ZPMC OFFSHORE SERVICE CO LTD (Formerly known as SHANGHAI ZHENHUA HEAVY INDUSTRIES SHIPPING CO LTD) v. PHILIP JEFFREY ADKINS RBF HK LTD AND OTHERS

HCMP 426/2017

[2022] HKCFI 2903

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 426 OF 2017

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D E C I S I O N

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A.   Introduction

1.  This hearing is an aftermath of the Order of Mr Justice Harris on 17 September 2021 striking out the Applicant’s Originating Summons filed on 24 February 2017.  The learned judge also made an order nisi that the Applicant pay the 1^st Respondent’s costs of the summons for striking out with a certificate for two counsel, such costs to be taxed forthwith if not agreed (the “Strike-out Costs Order”).

2.  Neither parties applied to vary.  The Strike-out Costs Order became absolute.

3.  On 31 December 2021, the 1^st and 2^nd Respondents by summons (the “Discontinuance Summons”) applied for leave to discontinue their Counterclaim dated 25 May 2018 against the Applicant and asked the Applicant to pay their costs of the proceedings^[1] (including the Counterclaim) and this application, such costs to be taxed forthwith if not agreed.

4.  The Applicant does not oppose the 1^st and 2^nd Respondents’ application for leave to discontinue their Counterclaim.  However, it strongly objects to the costs application, and asks the Court to dismiss it with costs.

B.   Procedural Background

5.  This is a boardroom dispute.  On 14 February 2017, the board of the 4^th Respondent (the “Company”) passed in a meeting certain board resolutions, one of which was terminating the employment of Mr Philip Jeffrey Adkins, the 1^st Respondent (“Mr Adkins”) as Chief Executive Officer of the Company with immediate effect (the “Disputed Resolutions”).

6.  On 24 February 2017, the Applicant (“ZPMC”) issued the Originating Summons in these proceedings seeking among other things declarations that the board meeting was a valid meeting and the Disputed Resolutions were valid and effective, and injunctions against Mr Adkins and 2^nd Respondent (“RBF”) prohibiting them from holding Mr Adkins out as the Company’s Chief Executive Officer and restraining Mr Adkins from being involved in the day-to-day management of the Company and its subsidiaries.  On the same day (24 February 2017), ZPMC obtained interlocutory injunctions ex parte (the “Injunctions”) from Mr Justice Louis Chan, which were continued by Mr Justice Harris without opposition on 3 March 2017 and 11 April 2018.

7.  On 18 April 2018, Mr Justice Harris ordered that the proceedings continue as if commenced by writ.

8.  On 27 April 2018, ZPMC filed its Statement of Claim, in which the Applicant essentially claimed for the same reliefs in the Originating Summons.

9.  On 25 May 2018, Mr Adkins and RBF filed their Defence and Counterclaim.  In the Counterclaim, they repeated the Defence and seek, among other things, a declaration that the Disputed Resolutions were void and an injunction to restrain ZPMC from proceeding with or performing the Disputed Resolutions.

10.  On 19 June 2018, ZPMC filed its Reply and Defence to Counterclaim.  In the Defence to Counterclaim, ZPMC repeats its Statements of Claim and Defence.

11.  On 27 June 2018, ZPMC applied for summary judgment against Mr Adkins and RBF.  As can be seen from paragraph 6 of Mr Justice Harris’ O.14 Decision on this application (see the following paragraph), the main ground of the application is RBF, being a shareholder as no right qua shareholder to challenge a decision of the board of the Company.

