CHAN LAAM AND OTHERS v. KING & COMPANY (a firm)

HCMP 1399/2023

[2024] HKCFI 1330

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1399 OF 2023

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REASONS FOR DECISION

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1.  On 21 February 2024, the Court granted the Plaintiffs’ application for the production and disclosure by the Defendant of documents requested in the Plaintiffs’ originating summons dated 24 August 2023 (“the Decision”). This is the Defendant’s application to vary the costs order nisi in favour of the Plaintiffs.

2.  The relevant background and the reasons for the order made are set out in the Decision. These Reasons for Decision on the Defendant’s application will adopt and use the nomenclature used in the Decision.

3.  On 6 March 2024, pursuant to the order dated 21 February 2024, the Defendant provided copies of the Requested Documents to the Plaintiffs and, on the same day, issued its summons to vary the costs order nisi.

4.  The Defendant’s application is based on the grounds considered below.

Third-party discovery and unusual nature of the Plaintiffs’ application

5.  Ms Queenie Lau SC, senior counsel for the Defendant, acknowledged that the Court has a wide discretion over costs. In the present case, she emphasised that the Defendant did not hold the documents for its own benefit. It acted on the instructions of Kingsun and the Deceased.

6.  It was submitted that the Defendant was giving discovery as a third party. Therefore, the usual rule on costs in the context of third party discovery applications under section 41 and 42 of the High Court Ordinance applies and the Defendant is entitled to the costs of the Plaintiffs’ OS: see RHC Order 62 rule 3 (12).

7.  It is clear from §47 of the Decision that the Plaintiffs’ application was granted pursuant to their substantive rights against the Defendant. Had relief been granted on grounds of pre-action discovery or on Norwich Pharmacal principles, the Plaintiffs’ application would have been an application within sections 41 and/or 42 of the HCO and so would have triggered RHC Order 62 rule 3 (12).

8.  Mr Kerby Lau, counsel for the Plaintiffs, submitted that the Defendant was conflating the Plaintiffs’ substantial rights with alternative arguments based on pre-action discovery and Norwich Pharmacal. The Plaintiffs asserted their substantive rights against the Defendant by bringing these proceedings over the Requested Documents that were in the Defendant’s possession and control. They succeeded.

9.  Analysed in that context, the Defendant was not a third party in these proceedings but the very party in possession and control of the Requested Documents over which the Plaintiffs had substantive rights. In those circumstances, there is no reason in principle why the general rule that costs follow the event should not apply. Re NDT (BVI) Trading Ltd [2009] 2 HKLRD 409 at §§32-34 and Wong Kar Gee Mimi v Hung Kin Sang Raymond [2011] 5 HKLRD 241 at §99 are examples of the Court granting discovery/production of documents with costs following the event.

10.  The Defendant drew attention to the fact that in the NDT case the unsuccessful party did not contest the costs order sought. However, that cannot detract from the costs order actually made. Further, whether or not what is stated in §99 of the Wong Kar Gee Mimi case conflicts with the principles stated in SES Contracting Limited & Ors v UK Coal plc & Ors [2007] 5 Costs LR 758 at §17 as the Defendant sought to suggest is beside the point since the Defendant is not a third party. In any event, the real question in SES Contracting was whether opposition to the application for disclosure was unreasonable[1].

11.  Even in a contested application against third parties for the purpose of investigations, the costs follow the event approach should be applied where the defendant failed to adopt a neutral stance: see Ip Pui Lam Arthur and Ip Pui Sum (Joint and Several Trustees in bankruptcy) v F Zimmern & Co, HCMP 995/2014, unrep., 6 October 2014 at §§6-7.

The Defendant acting reasonably

12.  Unsuccessful opposition to discovery application does not mean that the plaintiff is entitled to its costs. It is only when it is clearly unreasonable to oppose the application or the manner of the opposition was so unreasonable or there is misconduct on the part of the defendant that the court will make the third party bear costs of both parties. See Lau Tsz Hung Ringo v First Refrigeration Engineering Limited, HCMP 1166/2013, 4 of July 2013 at §41.

13.  The Defendant’s position is that it has acted reasonably throughout because it had genuine concerns over potential conflict of interests, confidentiality and/or privilege. The Defendant referred to The Hong Kong Solicitors’ Guide to Professional Conduct, Vol 1, 3^rd edition at §8.01 and quoted extensively from the commentary to justify its conduct.

14.  During the pre-application period of 10 months from 24 October 2022 to 24 August 2023 when the parties engaged in correspondence over the Plaintiffs’ requests for information concerning the Requested Documents, the Defendant made known its concerns in writing on multiple occasions[2].

