LAU WAI YIN AMY AND ANOTHER v. POON CHUNG KWONG PETER AND OTHERS

CACV 453/2020

[2020] HKCA 1040

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 453 OF 2020

(ON APPEAL FROM HCMP 152/2019)

________________________

________________________

________________________

________________________

JUDGMENT

________________________

Hon Lam VP:

1.  This is an appeal against the order for costs made by Deputy High Court Judge William Wong in a petition and the costs order made by the judge was granted after the proceedings were resolved by way of an earlier order on 24 December 2019. In that earlier order, the judge ordered that the 2^nd respondent repay $2.5 million to the company within 14 days and then granted leave to the petitioners to withdraw the petition.

2.  After the benefit of hearing counsel’s submission this morning, (although it was not very clear from the transcript and also from the order as perfected) it has now been clarified it is indeed common ground that that order of the judge on 24 December 2019 was made in light of undertaking given by the 2^nd respondent, the solicitors, to return the money to the company.  So, the repayment of $2.5 million was a consent order or – viz to that extent it was a consent order.

3.  After the making of that order, the parties filed submissions on costs.  After considering the parties’ submissions on costs, the order for costs made by the judge on 19 March 2020 was that (1) all costs of and incidental to the petition, including costs reserved, up to and including 29 April 2019, be paid by the 1^st and 2^nd respondents to the petitioners, to be taxed if not agreed, on party to party basis; (2) all costs of and incidental to the petition from 30 April 2019 up to and including the hearing on 24 December 2019, be paid by the petitioners to the 1^st and 2^nd respondents, to be taxed if not agreed, on a party to party basis.

4.  The petitioners sought leave to appeal against that costs order.  Leave was refused by the judge.  This court granted leave on 8 September 2020 and directed there be an expedited appeal.  This appeal is heard today.

5.  However, due to the inability to serve the notice of appeal on the 2^nd respondent, at the beginning of the hearing this court decided that, for the time being, the appeal as between the petitioners and the 2^nd respondent is to be stayed, with liberty to restore after the petitioners have served the notice of appeal on the 2^nd respondent.

6.  With the agreement of the parties, the court also hear the appeal as between the petitioners and the 1^st respondent.

7.  In order to appreciate the merits on the question of costs, we have to go back a little bit in terms of the history of the proceedings.  The petition was presented on 31 January 2019.  What happened was that previously the shareholdings of the company are held by the 1^st respondent and another shareholder, Pun Sheung-wai Joseph.  Joseph held 61 per cent whilst the 1^st respondent, Peter, held 39 per cent of the shareholdings.  Joseph passed away and letters of administration were granted to the petitioners on 17 July 2018.   Notwithstanding the grant of letters of administration, there were problems encountered by the administrator in procuring them being registered as shareholders.  They had to proceed by way of proceedings in HCMP 64/2019 in order to procure their registration.

8.  Therefore, at the time of the presentation of the petition, the petitioners were not registered shareholders of the companies but they certainly had interests in the shareholdings in terms of the estate of Joseph.

9.  In the meantime, after the passing away of Joseph, the 1^st respondent Peter was in control of the affairs of the company and at the time when the petition was presented, the petitioners had various concerns apart from their inability to be registered as shareholders.  One of the concern, which has subsequently become the major concern, was that the 1^st respondent transferred monies of the company out of the bank accounts of the company.  The sum in question, which becomes the concern or the only concern remaining when the matter came before the judge, was that on 29 January 2019 the 1^st respondent procured the transfer of $2.5 million from the company’s account to a solicitor, the 2^nd respondent, who was the solicitor acting for the 1^st respondent in these proceedings.

10.  After the commencement of the petition, the petitioners obtained interlocutory injunctions with regard to the assets of the company, including the $2.5 million.  It is not necessary for us to go into the details but it suffices to note that that injunction was in place up to the time of the hearing before the judge.

11.  Eventually, because of the other set of proceedings, ie the HCMP proceedings by the petitioners in relation to their registration as shareholders, they become registered shareholders of the company and therefore regained control of the company.  By 30 April 2019 they had the control in the sense that they were on the board of the company and the 1^st respondent could no longer control the affairs of the company.

12.  Notwithstanding that, the petition was still carried on.  The affirmation of the 1^st respondent was filed on 9 September 2019.  In that affirmation, the position of the 1^st respondent was that there were some reasonable grounds to suspect that, after his exclusion from management and removal as director, some of the books and records were improperly made and there were suggestions of forgeries of documents.  With regard to the $2.5 million, what the 1^st respondent said in paragraph 15 of the affirmation of 9 September 2019 was that the use of the sum was described in paragraph 11 of the petition.  Further, he referred to a witness statement filed with the Labour Tribunal in LBTC 2700/2019 in respect of his claim against the company in order to give a comprehensive picture of the case.

13.  In other words, at that stage, the 1^st respondent did not indicate at all that he was agreeable to the return of the money to the company.  

14.  The 2^nd respondent, that is the solicitor who was holding the money after it was transferred to the solicitors’ firm by the 1^st respondent, did not file any evidence in the petition.