12.  On 12 October 2018, Mr Justice Harris dismissed the summary judgment application.  In his Decision (“O.14 Decision”), His Lordship remarked as follows:

“7. It seems to me that there is a triable issue in respect of the majority directors' motives in passing the resolution and whether they acted in accordance with their fiduciary duty to act bona fide in the best interests of the Company. The material issue is whether or not this is relevant. Mr Zimmern argued that it is not principally because RBF could not as a shareholder challenge the controversial resolutions and obtain the declarations, which are the converse of those sought by the Plaintiff, pleaded in its Counterclaim. However, this overlooks the fact that RBF has not commenced proceedings against the Plaintiff seeking orders establishing that the controversial resolutions are invalid and joining the Company as a necessary party. RBF and Mr Adkin are defendants raising the alleged mala fides of the majority directors as a defence to a claim against them. It may be, but I do not have to decide this question, that RBF could not properly issue proceedings seeking the orders that it does in its Counterclaim for the reasons advanced by Mr Zimmern, but it does not follow that having been made defendants to proceedings the purpose of which is to establish whether the controversial resolutions are valid and enforceable that they are prohibited from advancing by way of defence the matters on which they seek to rely. A similar distinction was drawn by DHCJ Au (as he then was) in Hong Kong Century Property Development Ltd v Hui Nei Na. The Plaintiff’s argument amounts to suggesting that RBF has been joined simply so it is bound by the decision and that it is not able to dispute the validity of the controversial resolutions.

8.  It might be suggested, although it was not, that even if RBF and Mr Adkin are able to advance the defences to the Plaintiffs claims pleaded in the Defence they are not able to pursue a counterclaim. This seems to me a rather academic way of looking the matter. Essentially what is sought is the converse of the relief the Plaintiff seeks. Particularly as it was not argued that even if I was of the view that a triable issue had been shown in respect of the issues pleaded in the Defence, the Counterclaim should be struck out, I will not give judgment dismissing the Counterclaim. This is an issue that should be left to trial.”

13.  At that juncture, His Lordship found that there was a triable issue.  As such, and since essentially what was sought in the Counterclaim was the converse of the relief ZPMC sought in the Statement of Claim, his Lordship left the determination of the Counterclaim to trial.

14.  On 9 June 2020, RBF and Mr Adkins issued a Summons applying for discharge of the Injunctions (the “Discharge Summons”).

15.  On 24 August 2020, Mr Justice Harris granted leave for ZPMC to apply for an order of committal in respect of Mr Adkins' alleged breach of the Injunctions.  Contempt proceedings ensued under HCMP 1124/2020.

16.  On 4 September 2020, the Company started a new action (“HCA 1510/2020”) against Mr Adkins, RBF and another for, among others, breach of duties and knowing receipt.  According to the Amended Statement of Claim dated 28 April 2021 in HCA 1510/2020, the Company’s claim is based on certain alleged misconducts^[2] of Mr Adkins, culminating in the Disputed Resolutions^[3].  In his Defence dated 14 January 2022, Mr Adkins denied, among other things, that he had committed any misconduct, that his employment was properly or validly terminated, and pleaded that the Disputed Resolutions were invalid^[4].  These issues seemingly overlap with the issues in the present proceedings as described above.

17.  On 4 February 2021, in the present proceedings, RBF and Mr Adkins took out a Summons for, among others, striking out of the Originating Summons and the Statement of Claim and setting aside the Injunctions (the “Strike-out Summons”).

18.  On 3 March 2021, in the contempt proceedings (HCMP 1124/2020), Mr Adkins took out a Summons for setting aside of Mr Justice Harris J's order giving ZPMC leave to commence the contempt proceedings (the “Leave for Contempt Summons”).

19.  On 25 August 2021, the Discharge Summons, the Strike-out Summons and the Leave for Contempt Summons, all issued by RBF and/or Mr Adkins, were heard together before Mr Justice Harris.

20.  His Lordship dealt with the Strike-out Summons first.  On 26 August 2021, after hearing the parties, His Lordship struck out the present proceedings (what he defined as “426” in paragraph 1 of the Decision) and discharged the Injunctions.  Having done so, the learned judge concluded that the leave to issue the contempt proceedings should be set aside and the Originating Summons in HCMP 1124/2020 dismissed.

21.  On 17 September 2021, His Lordship handed down the reasons for the orders he made on 26 August 2021 (the “Strike-out Decision”).