15.  Faced with the Defendant’s intransigence, the Plaintiffs filed the OS and P1 1^st on 28 August 2023 seeking the production of the Requested Documents (comprising (1) the Company Documents and (2) the Trust Documents) based on the Plaintiffs’ substantive rights. The Defendant filed 2 substantive affirmations in opposition[3] thus requiring a substantive hearing.

16.  The Requested Documents described in §25 of the Decision are basic documents that relate to the status of the Plaintiff(s) as shareholder and/or beneficiaries.

17.  The Court rejected the Defendant’s opposition based on confidentiality and LPP[4].

18.  As regards the Defendant’s concerns over potential conflict of interests mentioned in Mr Ching’s 4^th affirmation dated 6 March 2024 (“Ching 4^th”) (at §6) filed in support of the Defendant’s present application, although mentioned in the pre-correspondence exchanges, it did not feature as a ground of opposition in the Defendant’s written skeleton dated 19 January 2024 for the substantive hearing.

19.  On 6 March 2024, in compliance with paragraph 1 (a) the OS, the Defendant filed Mr Ching’s 3^rd affirmation (“Ching 3^rd”) and provided copies of the Requested Documents by way of letter through their solicitors (“the Disclosure Letter”) both dated 6 March 2024. The Defendant produced 168 pages of documents.

20.  The Plaintiffs submitted (which I accept) that upon perusal of the Disclosure Letter, it transpires that:

(1)  the Defendant’s objections do not apply to a substantial number of the documents produced[5];

(2)  the Defendant all along knew that

(i)  P1 has been a shareholder of Kingsun since 30 July 2001;

(ii)  the Defendant maintained contact with Portcullis in relation to the affairs of Kingsun: and

(iii)  there was a draft declaration of trust whereby P2 would be the beneficial owner of over 90% of the shares in Kingsun;

(3)  despite that knowledge, the Defendant knowingly transferred away documents sought by the Plaintiffs that clearly belong to the Plaintiffs. They include documents transferred to Madam Lau “that may be subject to [the Plaintiffs’] requests”[6]. Not only did the Defendant make such a transfer without retaining a copy of the same, it even saw fit to transfer away the share certificate in Kingsun in the name of P1 to Madam Lau[7] when it could not possibly have any basis for doing so given its knowledge of the matters set out in (2) above.

21.  Apart from those matters that cannot be gainsaid,

(1)  as is evident from §§12-24 and 32 of the Decision, the Defendant made misleading representations and resorted to half-truths when responding to the Plaintiffs’ enquiry made on 12 April 2023 in relation to the Defendant’s role. That is shown by the following sequence of events:

(i)  on 12 April 2023, the Plaintiffs enquired whether the Defendant had ever acted as intermediary/administrator/ other agent between Kingsun and Portcullis;

(ii)  on 2 May 2023, almost 3 weeks later, the Defendant replied that they “are not” acting in such capacities, without supporting documents;

(iii)  on 17 January 2024, more than 8 months after the 12 April enquiry, the Defendant “clarified” its reply of 2 May 2023 and admitted that it performed services as the “administrator” of Kingsun until it resigned as such on 24 April 2023[8];

(2)  the belated admission in (1) (iii) above shows that by delaying its reply to the 12 April 2023 enquiry till after 24 April 2023, the Defendant was able to use the present tense in its response of 2 May 2023, leaving it ambiguous whether it had ever acted as such;

(3)  as is evident from Ching 3^rd (at §§15 and 19) and the Disclosure Letter (item 36), the Defendant knew all along that P2 was an intended beneficiary of the trust. It was information the Plaintiffs sought from inception[9] as to the existence of a trust or a will. The Defendant avoided answering the “trust” aspect of the enquiry and, instead, offered information relating to the “will” aspect when there is no ostensible reason for not addressing both aspects. In the circumstances, the only reasonable inference is that the choice was deliberate.

Conclusion

22.  As an alternative to its application to vary the costs order nisi in favour of itself, the Defendant submitted that there be no order as to costs.

23.  In light of the matters described above, by no stretch of the imagination could one consider the Defendant’s conduct to be reasonable after the commencement of these proceedings in opposing the Plaintiffs’ application. Had it been truly neutral, it would simply have left it to the Plaintiffs to obtain an order for disclosure from the Court without actively opposing the Plaintiffs’ application. Instead, its conduct shows that at every turn the Defendant was seeking to obstruct, hinder, thwart and delay the Plaintiffs’ efforts to seek information to which they are entitled.

24.  In the circumstances, I consider it appropriate to apply the usual rule that costs follow the event. Accordingly, the costs order nisi is made absolute.

25.  The Defendant’s application is dismissed with costs, with certificate for counsel, such costs to be summarily assessed and payable forthwith.

26.  The directions given in §66 of the Decision apply and are varied only to the extent that the Plaintiffs are to lodge their revised statement of costs within 7 days hereof to include the costs of and incidental to the Defendant’s application to vary the costs order nisi.