E & P GLOBAL HOLDINGS LTD (formerly known as SIBERIAN MINING GROUP CO) v. CHEUNG KENG CHING AND OTHERS

HCA 706/2010

[2024] HKCFI 616

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 706 OF 2010

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DECISION ON COSTS

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1.  This is the paper application to vary the costs order nisi made by me after the trial of this action.

2.  The background of this case and my reasons for dismissing the Plaintiff’s claims have been fully set out in my Judgment handed down on 18 July 2023 (“the Judgment”)  and I do not repeat the same here.  For the purpose of this Decision, I will adopt the same abbreviations that I used in the Judgment.

3.  Despite the dismissal of the claim, I made a costs order nisi that there be no order as to costs of this action.

4.  The 1^st and 2^nd Defendants apply to vary the order on the following grounds:

(i)  As the 1^st and 2^nd Defendants are the successful parties in this case, costs should follow the event.

(ii)  The Plaintiff’s counsel agreed that costs should follow the event when he was asked to address the issue of costs in the end of the trial.

(iii)  The Plaintiff had been conducting the proceedings in an unreasonable and oppressive manner.  The Plaintiff’s case on fraud was without legal or evidential foundation and was bound to fail. Further, the Plaintiff only abandoned the negligence claims against the Defendants in the middle of the trial and it relied on a number of unpleaded matters in the trial.

(iv)  The 1^st and 2^nd Defendants had written to the Plaintiff on 25 June 2012, asking the latter to withdraw the claims in view of the weakness of its case.  The 1^st and 2^nd Defendants also offered to pay the Plaintiff $3,750,000 together with costs to settle the claim, and yet the Plaintiff failed to reply to such Calderbank offer.  Subsequently, the 1^st and 2^nd Defendants wrote to the Plaintiff on 24 June 2020 inviting it to discontinue the claims with no order as to costs.  Again the Plaintiff ignored the request.  Later on 18 November 2021, the 1^st and 2^nd Defendants wrote to the Plaintiff again, offering to pay a sum of $3,750,000 (inclusive of interest and no order be sought on costs)  to settle the claims.  The Plaintiff rejected such offer by its letter dated 3 December 2021.

5.  I deal with the first two arguments.

6.  The court has a certain discretion to deal with the issue of costs, though such discretion has to be exercised judiciously and on fixed principles.  Generally, the successfully party should get the costs of the proceedings, and there must be good reason if the court were to order otherwise.

7.  I have also perused the transcript of the proceedings.  It is true that the court had invited the parties to make submissions on costs, and by that time the Plaintiff’s counsel agreed that costs should follow the event after trial.  Despite such indication, there was no binding agreement between the parties.  By making a costs order nisi in the Judgment, the court was of the view that there may be other reasons to depart from the general rule.  The effect of the order nisi is that the court is inviting the parties to make further submissions on costs.  Hence, this court should have the liberty to reconsider the matter after hearing further submissions from the parties.

8.  In making the order nisi that there be no order as to costs of these proceedings, the court has taken into account the following factors:

(i)  This action was commenced pursuant to DHCJ Burrell’s Order, which involved a petition by the SFC against the Plaintiff and the Defendants under s 214 of the Securities and Futures Ordinance, Cap. 571.  That means that there was some prima facie evidence to show that the Defendants were guilty of some improper conducts in conducting the affairs of the Plaintiff.

(ii)  There were a lot of mistakes and confusion in the contents of the ROIs previously given by the Defendants and in the transaction documents (such as the board minutes and Bought and Sold Notes for the Grandtop Investment), which required the clarifications of the 1^st Defendant in the trial. Further, there were certain dubious features in respect of the various investments made by the Defendants on behalf of the Plaintiff, which brought suspicion upon the Defendants themselves in conduct of the affairs of the Plaintiff.