22.  In the Strike-out Decision, the present proceedings were struck out and the Injunctions discharged, primary for the reason that the lack of plea in the Statement of Claim by ZPMC to justify why it was necessary for ZPMC qua member of the Company to commence these proceedings in the place of the Company.  The wrongs of which ZPMC complained were clearly done to the Company.  ZPMC, who had the majority in the board and could convene a board meeting to pass the necessary resolution, could cause the Company to remedy those wrongs on the face of the matter^[5].  ZPMC did not cause the Company to do so but commenced its own action.  ZPMC had to plead the alleged breaches that had affected ZPMC’s interests and how such breaches allegedly affected ZPMC’s interests.  These were matters which justified ZPMC seeking relief in the present proceedings under Division 3 of Part 14 of the Companies Ordinance, Cap 622, of which sections 728 and 729 form part.  ZPMC had failed to do so.  Hence the Statement of Claim is demurrable.^[6]

23.  The Strike-out Decision was concluded with the following paragraph:

“22. Although Mr Adkins's failure to comply with the Order [i.e. the Injunctions] is unsatisfactory and I may have taken a different view if the Order had been obtained properly, in the circumstances I take the view that leave should be set aside and the contempt proceedings discontinued. I will make a costs order nisi in respect of the application to strike out 426 and discharge the Order, that ZPMC pay Mr Adkins’s costs with a certificate for two counsel, such costs to be taxed forthwith if not agreed. So far as the contempt proceedings are concerned I set aside the leave to commence the proceedings and dismiss the originating summons. I will make no order as to costs to reflect what I consider to be Mr Adkins’s failure to respect the Order.” (my emphasis in bold)

24.  It followed then the sealed Order dated 17 September 2021, paragraph 3 of which is the Strike-out Costs Order, as mentioned in paragraph 1 above.

25.  Paragraph 1 of the Discontinuance Summons issued on 31 December 2021 by RBF and Mr Adkins is not contested.  This Court needs to deal with paragraph 2 only, on costs.

C.   The Strike-out Costs Order

26.  Before I deal with the costs issue for the Discontinuance Summons, I should mention several matters concerning the Strike-out Costs Order.  They are relevant to the arguments raised by counsel for both parties.

27.  In the Strike-out Summons, RBF and Mr Adkins asked that “costs of the proceedings and this application be to the 1^st and 2^nd Respondent [i.e. RBF and Mr Adkins]”.

28.  In their Skeleton Submissions for the hearing for, among others, the Strike-Out Summons, on 25 August 2021 (see paragraph 19 above), counsel for RBF and Mr Adkins did not submit anything in substance in respect of costs.  The word “costs” appears only once at the last sentence of the Skeleton Submissions where they said, “For all the reasons above, Mr Adkins/RBF’s applications should be granted with costs”.

29.  Same for ZPMC, in their written Submission for the same hearing, counsel for ZPMC mentioned cost only at the last sentence, where they asked the Court to dismiss, among others, the Strike-out Summons “with costs”.

30.  In the Strike-out Decision, the Strike-out Costs Order was made also at the last paragraph, as set out in paragraph 23 above.  There is no other part of the Strike-out Decision which explain why the Strike-out Costs Order was made or made in such a way.

31.  I have not been informed by counsel for the parties appearing at this hearing that the question of costs was argued at any length during the hearing on 25 and 26 August 2021.

32.  Therefore, it appears that the costs order sought in the Strike-out Summons were not seriously argued before Mr Justice Harris.

33.  Nonetheless, the Strike-out Costs Order was made on nisi basis.  This means both parties were given reasonable opportunity to apply for variation, and as such any clarification could have been sought from the Court and arguments could have been raised before it.

34.  Particularly, RBF and Mr Adkins were entitled to apply to include the costs of the proceedings in the Strike-out Costs Order, in addition to costs of the Strike-out Summons.

35.  Had they done so, RBF and Mr Adkins, Mr Justice Harris would also have had the opportunity to consider and explain why the costs of the proceedings should or should not be given to RBF and Mr Adkins.

