We do not see the relevance of that offer for present purposes.

10.  For the above reasons, we would order a variation that the defendants do pay the plaintiffs the costs below on the party and party basis, to be taxed if not agreed.

11.  The plaintiffs are to pay the costs of this application for variation, which we assess summarily in the sum of $85,192.