15.  It is confirmed by Mr Lo this morning at the hearing before us that the 2^nd respondent at all times were not acting for the company.  The solicitor was only acting for the 1^st respondent.

16.  In the events leading up to the hearing before the Deputy Judge, skeleton submissions were filed and one of the points taken by the 1^st respondent in the written submissions was that in light of the petitioners regaining control of the company, the court had no jurisdiction to entertain the matter in relation to the $2.5 million because the proper course was for the company to start a fresh action to seek the recovery of the amount.

17.  It is also clear from the documentations filed in the petition that all along the petitioners were seeking to have the $2.5 million restored to the company.

18.  Thus, the positions of the parties when the matter came before the Deputy Judge was that, as far as the petitioners were concerned, they sought to have the $2.5 million restored to the company. 

19.  On the other hand, the 1^st respondent took the stance that the wrong proceedings were on foot and there was no basis for the court to give an order for the return of the money in the petition.

20.  The 2^nd respondent’s stance was rather nebulous because no evidence was filed by the firm.  On the date of the hearing Mr Lo indicated to the court that he only represented the 1^st respondent.  The 2^nd respondent was not represented and on the records it did not actually appear at the hearing.  But that was not quite the correct picture because the 2^nd respondent was a sole proprietorship and the solicitor was actually sitting in court as the instructing solicitor of Mr Lo, albeit in the capacity as solicitor for the 1^st respondent.

21.  This has some bearing later on when we examine how the court came to decide that it could make the order as it did on 24 December 2019.  We have the benefit of the transcript of that hearing before us and we have considered it carefully. What happened was that at the start of the proceedings, whilst the judge noted the jurisdiction point taken by the 1^st respondent and Mr Lo, the judge indicated that he was not with Mr Lo on the point of jurisdiction.  He indicated that the court did have jurisdiction and the only question was the relief.

22.  The judge also took a very practical and robust way to address the matter because after correctly identifying that the concern was about the $2.5 million and the judge indicated that there was no ground on which the respondents could resist the restoration of the $2.5 million to the company.  The judge further took the view that the company can simply wrote a letter to the solicitors and the solicitor would have to comply with that request.

23.  That may not be entirely correct because, from what we have been told, the money was transferred by the 1^st respondent to the solicitors as his solicitors, rather than as solicitors for the company.  So the company was not in a position to direct how the solicitors should deal with the $2.5 million.  The solicitor might have no defence in terms of a proprietary claim by the company for the return of the $2.5 million, but that is a separate matter.

24.  However, this was not a problem because on that occasion, after the judge indicated that the solicitor would have to comply with the request, the judge also observed that the solicitor (who was actually sitting behind Mr Lo as an instructing solicitor for the 1^st respondent) nodded his head, thus indicating to the court that the solicitor had no objection to the return of the $2.5 million back to the company.

25.  Perhaps prompted by that response of the solicitors, the court further explored with counsel as to how the matter can be resolved effectively and efficiently.  After some discussions, Mr Lo indicated on behalf of the 1^st respondent that generally they had no problem with the restoration of the money back to the company.  Whilst at the same time he referred to concern with regard to another set of proceedings commenced by the 1^st respondent as petitioner in HCMP 2303/2019, the judge indicated that that was a different matter and did not provide any reasons for not returning the money to the company.  There came a stage where counsel for the petitioners invited the respondents to give an undertaking that the money be returned to the company within seven days upon demand, and then they would withdraw the petition.

26.  That suggestion seems to find favour with the judge and the judge asked Mr Lo to take instructions whether the solicitor, that is the 2^nd respondent, will give the relevant undertaking.

27.  It is unclear from the transcript whether such undertaking was actually given.  But Mr Lo as well as Mr Wong (both of them were present at that hearing) confirmed for this court that at that juncture or maybe earlier on, the solicitor himself did indicate that he would give such an undertaking to the court and it was on that basis the matter was proceeded with.  Following from that, Mr Lo informed the court that the solicitor needed 14 days instead of 7 days to comply with the request for the return of the money.

28.  After some discussions, the judge, taking into account the undertaking given by the solicitors and also the positions of the 1^st respondent as well as the petitioners, made an order that the 2^nd respondent shall repay the $2.5 million to the company within 14 days from the day of a formal request.

29.  Thereupon, the petitioners through Mr Wong indicated that they would withdraw the petition.  At the same time he said that the petitioners would ask for costs because it was necessary for them to take out the petition and come to the court to obtain the relief.

30.  The judge direct written submissions on costs and the matter was proceeded from there.

31.  The judge handed down his decisions on costs on 19 March 2020.  In that decisions, the judge found that the petitioners did not act in abuse in commencing the petition bearing in mind their predicament at the time when the petition was presented on 31 January 2019.  In the end he said he took into account three factors in coming to his decision on costs. 

32.  First, at paragraph 9 of his judgment on costs, he acknowledged that the petitioners had to come to court to have the order to restore the $2.5 million back to the company and, this is the important part, he also said that the petitioners had in essence achieved what they prayed for in the petition.