36.  Unfortunately, RBF and Mr Adkins did not take the opportunity to apply for variation.

37.  I reject the argument of Mr Victor Joffe SC (with Messrs Justin Ho and John Leung) for RBF and Mr Adkins that there was no costs order nisi in respect of the present proceedings which their client could have applied to vary.  As mentioned in paragraph 27 above, in the Strike-out Summons, in addition to costs of the Strike-out Summons, RBF and Mr Adkins expressly asked for costs of the proceedings.  They asked for such costs but Mr Justice Harris did not give them such costs.  His Lordship only gave them costs of the Strike-out Summons, on nisi basis.  Obviously, they were entitled to apply for variation – to ask His Lordship to add costs of the proceedings to the Strike-out Costs Order.  They have not done so.  The Strike-out Costs Order became absolute 14 days after the Decision according to Order 42, rule 5B(6) of the Rules of the High Court, Cap 4A.

38.  I should remark here that the task of the Court at this hearing is to deal with the costs order asked for by RBF and Mr Adkins in the Discontinuance Summons.  This hearing is not a hearing of appeal against the Strike-out Costs Order.

D.   The Discontinuance Summons – “Costs of the Proceedings (including the Counterclaim)

39.  Two sets of costs are asked for in paragraph 2 of the Discontinuance Summons: costs of “the proceedings (including the Counterclaim)” and costs of “this application”.  I should first deal with costs of “the proceedings (including the Counterclaim)”.

40.  The term costs of “the proceedings (including the Counterclaim)” seems to me to be a little awkward in the first place.  It begs the question whether “the proceedings” include or do not include “costs of the Counterclaim” in the first place.  Perhaps the use of this term is a reflection that the word “proceedings” had been used loosely and imprecisely in the present case.  Sometimes it was used to describe ZPMC’s claim or action only (hence not including the Counterclaim), such as striking out “the proceedings” or “426”^[7].

41.  In the Strike-out Summons, “costs of the proceedings” were asked for.  I did not hear Mr Joffee draw any distinction between “costs of the proceedings” that his clients asked for in that summons and “costs of the proceedings (including the Counterclaim)” here.  But nor was it clear from his submission that he had equated the two.  One thing seems nevertheless clear is at this hearing his clients do ask for both costs of ZPMC’s claim and costs of RBF and Mr Adkins’ counterclaim.

42.  In my view, the word “proceedings” means what it means, i.e. both claim and counterclaim.  So, “costs of proceedings” mean “costs of both claim and counterclaim”.  If only costs of the claim are asked for, then one should simply ask for “costs of the claim”.  Or some qualification should be added, such as costs of the proceedings in relation to the claim, or costs of the proceedings in so far as they are related to the claim.  The same applies to “costs of the counterclaim”. 

43.  Therefore, it is apparent to me that it is an anomaly for RBF and Mr Adkins to ask for “costs of the proceedings” in the Strike-out Summons.  The substantive application in the Strike-out Summons is for striking out of the Originating Summons and the Statement of Claim.  The Counterclaim would not be affected by the result of the strike-out application one way or the other. There was simply no basis for RBF and Mr Adkins to apply for any costs order in relation to the ongoing Counterclaim in the Strike-out Summons.

44.  At the present hearing, in asking for “costs of the proceedings (including counterclaim)”, Mr Joffe submits that this is straightforward, because ZPMC’s action has been struck out by Mr Justice Harris in its entirety, the effect of which is the claim ought never have been bought by ZPMC; and accordingly, costs should follow event, and ZPMC should pay his clients’ costs of these proceedings.  Since the costs of ZPMC’s claim were never dealt with in the Strike-out Costs Order, he submits that this Court has jurisdiction to deal with it now, and it is not an abuse of process for RBF and Mr Adkins to invite the Court to do so.

