NG YUK PUI KELLY v. DUNG WAI MAN AND OTHERS

HCA 1826/2011

[2019] HKCFI 1157

HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1826 OF 2011

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DECISION ON COSTS

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1.  I ordered in my judgment dated 24 January 2019 that Ng Kwok Wah, Vincent (“Vincent”), Ng Kwok Keung, James (“James”) and Ng Lai Ling Winnie (“Winnie”), the children of Mrs Ng (collectively “the children”) be personally joined under O 62 r 6A(1) as the 4th, 5th and 6th defendants in this action for the purpose of costs only.

2.  In response to the suggestion of the children’s solicitors, I directed that the children be at liberty to file affirmations and submissions on why they should not be made liable to pay the costs of the action together with the 1^st defendant, Mrs Ng Wai Man (“Mrs Ng”) and the 2nd defendant, the Estate of Ng Bing Kuen (“Kuen’s estate”) jointly and severally to Ng Yuk Pui Kelly (“Kelly”).

3.  The children duly filed their affirmations with Vincent and Winnie adopting the contents of James’ affirmation as theirs. Counsel for the children and for Kelly have filed their written submissions on why the costs order against the children as contemplated in the judgment should or should not be made.  Mr Victor Lui, counsel for the children has also filed his reply submissions on 23 April 2019.

The law

4.  The court’s power to make a costs order against a non-party is provided in s 52A(2) of the High Court Ordinance (“HCO”).  It provides:

“Without prejudice to the generality of subsection (1), the Court of Appeal or the Court of First Instance may, in accordance with rules of court, make an order awarding costs against a person who is not a party to the relevant proceedings, if the Court of Appeal or the Court of First Instance, as the case may be, is satisfied that it is in the interests of justice to do so.”

5.  O 62 r 6A of the Rules of the High Court further provides:

“(1) Where the Court is considering whether to exercise its power under section 52A or 52B of the Ordinance to make a costs order in favour of or against a person who is not a party to the relevant proceedings—

(a) that person must be joined as a party to the proceedings for the purposes of costs only; and

(b)   that person must be given a reasonable opportunity to attend a hearing at which the Court shall consider the matter further.”

6.  An application under s 52A of the HCO is usually proceeded summarily in two-stages:

(1) In the 1^st stage, the court considers whether the non-party should be joined for the purpose of costs.  The applicant does not need to show an “arguable” case, nor is it open to the non-party to challenge the application on the ground that he has “no real prospect of success”.  The court will only refuse joinder if it is plain and obvious that the application amounts to an abuse of process.  (see Sun Focus Investment Ltd v Tang Shing Bor [2012] 5 HKLRD 853 at §§10-19 per Mimmie Chan J; Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (1^st stage decision) (unreported, HCA 1957/2005, HCA 714/2007 & HCA 886/2007, 29 July 2016) at §§4-7 per Au-Yeung J; Anstalt & Ors v Hayek & Ors [2005] EWHC 2435 (Ch) at §§35, 53 per Etherton J; PR Records Ltd v Vinyl 2000 Ltd & Anor [2008] 1 Costs LR 19 at §§34, 44 per Morgan J.)

(2) In the 2^nd stage, the non-party joined as defendant for the purpose of costs will show cause why no costs order should be made against him. The overall consideration is always on whether it is in the interests of justice to make such an order.  (see Sun Focus at §23; Big Island (1^st Stage) at §3; Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd (2^nd stage decision) [2018] 2 HKLRD 1145) at §8 per Au-Yeung J.)

7.  Mr Victor Lui, counsel for the children referred to a number of cases and submitted that there are a number of factors to consider in stage 2 of the application.  An important point is that the court will treat the application with caution and will only make a costs order in plain and straightforward cases: Sun Focus at §23; Big Island (2^nd Stage) at §9(a).  The rule that costs follow the event does not apply and the hurdle is much higher: Hong Kong Civil Procedure 2019 (Vol 1) at §62/6A/5; citing Symphony Group Plc v Hodgson [1994] QB 179 at 193A per Balcombe LJ. 

8.  In Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 BCLC 165 at 171B, Millett LJ observed that an order for costs against a non-party is “exceptional since it is rarely appropriate”.  But “exceptional” in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense.  The ultimate question is whether in all the circumstances it is just to make the order: Dymocks Franchise Systems (NSW) Pty Ltd v Todd & Ors [2004] 1 WLR 2807 at §§25(1), per Lord Brown, applied in Leung Chung Ching Edwin v Estate of Leung On Mei Amy [2016] 2 HKLRD 365 at §47 per Zervos J (as he then was).  But subsequent authorities since Metalloy Supplies held that it is not necessary for the judge to find that the case was “exceptional” for making such costs order.  (Systemcare (UK) Ltd v Services Design Technology Ltd & Anor [2011] 4 Costs LR 666; and Big Island (1^st Stage)). 

