GE QINGFU AND OTHERS v. L & A INTERNATIONAL HOLDINGS LTD AND OTHERS

CACV 11/2019 AND CACV 16 /2019

[2020] HKCA 779

(Heard together)

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 11 OF 2019 AND 16 OF 2019

(ON APPEAL FROM HCMP NO 2222 OF 2016)

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(Heard together)

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DECISION ON COSTS

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The Court:

1.  By our judgment handed down on 11 August 2020,[1] we allowed the appeal by the defendants in part and directed the parties to lodge written submissions on the question of costs of the appeal and below.  This is our decision based on the submissions received.  We use herein the same defined terms as in our main judgment.

Costs below

2.  In the Recorder’s Judgment below at §121, he made a costs order nisi that the defendants pay to the plaintiffs the costs of the proceedings, to be taxed if not agreed, on a party and party basis.

3.  The defendants submit that the issues arising in the Jurisdiction Ground and the Quantum Ground also formed a significant part of the legal arguments below and that their success on these issues in this court should be reflected by a 20% reduction of the costs payable by them to the plaintiffs.

4.  Despite the defendants’ appeal being allowed in part, however, they are still adjudged to be liable in damages to the plaintiffs, in the sum of HK$7,349,040.  There is no doubt in our view that they were the losing side in the action. 

5.  It was the defendants who raised the argument below that the power to award damages was ancillary to the power to grant a prohibitory injunction under section 729 of the Companies Ordinance (Cap 622), as part of their argument that the court lacked jurisdiction to award damages in this case. Based on both the outcome at trial and on appeal, the defendants have failed on that argument.  In these circumstances we do not think there is any basis in principle to deprive the plaintiffs of part of their costs of the action, whether on the ground that they had caused a significant increase in the length or costs of the proceedings by raising issues on which they did not succeed, or otherwise.

6.  In any event, the bulk of the arguments below were factual questions relating to the defendants’ liability.  As the Recorder’s judgment shows, of the nine issues identified at trial for determination, by far the main dispute was whether the defendants granted the Disputed Options in August 2016 for improper purposes but fraudulently backdated the documents to 22 July 2016 in order to give them a semblance of regularity.  The question whether the plaintiffs were entitled to the reliefs sought constituted a single issue out of the nine.  The argument relating to the proper construction and effect of section 729 was but part of that issue and involved only legal submissions.  There is little reason, in our view, to think that that argument significantly increased the length or costs of the proceedings below.

7.  For these reasons we are not disposed to disturb the costs order below.

Costs of the appeal

8.  In relation to the appeal, the defendants submit that they should be regarded as the winner as they have succeeded in obtaining a substantial reduction in the amount of damages from HK$18,669,420 to HK$7,349,040, which they sought in the alternative.

9.  Insofar as the court prefers an issue‑based approach in determining costs, the defendants submit that under the Jurisdiction Ground there were two issues: (i) the proper construction and effect of section 729; and (ii) whether on the facts of this case the court had jurisdiction to grant a prohibitory injunction at the commencement of suit.  They submit that they were essentially successful on the first issue, and that on the second issue they failed not on the basis of any of the submissions made on behalf of the plaintiffs, but on points raised by the court itself.  They have also prevailed on the issue raised by the Quantum Ground. Accordingly, they submit that they should be entitled to the costs of the appeal, subject only to the deduction of 50% of the costs of the supplemental submissions lodged in July 2020.

10.  The plaintiffs, in contrast, submit that they have successfully resisted the appeal on the Jurisdiction Ground which, they say, took up approximately two‑thirds of the appeal, whereas the defendants have successfully reduced the quantum of damages which, the plaintiffs say, accounted for one‑third of the appeal.  On this basis, the plaintiffs contend that the defendants should pay 66% of the plaintiffs’ costs of the appeal.

11.  The plaintiffs further submit that the defendants’ argument on the construction of section 729 should not be considered as a separate issue, as the Jurisdiction Ground would have been dismissed based on the facts regardless of the outcome of that argument.  If the court is prepared to take account of the defendants’ success on the construction argument, the plaintiffs should also be entitled to part of their costs for successfully resisting the Jurisdiction Ground, so that, overall, there should, at the very least, be no order as to costs.

12.  There are two principal contentions in the appeal, namely, the Jurisdiction Ground, which sought to set aside the order for damages altogether, and the Quantum Ground, which sought to reduce its amount.  In our view, the two contentions are conceptually separate, are based on entirely different reasons, and support different reliefs. 

13.  The defendants have succeeded on the Quantum Ground, whereas the plaintiffs have succeeded on the Jurisdiction Ground.  But the plaintiffs did so because, in the opinion of this court, the court had jurisdiction to grant a prohibitory injunction as at the commencement of the action below since the Disputed Shares had then not yet been transferred out of the grantees’ accounts with their brokers — a point raised by this court.  On the question of the construction and effect of section 729, which accounted for a very considerable portion of the arguments on the appeal, the plaintiffs’ submissions were largely unsuccessful.  In these circumstances we do not think the plaintiffs should ultimately have any substantial entitlement to costs based on its success on the Jurisdiction Ground.

14.  Looking at the matter in the round, and taking account of the fact that the Quantum Ground took up by far the smaller portion of the arguments on the appeal, we consider that justice is served by ordering the plaintiffs to pay one-third of the defendants’ costs of the appeal, to be taxed if not agreed.

Costs of the stay application

15.  By orders dated 13 and 22 March 2019 respectively, Recorder Pow SC ordered that the costs of the defendants’ applications for stay of execution of part of his judgment be costs in the cause of the appeals.[2]  The defendants submit that they should be entitled to these costs and that this court should give a direction that for the purposes of these orders, the “cause” is in the defendants’ favour.

16.  We do not think any separate treatment of these costs is called for.  They have been ordered to be in the cause of the appeals.  There is no appeal against those costs orders.  Accordingly, the costs in question should simply be treated as part of the overall costs of the appeals, the incidence of which has been decided above.

17.  The costs of the written submissions on costs are also to be treated as part of the costs of the appeal.