ELITT ENGINEERING CONSULTANTS LTD v. SNE ENGINEERING CO LTD

HCA 603/2012
HCA 1312/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 603 OF 2012

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BETWEEN

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AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1312 OF 2012

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BETWEEN

(Consolidated pursuant to the Order of Master de Souza dated 12^th September 2012)

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D E C I S I O N

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1.  The defendant in these consolidated actions succeeded before me in its summons to discharge the Mareva injunction order that was granted by Deputy High Court Judge Coleman. My judgment was given on 26 November 2012 (“my Judgment”). I also announced that there was no justification for the grant of a fresh Mareva injunction in favour of the plaintiff, dismissing the plaintiff’s inter partes summons to continue the Mareva injunction. I ordered that there be an inquiry as to damages that had been caused by the grant of the injunction order. I also made an order nisi that the plaintiff do pay the defendant the costs of the said two summonses, to be taxed if not agreed.

2.  Before me now is the defendant’s application to have my costs order nisi varied so that the costs of the plaintiff’s summons to continue and the defendant’s summons to discharge be taxed on an indemnity basis if not agreed. 

3.  Mr Edward Ng, for the plaintiff, has very helpfully directed my attention to the authorities on how the discretion to order indemnity costs should be exercised.  He refers me to the following cases, namely, Overseas Trust Bank Limited v Coopers and Lybrand & Ors [1991] 1 HKLR 177 at 183A-184C, Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at 1333I to 1336B, New Asia Energy Ltd v Concord Oil (Hong Kong) Ltd [2000] HKC 681, at 690-1, and China Chance Corporation Ltd v Rockefeller Group International Inc, HCA 2165 of 2009 (2 February 2011, unreported).  I think it is only necessary to refer to the judgment of Suffiad J in the last mentioned case, China Chance, where he summarized the earlier authorities on the court’s discretion to award indemnity costs in the following manner:

“16. Generally speaking, that discretion may be exercised where there has been deception or underhanded conduct or where the case has been brought with an ulterior motive or for an improper purpose or where litigants conduct their case in bad faith, or in an improper or oppressive manner or where costs has been incurred irrationally and out of all proportions to what is at stake. However, it must also be recognized that these are not the only situations where that discretion of the court may be exercised nor should such discretion be fettered or circumscribed. The power to award of indemnity costs should only be made where ‘appropriate’”

4.  In the present case, as has been expressed in my Judgment, the Mareva injunction was discharged for the reason that there was material non‑disclosure.  The plaintiff provided Deputy Judge Coleman with information supported by affirmations put before him that recently (ie, in about September or October 2012) the plaintiff had come to know that the defendant had been transferring a significant sum of money (over Yen 100 million, about HK$10 million) back to Japan since July 2011, while owing the plaintiff a sum of around HK$4 million.  It transpired that the plaintiff all along (not recently as alleged) knew about these transfers to Japan because they were approved by Mr Lam, the director of the plaintiff who made affirmations in support of the plaintiff’s application for Mareva injunction, that they were legitimate business expenses of the defendant and that the plaintiff had received similar payments from the defendant during the period.  See paras 15, 16, 17 and 18 of my Judgment.

5.  I held that a real risk of dissipation of assets or removal of assets from the jurisdiction is one of the matters which the plaintiff must show to the court in order to obtain a Mareva injunction.  At para 23 of my Judgment, I ruled that the alleged dissipation by way of the transfer of “a significant sum” to Japan

“must have a significant impact on the mind of the judge, or for that matter on any judge considering the application, that the plaintiff should be protected from this seemingly unreasonable conduct of the defendant.”

6.  At the time of my hearing of the application to discharge the injunction, a chance was given to the plaintiff to explain, if it could. I refer to this in paras 24 and 25 of my Judgment.  I said:

“24. During the course of argument, I asked Mr Clark whether the non‑disclosure of the fact that the payments to Japan were approved by Lam could have been a mistake made by the plaintiff’s legal advisers and not Lam himself, for example because Lam, not being a lawyer, was not aware of the rule of full and frank disclosure; and the word ‘recently’ used in the Skeleton Argument might not have been drawn to the attention of Lam and had not been expressly approved by him. Mr Clark replied by directing my mind to the fact that after the material non‑disclosure was pointed out by the defendant’s solicitors in a letter dated 31 October 2012 to the plaintiff’s solicitors, the reaction of the plaintiff was simply that Lam admitted the non‑disclosure. No explanation was ever given as I suggested and no excuse or regret has so far been expressed.

25.    In the circumstances, I have no doubt that the full rigour of the law to discharge the injunction for material non‑disclosure must apply.”

7.  During the course of today’s hearing, I give Mr Ng an express opportunity to explain Lam’s non-disclosure but Mr Ng cannot offer any or even any excuse or regret. 

8.  When I made the order nisi for costs, I simply made an order nisi that costs follow the event on the usual basis because the fact that plaintiff’s summons sought indemnity costs escaped my attention.

9.  Now, giving a chance to consider whether indemnity costs should be granted, I consider the matter afresh.

10.  Mr Ng argues that there were news from the market that the defendant was selling its equipment amongst suppliers.  The Mareva injunction was sought to protect the plaintiff’s right to its potential claim.  This last sentence is stating the obvious: the purpose of a plaintiff trying to obtain a Mareva injunction must be for protecting his right to his potential claim.  This does not help the plaintiff in the present application. If the plaintiff heard news from the market that the defendant was selling its equipment amongst suppliers, by all means disclose that fact and rely on it, and in fact that was disclosed, but why did the plaintiff tell the judge that the defendant was making transfers of a significant sum to Japan without disclosing that Lam had approved the transfers, that those were payments to suppliers and that the plaintiff was similarly paid a substantial sum?  What I also recorded in my Judgment is important:

“28. . … apart from the assets worth about HK$10 million that were alleged to have been dissipated by the defendant (but with the approval of the plaintiff), Mr Ng could only point to sums of about HK$600,000 (out of a total indebtedness of over HK$60 million) that had been paid out by the defendant since Lam lost control over the finances of the defendant in February 2012, which would not in the circumstances of this case justify the strong measure of a Mareva injunction.”

11.  It appears to me that the purpose of the alleged recent knowledge of the plaintiff of the defendant transferring out of Hong Kong a sum of about HK$10 million was to induce or even mislead the court into issuing the Mareva injunction, without which allegation the application would probably fail.  This is underhand conduct in handling the plaintiff’s claim and it’s seeking remedies from the court.  It abused the interlocutory remedy of a Mareva injunction and indeed it also qualifies as using improper and oppressive means to compel the defendant to submit to paying the plaintiff’s claim without any further ado.  When I allude to this possible motive, Mr Ng does not take issue or seek to respond.

12.  I have come to the conclusion that this is a proper and appropriate case for an indemnity costs order to be made.  I vary my order nisi as to costs accordingly.  The costs of this variation application be paid also by the plaintiff to the defendant, on the same indemnity basis.