9.  One factor to consider is whether the non-party is regarded as the real party to the litigation.  If the non-party does not merely fund the proceedings but also substantially controls or is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs.  The non-party in these cases is not so much facilitating access to justice by the party funded as he is gaining access to justice for his own purposes: Big Island (1^st Stage) at §8; Big Island (2^nd Stage) at §9(b); Dymocks Franchise Systems at §§25(3), 29; The Liberty Container (2007) 10 HKCFAR 256 at §§28 & 30 per Bokhary PJ.  A costs order against a non-party may be made where the party has been responsible for bringing the proceedings and doing so in bad faith or for an ulterior purpose or there is some other conduct on his part which makes it just and reasonable to make the order against him: Metalloy Supplies at 171B per Millett LJ; Leung Chung Ching Edwin at §41; Hong Kong Civil Procedure 2019 (Vol 1) at §62/6A/6.  The key consideration is whether the non-party is the driving force behind the litigation and involved in it in such a way and to such an extent that he should be made liable for costs: Leung Chung Ching Edwin at §49.

10.  A non-party’s impropriety and giving dishonest evidence in the primary proceedings is a relevant factor in the exercise of discretion of whether to order costs against him: Big Island (2^nd Stage) at §13; citing R + V Versicherung AG v Risk Insurance & Reinsurance Solutions SA [2005] EWHC 2586 (Comm) at §15 per Moore-Bick LJ; R + V Versicherung A.G. v Risk Insurance & Reinsurance S.A. and Ors [2006] EWCA Civ 314 (CA) at §§15-16 per Chadwick LJ; Oriakhel v Vickers [2008] EWCA Civ 748at §13 per Jacob LJ.

11.  Mr Justin Ismail, counsel for Kelly, referred to Bombardier Transportation UK Limited v Merseytravel (Costs) [2018] EWHC 41 (TCC), where Coulson J said:

“6. The Court of Appeal have repeatedly said that the trial judge has a wide discretion when considering costs orders against a non-party: see the judgments of Longmore LJ in Petromec Inc v Petrolio Brasileiro SA Petrobras [2006] EWCA Civ 1038, and Chadwick LJ in Alan Phillips Associates Limited v Terence Edward Dowling [2007] EWCA Civ 64.  Indeed, in the latter case, at paragraph 31, Moses LJ noted that “there is now an abundance of authority on the absence of any need for abundant authority on the principles which should guide a judge as to whether to make a third party order for costs.””

12.  These observations were underlined in the English Court of Appeal’s decision of Deutsche Bank AG v Sebastian Holdings Inc and another [2016] 4 WLR 17, where Moore-Bick LJ (giving judgment of the court) said at §62:

“62.   As all three members of the court observed in Petromec v Petrobras, the exercise of the discretion is in danger of becoming over-complicated by authority.  The decision of the Privy Council in Dymocks, which contains an authoritative statement of the modern law, explains and interprets the Symphony guidelines in a way which reflects the variety of circumstances in which the court is likely to be called upon to exercise the discretion.  Thus, the Privy Council has explained that an order of this kind is “exceptional” only in the sense that it is outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. Similarly, it has made it clear that the absence of a warning is simply one factor which the court will take into account in an appropriate case when deciding whether, viewed overall, it would be unjust to exercise the discretion in favour of making an order for costs against the third party.  We think it important to emphasise that the only immutable principle is that the discretion must be exercised justly. It should also be recognised that, since the decision involves an exercise of discretion, limited assistance is likely to be gained from the citation of other decisions at first instance in which judges have or have not granted an order of this kind.”

13.  Hence, whether judicial discretion should be exercised to make a costs order against a non-party is ultimately a question of whether it is in the interests of justice to do so.  This involves a consideration of the facts and circumstances of the particular case and the defendants’ connection to the proceedings (per Moore-Bick LJ in §17 of Deutsche Bank AG).

14.  To sum up, Mr Lui has referred to a number of decisions which serve as useful guidance on the factors to consider in such application.  But Mr Ismail has correctly pointed out that the ultimate consideration is whether it is in the interests of justice to make a costs order against a non-party.

The children’s grounds for showing cause

15.  I gave in §§494 and 495 of my judgment the initial reasoning for joining the children as defendants for the purpose of costs:

“494. This action was defended vigorously by Mrs Ng. Her three children played equally vigorous roles in the defence. It was a defence advanced by the collaboration of everybody in the family. The children were not just witnesses for the defence. Every one of them did their best to resist Kelly’s claim. It was a defence by a united front. This can be seen from the strenuous efforts they employed to fabricate stories with a view to explain away matters that operate to Kelly’s advantage. Furthermore, given the age and health condition of Mrs Ng, it is obvious that the children had made substantial efforts to set up and maintain the defence. It was also a defence by Mrs Ng as well as the estate of Kuen as represented by Vincent. The finance of the defence should also have come from the children as Mrs Ng did not appear to have the necessary means to do so. Jennifer’s November 2005 email mentioned that Kuen had wanted to transfer a half share of their home at Conway Mansion to Winnie and mortgage such interest to raise family expenses.

