THE LIQUIDATOR OF WING FAI CONSTRUCTION CO LTD (IN COMPULSORY LIQUIDATION) v. YIP KWONG ROBERT

FACV No. 3 of 2011

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 3 OF 2011 (CIVIL)

(ON APPEAL FROM CACV NO. 273 OF 2009)

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Between:

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JUDGMENT ON COSTS

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Mr Justice Ribeiro PJ:

1.  This is the judgment of the Court.  The appellants are respondents to a misfeasance summons issued by the liquidators in August 2004 alleging that they had unlawfully caused some $33 million to be extracted from the Company in liquidation. 

2.  On 19 August 2008, the appellants took out a summons to dismiss the liquidators’ claims for want of prosecution.  Although her Ladyship found that there had been a two year period of inordinate and inexcusable delay in the prosecution of the proceedings, that application was dismissed by Kwan J.[1]  The Court of Appeal dismissed the appellants’ appeal[2] and this Court did likewise,[3] making an order nisi that the appellants should pay the liquidators’ costs. 

3.  The liquidator (the liquidators presently acting by a single liquidator) now seeks an order that the appellants pay the outstanding costs forthwith, to be taxed if not agreed.  He points out that the appellants have failed at every stage and submits that the order sought is an appropriate counter to the appellants’ strategy of instituting various satellite applications in order to deplete the resources available to the liquidator with a view to preventing pursuit of the substantive claim against them.  In our view, the record of the proceedings speaks for itself and indicates that there is substance in that submission.  

4.  In Midland Business Management Ltd v Lo Man Kui (No 2),[4] Lam J helpfully considered how a court’s discretion might be exercised when asked to make an order for immediate payment of costs in the wake of the Civil Justice Reforms (“CJR”) which came into effect in April 2009.  His Lordship noted some of the factors identified as potentially relevant in Naf Naf SA v Dickens (London) Ltd,[5]  summarised by Hoffmann J (as Lord Hoffmann then was) as follows:

“I indicated in a judgment in [Kickers International SA v Paul Kettle Agencies Ltd[6]] the matters which ought to be taken into consideration in deciding whether or not to make an order for immediate taxation and as I remember them, what they were concerned with was, first of all, the extent to which the proceedings are from a taxation point of view severable and self-contained from the rest of the action, secondly the justice of making such an order having regard to the effect on the cash flow of the respective parties, and the third matter to be taken into account was whether the amount at stake on the taxation was sufficient to justify putting the parties to the expense of having a separate taxation for it rather than bringing it in on the final taxation.”

5.  As to the approach mandated by the CJR, Lam J stated:

“Under the Civil Justice Reform, the court is encouraged to order immediate payment of costs of interlocutory proceedings and if possible by way of summary assessment of costs. The objective is to discourage unnecessary and disproportionate interlocutory applications. It is recognized that the lack of immediacy of orders to pays costs ‘in the cause’ or ‘in any event’ weakens costs as a sanction against unwarranted applications or resistance, see paras.529 to 536 of the Final Report of the Chief Justice’s Working Party on Civil Justice Reform.”[7]

6.  And as his Lordship pointed out, Order 62 r 5(1)(aa) requires the court in exercising its discretion as to costs, to take appropriate account of the underlying objectives set out in Order 1A, rule 1. 

7.  Whether or not the immediate payment of costs should be ordered is quintessentially a matter within the court’s discretion. The former practice was generally to order interlocutory costs to be “in the cause”, to be settled up at the end of the proceedings where orders which may have been made in favour of the respective parties might be set-off against one another and when the overall result of the proceedings can be taken into account.  However, it is now generally recognized that such an approach may lead to procedural laxity and a damaging proliferation of interlocutory or satellite litigation.  The first four of the underlying objectives are relevant to redressing such tendency by emphasising the need:

“... (a) to increase the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the Court; (b) to ensure that a case is dealt with as expeditiously as is reasonably practicable; (c) to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings; (d) to ensure fairness between the parties...”

8.  In pursuing the underlying objectives, it is of course necessary to factor in any possible unfairness or prejudice which the party against whom an order for immediate payment of costs is sought may suffer in consequence of such an order.

9.  In the present case, the application to dismiss for want of prosecution is severable and self-contained from the rest of the action.  The outcome of the misfeasance proceedings will not have any impact on the costs orders made at each stage of the dismissed application.   The costs involved are of a sufficiently significant amount to justify the expense of a separate taxation.  Most importantly, to make the liquidator wait until the end of the proceedings to enjoy the benefit of the costs orders in his favour would undoubtedly have a seriously negative effect on the cash flow of the winding-up and might unjustly inhibit proper determination of the substantive proceedings.  Underlying objectives (c) and (d) militate in favour of ordering the immediate payment of the costs orders made in respect of the failed application to dismiss for want of prosecution.  Accordingly, in our view, discretionary considerations are substantially in favour of such an order.

10.  The appellants object to the proposed order on the ground that this would involve a variation of the costs orders made by Kwan J and the Court of Appeal which are not subject to appeal.  That is so, but section 17 of the Court’s statute gives ample power to effect such a variation.

11.  We accordingly order the appellants to pay forthwith to the liquidator the costs of and occasioned by the failed application, the appeal to the Court of Appeal and the appeal to this Court, to be taxed if not agreed.