45.  I do not agree with Mr Joffe’s submissions.

46.  As I explained in paragraph 37 above, notwithstanding that RBF and Mr Adkins expressly asked for costs of the proceedings in the Strike-out Summons, no such costs order was granted.  Particularly after the Strike-out Decision, where they have succeeded in the striking out of the claim in its entirety^[8], they were perfectly entitled to apply to vary the Strike-out Costs Order nisi and seek costs of the claim.  Now the Order has become absolute.  This is the end of the matter, in so far as the claim and its costs are concerned.  I agree with Mr Richard Zimmern for ZPMC that this Court is functus.  I consider this to be the effect of Order 62, rule 3(1) of the Rules of the High Court.  I agree with the view expressed in the last sentence of paragraph 62/1/4 of the Hong Kong Civil Procedure 2022, Volume 1:

“Silence on the question of costs in a final judgment or order, or terms of compromise, is construed as meaning that each party will bear their own costs. On an interlocutory order which is silent as to costs, it has long been the practice to treat such an order as one enabling a successful party to recover them as costs in the cause, if that party succeeds in obtaining an order for his costs of the whole of the proceedings at the conclusion of such proceedings (Lyon v Mercer 57 ER 143; (1823) 1 Sim & St 356, Mentors Ltd v Evans [1912] 3 KB 174). However, this practice is contrary to O.62 r.3(1) which provides that no party to any proceedings shall be entitled to recover any of the costs of those proceedings from any other party to those proceedings except under an order of the court. It would seem therefore that an order silent as to costs would not entitle any party to recover those costs from an opponent as part of his costs of the whole proceedings unless the court so ordered at the conclusion of the proceedings.” (emphasis in bold)

Since the order to strike out the claim also marked the conclusion of the proceedings (in so far as the claim is concerned), the Strike-out Costs Order, which is silent as to costs of the proceedings (in so far as the claim is concerned) would not entitle RBF and Mr Adkins to recover those costs from ZPMC.  Mr Joffe said there is no authority cited in support of the view.  I agree with the learned author of Hong Kong Civil Procedure 2022 that this is the effect of Order 62, rule 3(1).

47.  As also already explained in paragraph 37 above, RBF and Mr Adkins were entitled to apply to vary the Strike-out Costs Order nisi to include the costs of the claim be borne by ZPMC and they did not do so.

48.  The Court of Final Appeal’s Judgment on Costs in Dragon House Investment Ltd v The Secretary for Transport, FACV 13/2004, 12 January 2006, unreported does not assist Mr Joffe’s clients.  In that Judgment, Mr Justice Bokhary PJ explained at paragraph 7 why the Court of Final Appeal were in that scenario not functus:

“Since the parties have not been heard on costs, the judgment's silence on costs cannot be taken to signify anything other than that costs remained to be dealt with by us after submissions from the parties. Since the orders were sealed without notice to the respondents, the sealed orders cannot shut out their right to be heard on costs. Accordingly we are not functus on the question of costs.”

49.  In my view, the key factor is whether the parties have been given a fair opportunity to make submissions on costs.  As is clear from Dragon House, in dismissing the appeals, the parties were not heard on costs and the Court of Final Appeal was silent on the question of costs (paragraph 2).  The Court of Final Appeal did not give any costs order nisi in the judgment.  Unlike the present case, as no costs order nisi was granted, there was no opportunity for either party to apply for variation.  Therefore, Dragon House is distinguishable.

50.  Furthermore, and even if I am held to be wrong above (that this Court is not functus in dealing with an application for costs of the claim), the substantive application in the Discontinuance Summons is to seek leave for RBF and Mr Adkins to discontinue the Counterclaim.  I do not see how this Court should base on the application for discontinuance of the Counterclaim to decide the costs of the claim which has already been struck out.  It is anomalous for this Court to deal with the costs of the claim when it is no longer in place.

51.  As to costs of the Counterclaim, since they were also apparently asked for, as part of the “costs of the proceedings” in the Strike-out Summons, I am inclined to hold that this Court is also functus in dealing with them again.  This holding is supported firstly by the inappropriateness on RBF and Mr Adkins’ part to include costs of the Counterclaim as part of the costs of the proceedings claimed in the Strike-out Summons, creating the anomaly mentioned in paragraph 43 above; and secondly by the failure on RBF and Mr Adkins’ part to apply for variation of the Strike-out Costs Order nisi to include the costs of the proceedings, or indeed more appropriately to seek clarification from the Court to only include the costs of the claim in the Strike-out Costs Order.