495.   Since Mrs Ng’s children had played the same or even a bigger role than Mrs Ng in the defence of this action, it is only reasonable that they together with Mrs Ng and Kuen’s estate should jointly and severally pay the costs of the action to Kelly.  S 52A(2) of the High Court Ordinance; Cap. 4 has given this court the jurisdiction to award costs against a person who is not a party to the relevant proceedings if this court is satisfied that it is in the interests of justice to do so.  I think it is in the interests of justice to order that they together with Mrs Ng and Kuen’s estate should jointly and severally pay the costs of the action to Kelly subject to hearing what they may say to the contrary.”

16.  Mr Victor Lui made six grounds on why the children should not be ordered to pay costs.  They are as follows:

(1) Ground 1: the children were not the real parties to the litigation and are merely factual witnesses;

(2) Ground 2: the litigation was funded by Mrs Ng and Kuen’s estate, not by them;

(3) Ground 3: Mrs Ng controlled the litigation at all material times to the exclusion of the children;

(4) Ground 4: the children have no personal interest in the outcome of the litigation;

(5) Ground 5: the children were never warned about the possibility of a non-party costs order being made against them; and

(6) Ground 6: the children were prematurely joined as defendants in the action without proper due process and without a proper opportunity of being heard.

Ground 1: the children were not the real parties to the litigation and are mere factual witnesses

17.  James said in §§10 to 17 of his affirmation filed on 26 February 2019 that they were not the real parties to the action.  This evidence is adopted by Vincent and Winnie.  They said that their roles were limited to being factual witnesses.  They gave evidence mainly because of the serious allegations made against them in (1) Kelly’s pleadings; and (2) the witness statements of Kelly and his daughter, Ms Ng Che Ling Jennifer (“Jennifer”). 

18.  They were advised that the court may draw adverse inference against them (or Mrs Ng and Kuen’s estate) if the allegations were not addressed to or rebutted by them.  Mrs Ng and Kuen’s estate (as represented by Vincent) therefore invited them to give evidence to support the case of Mrs Ng and Kuen’s estate.  In so doing, they had only adopted passive and reactiveroles throughout.

19.  Furthermore, they decided to give evidence for Mrs Ng and Kuen’s estate out of their love and care for Mrs Ng and in discharge of their filial duties. 

20.  They were also aware of the matters relating to issues in dispute in the action and believed that it was their duty to speak out for Mrs Ng and tell the court what they knew about the matter.  Vincent also gave evidence as the representative of Kuen’s estate. 

21.  They also said that the rejection of their evidence did not automatically justify the making of the non-party costs order against them as the rejection only played a minor part in the outcome of the trial.  They were just three out of ten defence witnesses. 

22.  Mr Lui in his submissions and reply submissions repeated these facts as his submissions.  He further submitted that my observations in §494 of the judgment that they had “played equally vigorous roles in the defence”, the defence was “advanced by the collaboration of everybody in the family”, and “the children had made substantial efforts to set up and maintain the defence” did not accord with the fact that they were dragged into the matter as witnesses of fact because of the serious allegations made against them by Kelly’s pleadings and the witness statements of Kelly and Jennifer and that their evidence was passive and reactive in nature. He also submitted in §10 of his reply submissions that the outcome of the trial did not ultimately turn on their evidence.

23.  Mr Lui further submitted that the children gave evidence for Mrs Ng and Kuen’s estate out of love and care for Mrs Ng and in discharge of their filial duties.

24.  Mr Ismail disagreed that the children had only adopted passive and reactive roles or that the rejection of their evidence played a minor part in the outcome of the trial.  He submitted that they had gone beyond the roles of factual witnesses for the defence.  They tried to insulate Mrs Ng from Kelly’s claim with all means necessary.  Each of them had tried actively to explain away the clear evidence of Kelly and Jennifer. Winnie gave inconsistent evidence regarding the August 2005 e-mail exchange she had with Jennifer.  She gave false evidence in relation to Dr Yim’s medical notes.  James attempted to wriggle out with “conflicting and convoluted” evidence from what he said to Jennifer in the March 2008 e-mail and his admission therein that Kuen had bought the Flats.  Vincent had given “unreasonable and incredible” explanations on Kuen’s advertisements to sell the Flats.  There was also the false evidence of James and Winnie that Winnie had orally corrected Jennifer’s alleged “misunderstanding” on the ownership of the Flats in her e-mail to the children.  Mr Ismail also referred to my finding that the children were untrustworthy, Vincent was “crafty”, Winnie’s evidence “convoluted” and James had conducted himself like “a crook”.  They did so to perpetrate a sham defence: (§§449-451 of the judgment).  Mr Ismail is right on the whole.

