KWOK HIU KWAN v. CONVOY GLOBAL HOLDINGS LTD

HCMP 1578/2020

[2020] HKCFI 3026

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1578 OF 2020

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COSTS DECISION

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A. Introduction

1.  By my Judgment dated 13 November 2020, [2020] HKCFI 2874, I dismissed Kwok’s application made by inter partes summons dated 20 October 2020 (“Summons”).  But I reserved the question of costs to await written submissions to be filed by the parties, once they had had the opportunity to consider the Judgment and its reasoning.

2.  Written submissions have since been filed in accordance with my directions.  The submissions have been filed by Counsel, identified at the end of this Costs Decision.

3.  In this Costs Decision, I shall adopt the definitions and abbreviations used in my Judgment.

B.     The Contest

4.  As the victor, Convoy asks for indemnity costs to be awarded to it (in respect of both the call-over and substantive hearings) with certificate for two Counsel.  The basis of the claim to indemnity costs is that Kwok pursued the Summons fully conscious that the application was an abuse of process.

5.  Kwok submits that the appropriate order is that the costs of and occasioned by the Summons be paid by him to Convoy on the usual party and party basis, with certificate for two Counsel, save and accept that there should be no order as to the costs of the preparation of Convoy’s affirmations and the call-over hearing, and that Convoy should bear 90% of the costs of the preparation of the hearing bundles.  Alternatively, Kwok submits that the court may make a global assessment that he is to bear 40% of Convoy’s costs (or such other proportion as the court considers appropriate), with certificate for two Counsel.

C.     Applicable Principles

6.  The general principles applicable to questions of costs are well-established, and were recently summarised by me in In the Estate of Lui Kwan Cheung [2020] HKCFI 2463, as follows.

7.  Costs are in the unfettered discretion of the court.  However, the discretion must be exercised judicially, seeking to achieve practical justice in the particular circumstances of the case.  Therefore, although costs normally follow the event, the court may make some other order as to the whole or any part of the costs, depending on the circumstances of the case.

8.  Order 62 rule 5(1) identifies the matters which the Court will take into account in exercising its discretion as including the underlying objectives set out in Order 1A rule 1 and the conduct of all the parties.  For the purposes of the rule, conduct includes (a) whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue, (b) the manner in which a party has pursued or defended his case or a particular allegation or issue, (c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim, and (d) conduct before, as well as during, the proceedings.

9.  The well-known Elgindata principles relating to costs have been considered by the Court of Appeal in, for example, Zhuhai International Container Terminals (Jiuzhou) Ltd v Lo Tong Hoi (unreported, CACV 181/2011, 31 July 2012) at §33.  There, Kwan JA considered the principles after the amendment to Order 62 rule 5 and held that it is not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs.  The rule as amended requires litigants to bear in mind the possible costs implications, and there is incentive to conduct litigation in a responsible way and to be selective as to the issues raised.

10.  It is also now settled that there is a broader or wider discretion in the court on matters relating to the costs of interlocutory arguments.  Issue-based costs orders are now more common than prior to CJR.

11.  As to applications for costs to be payable on the indemnity basis, those principles are also well-established: see, for example, Commissioner of Inland Revenue v Poon Cho Ming John (No 2) (2020) 23 HKCFAR 74, at §§4-7.  In certain circumstances, costs may be awarded on a more generous than the usual party and party basis of taxation, so as to achieve a fairer result.  It is for the receiving party to show that the case has some special or unusual feature.  Such features are not confined to an ulterior motive, an improper purpose, deception or underhand conduct on the part of the paying party.

12.  The attributes of the parties and the character of the proceedings may be relevant to the question as to which basis taxation should be ordered.  The discretion to order a more generous than usual basis of taxation is not to be fettered or circumscribed beyond the requirement that such a taxation will be ordered only when it is appropriate to do so.  The matters which may indicate a more generous than usual basis of taxation will include any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation.

D.     This Case – Submissions

13.  Mr Wong SC, for Convoy, emphasises that Kwok had been repeatedly warned about the abusive nature of his application (both before and after the application was made).  Despite those warnings, Kwok issued the Summons and fought it “to its bitter end” (Mr Wong’s words).

14.  Convoy had informed Kwok that the originating summons commencing these proceedings was an abuse, and an application to strike out the proceedings was issued, identifying the abuse as mounting a collateral challenge against the decisions of Harris J already the subject of appeals.  At the call-over hearing on 23 October 2020, the abuse was again identified but Kwok was content to have the substantive argument on his Summons fixed before the dates already fixed for the Court of Appeal to hear his appeal.  Convoy’s evidence also made clear its view that the application was an abuse of process.

15.  Mr Wong also submits that the way Kwok’s argument unfolded and developed at the substantive hearing further evidences the conscious abuse.  The essential focus of the submissions made for Kwok was that the chairman of Convoy intended to exercise his power under Article 74 ‘irrationally’, when as a matter of law the powers under Article 74 are subject to a standard of ‘rationality’.  Those are the same issues which were to be determined by the Court of Appeal at the hearing fixed for 17 and 18 November 2020, demonstrated in large part by the filing of the same or duplicated authorities.

16.  Further, submits Mr Wong, the attempt to distinguish the application made by the Summons from that already dealt with by Harris J was obviously likely to be dismissed, as indeed it was.  Either Article 74 is subject to a ‘rationality’ standard or it is not; whatever standard is applicable is not determined by when the decision is to be or was made.  Indeed, Mr Wong submits that the timing of the Summons itself further identifies the abuse.