9.  In my judgment, these factors are still good reasons as to why the court should consider making a costs order departing from the general rule of costs following the events.  However, having considered the further submissions from the parties, I consider that it is still the Plaintiff’s duty to assess the merits of the claims after the commencement of the proceedings.  Serious consideration should be made as to what sort of evidence was required in order to substantiate the claims against the Defendants, whether they were based on fraud or negligence.  Further, the 1^st and 2^nd Defendants made a Calderbank offer on 25 June 2012, which then placed a burden on the Plaintiff to assess the merits of the claims.  Though such offer was made in the early stage of the proceedings, the Plaintiff could ask the Defendants to provide further necessary materials for them to assess the merits.  Unfortunately, the Plaintiff ignored the offer resulting in the prolongation of the proceedings.  The Plaintiff just proceeded with the claims without having seriously considered the merits of the claims and the evidence that was required to substantiate the claims.  The Plaintiff also failed to give any reasons as to why it considered that the offer of $3,750,000 was not reasonable or acceptable in light of the then available evidence.  Under such circumstances, even if the present proceedings were commenced pursuant to DHCJ Burrell’s Order and after the investigation by the SFC, the Plaintiff should pay the costs of the 1^st and 2^nd Defendants after the making of the Calderbank offer on 25 June 2012.

10.  In trying to justify why the Plaintiff did not accept the Calderbank offers, Mr Park, counsel for the Plaintiff, refers me to a purported settlement agreement made by the parties in July 2010 shortly after the issuance of the writ in this action.  Mr Park submits that:

(i)  A mediation meeting was held on 15 May 2010, following which the parties continued to negotiate for settlement.

(ii)  After the Plaintiff obtained advice from two separate counsel on the proposed settlement, the parties reached an agreement to settle the Plaintiff’s claims in the sum of $10,500,000 subject to the approval of the court.

(iii)  The parties entered into a consent summons for approval of the settlement by the court returnable on 27 July 2010.  In that hearing, the application was adjourned for the Plaintiff’s counsel to supplement his advice.

(iv)  The Plaintiff duly obtained further advice from counsel on 17 August 2010 which supported the approval of the settlement.  The consent summons was then restored and a hearing was fixed on 29 September 2010.  In the resumed hearing, Master Hui did not agree with the opinion of the Plaintiff’s counsel and took the view that there was an overwhelming case of fraud against the Defendants.  The consent summons was adjourned sine die.

(v)  The subsequent Calderbank offers came nowhere near the sum of $10,500,000 as originally agreed in July 2010, and so it would be unreasonable for the Plaintiff to have agreed to the Calderbank offers.

11.  In my judgment, the purported settlement agreement in July 2010 does not disturb my view that the Plaintiff should be responsible for the 1^st and 2^nd Defendants’ costs after the making of the Calderbank offer in June 2012.  Only the evidence of the Plaintiff had been placed before Master Hui, and so he did not have the opportunity to review all the merits of the case.  The Plaintiff should have properly reviewed its case at the later stage of the proceedings when there were more materials and evidence available by that time.  The Plaintiff should have reviewed the available evidence (both from the Plaintiff and the Defendants)  to assess whether the more onerous case of fraud could be substantiated, and to consider what sort of evidence would be needed to substantiate the case of fraud or the alternative case of negligence.  Without a proper analysis of these matters and the quality of the evidence in June 2012, the Plaintiff cannot simply rely on the subsequent lesser settlement sum proposed in the Calderbank offers to justify why it could fight the case all the way to the end.  Hence, I maintain the view that the Plaintiff should pay the costs of the 1^st and 2^nd Defendants after the making of the first Calderbank offer in June 2012.

12.  I therefore set aside the costs order nisi and order that, save that the costs of the action incurred after 9 July 2012 (i.e. 14 days after the making of the Calderbank offer on 25 June 2012)  be paid by the Plaintiff to the 1^st and 2^nd Defendants with certificate for counsel, there be no order as to costs of this action.  I also make a costs order nisi that the Plaintiff has to pay the 1^st and 2^nd Defendants two-thirds of their costs of this costs variation application which shall be made absolute 14 days after the date of the handing down of this Decision.