25.  Mr Ismail further submitted correctly that they are educated adults who had made a collective effort to enhance the credibility of Mrs Ng’s incredible defence by telling blatant lies in the face of clear documentary evidence to the contrary.

26.  Mr Ismail also rightly pointed out that their evidence formed a central part rather than a minor part of the defence given their relationship with Mrs Ng and the documentary evidence showing their knowledge and participation in her affairs concerning the Flats even before the commencement of this action.  Regarding Mr Lui’s submission that the outcome of the trial did not ultimately turn on their evidence, my response is that it is because Mrs Ng and Kuen’s estate have lost the defence.

27.  I also disagree with the children’s suggestion that they were giving evidence as representatives of Mrs Ng and Kuen’s estate.  They gave evidence in their own rights as factual witnesses.

28.  It is also incorrect for the children to argue that they were dragged into the picture by Kelly’s pleadings and evidence.  That should not be the reason for their lying to the court (as I have so found in the judgment).  If the absence of their evidence would have led the court to draw an adverse inference against Mrs Ng and Kuen’s estate, so be it.   

29.  Mr Ismail also submitted that they did so presumably out of love and care for Mrs Ng who appeared frail and was erratic and delusional given her age and circumstances. I agree with Mr Ismail.  Mrs Ng also does not have the benefit of a high level education. Dr Yim’s medical notes also showed that she is a strong-willed and domineering person. Mrs Ng is indeed a senile and pathetic widow.

30.  Save the fact the children had thought that they had helped their poor mother in defending the action in discharge of their filial duties, nothing they say under this ground has merit.  However, the disposal of these arguments does not show that the children were the real parties to the action.  I will further consider this issue below together with the issues of whether the children had funded the defense and whether it was Mrs Ng who controlled the defense to the exclusion of the children.

Ground 2: the litigation was funded by Mrs Ng and Kuen’s estate, not by the children

31.  The children said that the legal costs were funded by Mrs Ng and Kuen’s estate at all material times to their exclusion.  But Winnie admitted that she had from time to time advanced loans to Mrs Ng at the latter’s requests and the loans were to be repaid.  Winnie advanced the loans out of her love for Mrs Ng and in discharge of her filial duties to Mrs Ng.  Furthermore, Mrs Ng and Kuen’s estate also paid legal costs out of their own resources from time to time. The children therefore said that they should not be considered of having funded the litigation.

32.  Mr Lui submitted that the determination of whether the children had funded the litigation can assist the determination of whether they were the real parties to the litigation.  He referred to the children’s evidence and submitted that the legal costs were funded by Mrs Ng and Kuen’s estate at all material times to the exclusion of the children save that Winnie had made some interest-free loans to Mrs Ng which loans were to be repaid. The children therefore had not funded the defence.  They should not be found as the real parties to the litigation.

33.  Mr Lui also submitted that there is no evidence to support my finding in §494 of the judgment that “the finance of the defence should also have come from the children as Mrs. Ng did not appear to have the necessary means to do so”. 

34.  Mr Ismail instead submitted that the children’s evidence that they had not funded the litigation is irrelevant, because “the judge would make an order based on the evidence given and the facts found at trial, together with his assessment of the behaviour of those involved in the proceedings”: (per Moore-Bick LJ in Deutsche Bank AG at §17).  He further submitted that in any event, the children’s evidence that the legal costs had come from Mrs Ng and Kuen’s estate is not substantiated with bank statements and other documents.

35.  Regarding Mr Lui’s submission that there is no evidence to support my finding in §494 of the judgment that “the finance of the defence should also have come from the children as Mrs. Ng did not appear to have the necessary means to do so”, Mr Ismail referred to the same paragraph in the judgment in which I referred to Jennifer’s November 2005 email.  The email mentioned that Kuen had wanted to transfer a half share of their home at Conway Mansion to Winnie and mortgage such share of interest to raise family expenses.  Mr Lui did not even refer to this in his submissions.

36.  Mr Ismail is correct that the children’s assertion of not having provided financial support to the defence of the action is unsupported by documentary evidence and there is no explanation of why such evidence is not forthcoming.  Winnie has also admitted that she had advanced loans to Mrs Ng.  She should be aware that if Mrs Ng should lose the action, there was little likelihood that Mrs Ng would or could repay her the loans.  Hence, I would not accept the children’s assertion that they had not provided any legal costs for the defense of the action. I also consider that if the children should have been sincere in helping Mrs Ng, then it would not be surprising that they would have, at the request or insistence of Mrs Ng, provided her with some legal costs to defend the action. 