17.  These factors, Mr Wong submits, all fully justify costs to be awarded on the indemnity basis.  The application was without merit and no other shareholder of Convoy should be out of pocket for defending it.

18.  Ms Lok does not challenge the starting position that costs should follow the event.  But she points out that the vast majority of the 22 lever arch files put before the Court for the substantive hearing contained those documents filed by Convoy, including non-agreed items that Convoy insisted be included, but which were irrelevant or unnecessary and unhelpful.  Indeed, the four affirmations of Mr Yap effectively imported all of the allegations and materials from the Main Action into these proceedings.  Ms Lok submits that it should not escape the mind of a fair observer that these are highly oppressive litigation tactics.

19.  Ms Lok also points to the filing by Convoy of the Rigby affirmation, and the opinion from Mr Tom Smith QC, neither of which were found by the Court to be in any way helpful for the resolution of the Summons.  As was always clear, and pointed out in the Judgment, the main battleground was essentially simply one of the correct legal approach to the particular factual situation that had arisen.  Kwok failed on his Summons because his proposed legal approach was not accepted.

20.  Ms Lok also points out that Convoy filed lengthy submissions and authorities for the call-over hearing to argue against any ex parte ‘interim interim’ injunction, notwithstanding that no such application was ever made.  The Summons was always one issued and pursued inter partes.

21.  As to the allegation of abuse in making collateral attack on the decisions of Harris J, Ms Lok says that does not warrant the sanction of indemnity costs.  The core argument was to seek to distinguish the decisions, not to challenge them.  That did not take the situation outside the realm of ordinary hostile litigation; there was no affront to the Court, nor any intentional abuse of process.

22.  Ms Lok also points to the timetable being tight in part because it was Convoy who set the EGM for 26 November 2020, shortly after the Court of Appeal hearing was to be heard.  Kwok had no control over whether an EGM would be called, and if so when it might be fixed, nor any control over the Court of Appeal hearing date and any subsequent delivery of the appellate judgment.

23.  In reply, Mr Wong submits that Convoy should not be faulted for filing affirmations which provided the necessary evidential basis for its submissions.  Convoy was entitled to seek to demonstrate, by factual and expert evidence, that there was a realistic prospect of invoking a proper legal basis for refusing to recognise Kwok’s shares.  As to the arguments filed for the call-over hearing, that was to meet a “reasonable suspicion” that Kwok would apply for interim relief, not least where Kwok was late in filing skeleton submissions contrary to the timetable set by PD 5.3.

24.  For her part, in reply, Ms Lok emphasises that it was obvious that the factual allegations in the Main Action remain to be tried; Convoy has not obtained any summary judgment, and Kwok has not struck out the claim.  There was, therefore, no need to file eight affirmations and more than 3,900 pages of exhibits to show alleged merit in the Main Action.

25.  As to the events of the call-over hearing, Ms Lok points out that Convoy was itself in breach of PD 5.3, and that there had been earlier telephone discussions between junior Counsel about possibly agreeing directions.

E.     Analysis

26.  It seems to me that there is some force in some of both sides’ arguments.

27.  I agree with Mr Wong that in light of the looming appeal, seeking to challenge Harris J’s decision, and the duplicated materials filed by Kwok both for the appeal and for the substantive hearing before me, that was an abuse.  I do not accept that the case is properly to be regarded simply as ordinary hostile litigation where there was just a failed attempt to distinguish one situation from another.  The argument turned on the correct legal approach to the making of a particular type of decision under Article 74, and it must have been obvious that the approach is applied whether one is looking at a potential decision or one which has already been made.

28.  On the other hand, a vast amount of the materials placed before the court were of no assistance, and were unlikely ever to be of any assistance.  The volume of materials produced was vastly in excess of anything reasonably needed for the disposal of the Summons.  That there was almost no reference to perhaps 90% of materials tends to show that very point. As Ms Lok says, it was wholly unnecessary in effect to import much of the material which Convoy seeks to deploy in the Main Action, when all it wanted or needed to demonstrate on the facts was that there was a reasonable prospect of someone deciding the underlying factual question in its favour.

29.  As to the timing, it seems to me the blame can be shared.  All participants were aware of the looming appeal dates already fixed for mid-November 2020.  Nevertheless, after some delay, Kwok sought an EGM, which (if accepted) was likely to be fixed within the next couple of months.  On the other hand, Convoy fixed the EGM on a date only very shortly after the looming appeal, when it might realistically have been envisaged that the appeal judgment would not yet be available.

30.  As to any duplication in preparation for both the call-over hearing and the subsequent substantive hearing, that can be dealt with on any taxation.  Preparation for a hearing in late October obviously does not need to be duplicated for a hearing in early November (though some of the materials may have needed re-ordering or marshalling in some appropriate way).

31.  Ultimately, the court was deluged with materials which were largely wholly unnecessary for the resolution of an application which was itself an abuse.  Neither side comes out of this situation ‘smelling of roses’.  Criticism properly lies of both sides.  There is, therefore, some proper basis for taxation on the indemnity basis and for disallowing recovery of some significant element of costs.  But, in the overall exercise of my discretion on costs, it seems to me that the appropriate way to deal with the situation is to take a broad brush or ‘global’ approach to costs by way of taxation on the indemnity basis, but also an apportionment.

F.     Result

32.  In conclusion, I order Kwok to pay 50% of Convoy’s costs on the indemnity basis.

33.  For the avoidance of doubt, and in circumstances where neither party has fully succeeded on the costs argument, I make no order as to the costs of the costs argument.