52.  If I am also held to be wrong that this Court should deal with the costs of the Counterclaim, or the costs of the proceedings in so far as the Counterclaim is concerned, I would still hold that there should be no order as to costs of the Counterclaim upon its discontinuance.

53.  It has not been decided whether RBF and Mr Adkins would succeed in the Counterclaim against ZPMC.

54.  A counterclaim is treated as a separate action, see Order 15 rule 2(2) of the Rules of the High Court.  In the present case, although the Originating Summons and the Statement of Claim have been struck out, the Counterclaim may be proceeded, see Order 15, rule 2(3).

55.  Whilst RBF and Mr Adkins must file a Defence in response to ZPMC’s Statement of Claim, it is not a must for them to file a Counterclaim. Whether to lodge a counterclaim is a voluntary decision of the defendant/respondent^[9]. Therefore, costs of the counterclaim do not necessarily tie in with the costs of the claim or its result.

56.  While it was said there are many issues in common between HCA 1510/2020 and the Counterclaim, Mr Joffe did not suggest that RBF and Mr Adkins are doomed to succeed in their defence there.

57.  As mentioned in paragraph 12 above, as identified in O.14 Decision, whether RBF, being a shareholder, has the right qua shareholder to challenge a decision of the board of the Company is the difficulty which RBF has to overcome if there is going to be a trial of the Counterclaim.  Substantively, at such trial of the Counterclaim, the Court will also need to examine the majority directors' motives in passing the Disputed Resolutions and those majority directors passing the Disputed Resolutions acted in accordance with their fiduciary duty to act bona fide in the best interests of the Company.  Whilst those issues will now be dealt with in HCA 1510/2020, it is no logic to say that consequently RBF and Mr Adkins should then get the costs of the Counterclaim.

58.  The parties have also, rightly, not asked me to consider or express any view on the merits of those issues.

59.  Equally, it is a non sequitur that as the ZPMC’s claim has been struck out, the costs of the counterclaim should necessarily go to RBF and Mr Adkins.  As explained just then, it is a voluntary decision, rather necessarily a response to ZPMC’s claim, for RBF and Mr Adkins to lodge the Counterclaim.

60.  I would therefore hold that the appropriate costs order (if this Court is not functus) is to make no order of the costs of the Counterclaim.

E.   The Discontinuance Summons – Costs of the Application

61.  I accept Mr Joffe’s submission that good reasons have been shown that their clients should have leave to discontinue the Counterclaim, given most (if not all) issues have been covered by HCA 1510/2020 and ZPMC’s claim has been struck out.  Having battled through years of technical contentions, the parties should really get on with resolution of the real issues in dispute.

62.  Therefore, I accept that the starting point that the party seeking leave to withdraw should bear the costs of the other party has been displaced in this application.

63.  But I do not agree with Mr Joffe that costs of the application for discontinuance should be paid by ZPMC.  In my view, the two points that he advanced for departure of the normal rule (firstly, that RBF and Mr Adkins' Counterclaim in 426 has been rendered academic and redundant; and secondly, that discontinuance of the Counterclaim is by no means an acknowledgement of defeat by RBF and Mr Adkins) can by no means be reasons in support of ordering costs of this application to RBF and Mr Adkins.

64.  In my view, the reasons for holding no order as to the costs of the Counterclaim in paragraphs 51 to 57 above are equally applicable to the costs of the application.

65.  Therefore, there should be no order as to costs of this application.

F.   Disposal

66.  Having considered all the relevant circumstances, for the above reasons, I make the following order:

(1)  Leave be granted to the 1^st and 2^nd Respondents to discontinue their Counterclaim dated 25 May 2018 against the Applicant.

(2)  There be no order as to costs of this application.

67.  I thank counsel for their assistance.