37.  However, even if the children should have provided financial support to Mrs Ng to the defend the action, I am of the view that the domineering Mrs Ng would not have allowed the children to become real parties to the action just as she did not regard Kuen as the real or beneficial owner of properties that were bought by Kuen but registered in her name.  Her outright rejection of Kelly’s settlement offer, as I will refer to below, which was contrary to the will of the children, is an illustration of who was in control.  Therefore, on the facts of this case, I do not consider the provision of legal costs a pivotal point in deciding whether the children were the real parties.

Ground 3: Mrs Ng controlled the litigation at all material times to the exclusion of the children

38.  The children said that Mrs Ng was in control of the litigation at all material times and they had no say in the matter.  At the beginning, Mrs Ng attended by herself the office of her solicitors, Messrs. Yung, Yu & Yuen (“YYY”) for legal advice on the Flats.  She instructed YYY to issue demand letters to Kelly in respect of the Flats back in 2010 and 2011. After Kelly had commenced this action, she gave instructions to defend it.

39.  She retained control over the litigation throughout.  She instructed her legal representatives without reference to her children.  Although James was present when she gave instructions to her lawyers on her statutory declaration, she did so out of her own free will.  James took no part in it.  She should understand the contents of her declaration as it is in Chinese and she had signed it confirming its contents.

40.  Regarding her supplemental witness statement dated 23 June 2015, she attended the offices of Messrs Li & Partners with her maid and gave instructions directly to Mr William Chang, a solicitor of Messrs Li & Partners.  None of the children was present.

41.  On 11 May 2017 and in the course of the trial, Kelly through counsel indicated in open court that he was prepared to negotiate a settlement. An adjournment followed for such purpose.  Kelly then made an offer.  The children urged Mrs Ng to accept it.  They hoped that the action could be resolved amicably and time and costs could be saved.  However, Mrs Ng did not accept their suggestion. She insisted on proceeding with the action.  The Trial then continued to the end.  

42.  Mr Lui referred to these facts and submitted that whether the children had “substantially controlled the litigation” was relevant in deciding whether they were the real parties to the litigation. Given the foregoing facts, Mr Lui submitted that the children did not have any control of the litigation throughout.  On the contrary, Mrs Ng controlled the litigation and drove it forward in her own free will.  She was not controlled or manipulated by her children.

43.  Mr Ismail disputed these facts as alleged by the children.  He doubted if Mrs Ng would have sought legal advice and given instructions to her then solicitors on her own without the assistance of the children in early 2011 after Kuen’s death. He referred to Mrs Ng’s evidence in answer to the question of whether she had drafted her statutory declaration of her own accord.  Mrs Ng answered that it was a collective effort between herself, her children and her lawyers.  But I note the evidence of Mrs Ng’s former solicitor, Mr Chan of YYY that she had gone to YYY’s office to give instructions to recover the Flats in the absence of the children.  That visit to the solicitors led to her first salvo to Kelly.

44.  Mr Ismail also submitted that the settlement offer was rejected outright. It thus beggars belief that the children would not have participated in discussions with Mrs Ng on the offer.  Their allegation is therefore no more than a bare assertion and should be disregarded.

45.  I take a different view.  The children were not saying that they had not discussed the settlement offer with Mrs Ng.  They said that they had urged Mrs Ng to accept it.  Hence, they must have deliberated about it.  But Mrs Ng did not take up their suggestion.  She insisted on proceeding with the action.

46.  I have seen Mrs Ng’s behaviour and heard her relatively lengthy evidence.  I have already observed that she is a senile and pathetic widow.  However, despite her frail appearance and being erratic and delusional, Dr Yim’s medical notes showed that she is strong-willed and domineering.

47.  Given the strength of Kelly’s case and in particular the e-mails exchanged between Jennifer and the children, I am inclined to accept the children’s case that they had advised Mrs Ng to accept the offer but she acted contrary to their advice. The children are highly educated and should be able to see the strength of Kelly’s case.  I am also of the view that should the children have some control of the defence, they would not have rejected the offer outright and continued with the trial.  Even if they did not regard Kelly’s offer attractive, they would still have negotiated with Kelly and counter-offered.  I also note that Mrs Ng had gone to the solicitors by herself to fire the first salvo against Kelly. 

48.  One important factor showing who was in control of the defence is the ultimate cause of the dispute.  Kelly had to bring the action to recover the Flats because Mrs Ng had refused to transfer the same to him since late 1985.  The trouble was in the brewing for decades.  It was Kuen’s immutable cause of worry.  When he was in very poor health, he still went to Jennifer’s chambers hoping to seek her help to resolve the problem.  Nobody ever suggested that any of the children was in alliance with Mrs Ng on this.

49.  Having considered the above facts, I accept the children’s evidence that it was Mrs Ng’s firm view to defend the action and she was in ultimate control of the litigation.  In so doing, she of course had received the necessary help from her children.

50.  In so finding, I am not resiling from my finding in §494 of the judgment that the children had played roles that were equally vigorous as Mrs Ng’s and the defence was a collaboration of everybody in the family.  I also maintain the view that given the age and health conditions of Mrs Ng, the children should have made substantial efforts to set up and maintain the defence for her. I have also spelt out in §449 of the judgment my suspicion that Vincent had contrived all the deceitful explanations to explain away the events and matters that were against Mrs Ng.  I doubt if Mrs Ng, given the education she received and the physical and mental health conditions she was in, would have been able to concoct all the deceitful explanations contained in her evidence.  However, given Mrs Ng’s pathetic conditions, her domineering character and her insistence to defence Kelly’s claim, what the children and in particular Vincent did was within contemplation if they should have felt obliged to assist her.

51.  Having considered the above matters, I accept that Mrs Ng was the real party.  Her children were not.  She had all along insisted on defending the action.  She was also in control of the defence.

Ground 4: the children have no personal interest in the outcome of the litigation

52.  The children said that they did not have a personal interest in the outcome of the litigation.  Mrs Ng is the sole registered owner of the Flats. They say that Vincent and James were only tenants of one of the Flats.  This assertion is part of their evidence for the defence, but is contrary to my finding that they were licensees of Kelly. 

53.  Mr Lui submitted that the Flats are registered in the sole name of Mrs Ng and the children did not stand to benefit from a positive outcome of the action for Mrs Ng.  They only claimed to be her tenants of one of the Flats.  Mr Lui further submitted that the landlord and tenant relationship (or their being allowed by Mrs Ng to occupy Flat B) did not constitute a “personal interest”.

54.  Mr Lui referred to Big Island (2^nd Stage).  Big Island claimed in that action for the repayment of loans from Wu Yi totaling over HK$100 million.  Mr Ben Lee, also known as Lee Ping, Ben was a director of and controlled Big Island.  He also controlled the actions (see Big Island (2^nd Stage) at §17-22, 24, 31 and 35-36 and Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd and Another [2014] 2 HKLRD 1054 at §§2-5.) 

55.  Au-Yeung J observed at §49 of Big Island (2^nd Stage) that had the claim been successful, Mr Lee would have benefitted substantially as he was the solebeneficial owner or at least a 70% shareholder of Big Island.  He was also a creditor and would have benefitted in that capacity too.  He funded the litigation. He was the real party to the litigation.  However, in the present case, the children did not have any vested interests in the Flats.

56.  Mr Ismail disagreed.  He submitted that Vincent and James had used the Flats (should be Flat B) for their respective businesses. I am of the view that if Mrs Ng should have succeeded in her defence, she would probably have allowed her children to continue occupy and use Flat C (as she had already contracted to sell Flat B to Sino Leading Ltd).  The period of the children’s occupation of Flat C would depend on whether and when Mrs Ng would sell it as well.  I also agree with Mr Ismail that it is likely they would inherit Flat C from Mrs Ng upon her death unless she should have sold it first. 

57.  I would go further to say that the children are under an obligation to support Mrs Ng, their widowed mother.  She was financially don her children.  The fact that she needed loans from Winnie to defend the action shows her need of financial support from them.  If she should succeed in her defence, she could complete the sale of Flat B to Sino Leading and receive the balance of sale proceeds of over HK$6 million. That would reduce the extent of or relieve the children from their obligation to support her.  That would also be a benefit to them.

58.  Though the children might not have any share in the interests in the Flats if Mrs Ng should have succeeded in her defence, it is not correct to say that the children would not stand to have any benefit.  Their continuous occupation of Flat C and the relief of their obligation to support Mrs Ng are potential benefits to them.  Whether such potential benefits are enough to warrant a costs order against them is another matter.

Ground 5: The children were never warned about the possibility of a non-party costs order being made against them

59.  There is no dispute that Kelly had not given the children any warning that he intended to seek a non-party costs order against them if he should succeed in the action.  The children said that if they should have been warned about such possibility, they would have reconsidered whether to give evidence for Mrs Ng and Kuen’s estate.  They further said that they would probably not have done so in the light of the serious costs risks involved.  They are therefore prejudiced by the lack of warning.

60.  Mr Lui referred to Symphony Group Plc at 193C per Balcombe LJ.  That is a case where the non-party could have been joined as a defendant but was not. The English Court of Appeal said in that case that natural justice required that the non-party should be warned at the earliest opportunity that a costs order might be sought against it, thus giving it the opportunity to apply to be joined as a party to the action. 

61.  Nevertheless, Mr Lui accepted that the importance of a warning would vary from case to case. It may depend on the extent to which it would have affected the course of the proceedings. If the non-party against whom an order for costs is sought is the real party to the litigation, the absence of a warning might be of little significance: Big Island (2^nd Stage Decision) at §73 per Au-Yeung J; adopting Deutsche Bank AG v Sebastian Holdings Inc[2016] 4 WLR 17 at §32 per Moore-Bick LJ.

62.  Mr Lui further submitted that the lack of warning to the children is significant because they were not the real parties to the action.  There was no reason why Kelly could not have given them the warning.  Kelly’s failure has brought upon them prejudice as they had all along considered that they were merely acting as factual witnesses in the action.

63.  Mr Ismail however submitted that the children would not suffer any injustice because of their close connection with the proceedings.  He contended that they were real parties to the litigation.  He referred to my finding that they had formed a united front with their mother in defending the action.  He submitted that there was no discernible difference between Mrs Ng’s defence and the corroboration by the children.  However, I have already held above that the children were not real parties to the defence.  They had indeed defended the action with their mother in a united front.  They did so because of their view of their filial obligation.

64.  Regarding the children’s claim that in view of the serious costs risks involved, they would probably not have given evidence had they been warned about the prospect of a non-party costs order, Mr Ismail submitted that such claim is suggestive that the children’s evidence would have been different in quality and/or quantity had they been warned of the costs consequences.  But I do not share this view.  As rightly pointed by Mr Lui in §16(2) of his reply submissions, the children were saying that they might not give evidence at all if they should have been warned, not that they would still give evidence but of a different quality and/or quantity.

65.  Mr Ismail also argued that the children have not particularized the precise from of prejudice that they had suffered.  I however agree with Mr Lui in §17 of his reply submissions.  The prejudice is that if they should have been warned, they might not have given evidence for Mrs Ng and Kuen’s estate at all thereby avoiding the risk of a costs order being made against them.  I hold that they are entitled to this view as they had indeed been deprived of the chance to decide not to give evidence at all.  But I do not overlook the fact that they also could not have applied to join as parties even if a costs warning should have been served on them in good time.  The question is whether after getting a warning, they would still have chosen to discharge what they perceived as their filial obligation to Mrs Ng.  I do not think there can be a clear negative answer to the question.

Ground 6: The children were prematurely joined as defendants on costs without due process and without a proper opportunity of being heard

66.  The children were not joined by Kelly’s application as the 4th, 5th and 6th defendants for the purpose of costs only.  Kelly did not make such application.  They were joined by my judgment and asked to show cause on why they should not be ordered to pay costs to Kelly jointly and severally with Mrs Ng and Kuen’s estate.  There was no separate hearing on whether they should be joined in the first place. 

67.  Mr Lui submitted that the proper procedure for making a non-party costs order involves two stages.  In the 1^st stage, the court would consider whether the non-party should be joined.  If the non-party should be joined, then he would be given the opportunity in the 2^nd stage to show cause why a costs order should not be made against him.  Whilst the threshold is relatively low, Mr Lui submitted that the court should not skip the 1^st stage and jump directly to the 2^nd stage.  The authorities show that the court has to first consider the matter at the 1^st stage before proceeding to the 2^nd stage.  He repeated these submissions in §22 of his reply submissions.

68.  I would however refer to the judgment of Etherton J in Anstalt & Ors v Hayek & Ors at §§34, 35 and 39:

“34. Indeed, as I have said, it is common ground that the court will refuse joinder if it is clear that the application for a costs order against a non-party under section 51 (3) (of the English Supreme Court Act 1981) would be an abuse of process, whether on the ground of delay or other misconduct on the part of the applicant or because the application is manifestly so fundamentally misconceived as to amount to an abuse of process.

35. I do not agree with (Ms Andrews QC, counsel for the defendant’s) proposition, however, that it is always open to the non-party to challenge the application for joinder on the ground that the application for the costs order has no real prospect of success.

…

39. Notwithstanding Ms Andres’s eloquent and attractive submissions, the possibility of a preliminary hearing on the merits in those circumstances in order to see whether the application should go forward for a determination which is itself to be conducted summarily does not strike me as sensible or efficient.  Contrary to the philosophy of a summary process, such a possibility is likely to encourage a proliferation of such preliminary hearings leading, in the case of failed challenges on the merits, to the airing of issues twice, delay, and the expenditure of more time, costs and resources both of the court and to the parties.  Those adverse consequences would be magnified by any appeal from the initial position on joinder.”

69.  I also refer to the judgment of Morgan J in PR Records Ltd v Vinyl 2000 Ltd at §34:

“34. … However, in my judgment, it is reasonably clear how the court would normally react to an application to join a party. ... If the applicant was not able to explain its claim against the intended party and/or was not able to say what purpose was served by joining the intended party, then the court might very well dismiss the application. If, for some reason, it was clear that a joinder of the intended party was an abuse of process of the court then again the court would be expected to dismiss the application. Of course, it will often arise that the intended party denies that the applicant has any proper claim against him. The way for such a contention to be tested would, in my judgment, normally be that the intended party should be added as a party so that he can then defend the claim. …”

70.  Mimmie Chan J in Sun Focus agreed with the approach of Etherton J in Anstalt and Morgan J in PR Records.  The learned Judge said in §19 of Sun Focus:

“19. I respectfully and wholeheartedly agree with the observations made by Etherton J and Morgan J in Anstalt and PR Records, and consider that the duplication of arguments on the merits at the first and then the subsequent hearings of an application for a Non-party Costs Order, and the proliferation of preliminary hearings, would be entirely contradictory to the underlying objectives of the Civil Justice Reform. At the first stage of the hearing, when the court considers whether to join a non-party in the proceedings, the court should refuse the joinder only if it is plain and obvious that the application amounts to an abuse of process, by reason of delay or other misconduct on the part of the applicant, or because the application can be seen to be manifestly and fundamentally misconceived as to be an abuse by the applicant. Arguments and documents for the first stage of the hearing should be limited to those which are considered to be necessary to enable the court to determine whether non-parties should be joined in the proceedings. It is only at the second stage that the court considers whether the costs order should be made against the non-party, the overall consideration always being whether it would be in the interests of justice to do so pursuant to section 52A of the Ordinance.”

71.  The approach set forth in the above judgments is clearly correct.  The 1^st stage of the application is just to make sure that the application is not an abuse of process by reason of delay or other misconduct on the part of the applicant, or it is not something manifestly and fundamentally misconceived as to be an abuse by the applicant.  If the non-party should deny liability, he can contest the same at the 2^nd stage in the capacity of a party to the action for the purpose of costs.  Such an approach can avoid the duplication of arguments on the merits at the first and the subsequent hearings of the application.

72.  In the present case, the children were joined not by Kelly’s application but by my judgment.  In the light of what I said in §§494 and 495 of the judgment, to hold a first stage enquiry to consider joining the children as defendants for the purpose of costs would be a waste of time and costs as the justification for joinder is obvious.  I do not consider that the children have been prejudiced by their joinder without the 1^st stage hearing.  Instead, if teh^t stage enquiry should be held, they would have to incur costs and time to attend to it and the result would have been the same. 

Conclusion

73.  A costs order against the children who are non-parties before their joinder as defendants for costs purpose should only be made if it is in the interests of justice to do so.  Such an order is outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. 

74.  I have found that the defence of the action was under the sole control of Mrs Ng who was the real party to the exclusion of the children.  I have also found that the children have been prejudiced to some extent by the lack of a costs warning served in the earliest opportunity which should mean a short time after the service of their witness statements.  But I have also found that the children or at least Winnie had provided funding for the defence. I have also found that the children would have received some benefits if Mrs Ng should have been successful in her defence. 

75.  The best argument of the children is that they helped Mrs Ng to defend the action in order to discharge what they perceived as their filial obligation to Mrs Ng.  I want to make it abundantly clear that it is not a proper discharge of one’s filial duty to one’s senior by providing perjured evidence to the court.  To do so would also be compounding the wrong of one’s senior if it is the senior’s wish to litigate with falsehood. 

76.  However, each application for a non-party costs order must be resolved on its own facts.  In the present case, Mrs Ng is a senile and pathetic widow.  When the action was developing, she was in her late 70s.  She had been troubled by mental illness since the 1980s and was a widow. She needed the help and support of the children.  But she is a strong-willed and domineering person.  If she asked the children to help her defend the action, it would have been heart wreaking for the children to have said no to her though that was the right thing to do.  It would have appeared to them to be harsh for them to say no to their senile widowed mother who was also a mental patient.  Now that they have chosen the wrong but easier route, the question is whether it is in the interest of justice to require them to shoulder Kelly’s costs jointly and severally with Mrs Ng and Kuen’s estate.  In these extenuating circumstances, my answer is no. 

Order

77.  In the light of the above discussion and conclusion, I make no costs order against 4th, 5th and 6th defendants in this action.

78.  Regarding the costs of this application, the children have given false evidence in the action which, in the interest of justice, justified their joinder under s 52A(2) of the HCO for consideration of a costs order against them.  Though they have succeeded in resisting a costs order against them, I do not think in the circumstances they should be given the costs of the enquiry.  Kelly has not started the 1^st stage of the enquiry.  He joined the 2^nd stage but failed.  In the circumstances, I would make a costs order nisi that there be no order as to costs for the joinder of the children and the enquiry under s 52A(2) of the HCO.