33.  The second factor the judge alluded to at paragraph 10 onwards was the appropriateness of the petition.  After observing that the petitioners were justified in commencing the petition as they did, he also observed that there was some arguments as to whether the proceedings could be carried on in such manner.  But he found that it was not necessary for him to definitely resolve this issue because, he said, even if they had resorted to an incorrect initiating procedure, the court in all fairness would allow them to convert the petition to a proper legal procedure with minimum cost implication.  The judge also noted the need to have interim injunctive relief and that had been obtained by the petitioners.  His conclusion was that there was no abuse of process by the petitioners.

34.  The third factor the judge alluded to in his decision on costs was at paragraph 15 of the decision on costs, referring to the position after 30 April 2019.  Due to the regain of control, the judge noted the submission of Mr Lo that, by virtue of that, the original rationale for the presentation of the petition was no longer there.  At the same time, the judge noted the submission of Mr Wong that even had the proper procedure been commenced, it was unlikely that the 2^nd respondent would have conceded to the request for the restoration of the money to the company.  There was reference to the history of the matter and also what happened subsequent to the making of the order in December 2019.

35.  There were attempts by the solicitor to vary the order so that the $2.5 million was to be directly paid to an alleged major creditor instead of the company.  This occasioned the petitioners to take out a further unless order summons compelling the 2^nd respondent to comply with the order.  Very close to the deadline, the solicitor paid the $2.5 million (or purported to pay) by means of a cheque which was however dishonoured.  It was only subsequent to that, after a complaint were made to the Law Society, the solicitor paid the $2.5 million by a cashier order.

36.  The judge took into account of these three factors and said he would exercise his discretion by making the order which I have already mentioned.

37.  It would appear that the judge was very much influenced by Mr Lo’s submission that the starting point should be that, given the petition has been withdrawn, the withdrawing party shall pay for the costs of the opposing parties.

38.  Whilst that proposition is applicable generally, in the present situation, in my judgment, it cannot be the correct starting point.  As has been emphasised time and again in the consideration of the question of costs, the courts have to have regard to the reality and justice of the matter.  In YBL v LWC (No 2) [2017] 2 HKLRD 783, the court set out the relevant principles, in particular at paragraphs 9 and 10.  At paragraph 10(c), the court emphasised that:

“ ... in measuring who is the successful party and the extent of his success, the court must examine the reality and justice of the case”.

39.  In the present case, in light of the history that I have referred to, in particular what had happened at the hearing before the judge on 24 December 2019, the petitioners only applied to withdraw the petition after the court has made the order upon the undertaking by the solicitor to return the $2.5 million to the company.  As the judge himself noted in his decision on costs, at paragraph 9, the petitioners have in essence achieved what they prayed for in the petition. 

40.  It would not be right in these circumstances to view the withdrawal of petition as a surrender on the part of the petitioners. Rather, it was the consequence of having gained full victory in the matter in terms of getting the order for the repayment of the $2.5 million to the company.  In other words, the starting point should be that in these proceedings the petitioners should be regarded as the successful parties.

41.  With that starting point in mind, there could be scenarios where the petitioners, notwithstanding their victory, should be deprived of costs or some of their costs as a result of the conduct of the proceedings.  If one were to look at the matter from that angle and ask the question, “Is there any factor or matter in the present case which calls for a departure from that starting point?” and examine that against the three factors highlighted by the judge, I respectfully cannot see any basis for doing so.

42.  In terms of the first factor, that was actually in favour of the petitioners.

43.  The second factor again cannot provide a reason for departing from the costs follow event approach, as the judge found that there was no abuse of process.

44.  As to the third factor - that is the position after 30 April 2019 - the judge himself did not rule that it was unreasonable for the petitioners to carry on with the petition after 30 April 2019.

45.  Against the background of the history of the proceedings, actually one can ask rhetorically what benefit would there be if, instead of carrying on with the petition, the petitioners, or rather, the company were to start a fresh action suing for the return of the $2.5 million. It seems to me that such a course would only add to the costs of the proceedings.  Up to the time the matter came before the judge, there was no suggestion that the 1^st respondent or the 2^nd respondent would return the money to the company.  The position of the 1^st respondent, as reflected in his affirmation of 9 September 2019, was otherwise.

46.  The judge, adopting a practical approach to the case, was able to achieve an effective solution to the matter.  In those circumstances, there would not be much point of requiring the petitioners to start a fresh set of proceedings by way of the company suing for the return of the money.  Therefore, on the whole, I do not think it was unreasonable for the petitioners to proceed in the way they did notwithstanding their regaining control of the company since the end of April 2019.

47.  We should also bear in mind that, throughout this period, the petitioners (and indirectly the company) were protected by the interim injunction which was still continuing.  So there was some need for the proceedings to be carried on at that stage. 

48.  The matter would have been different if the respondents had offered to return the money to the company after the end of April 2019.

49.  Mr Lo placed much emphasis at the hearing before us that the company can make a demand for the repayment and, if that demand has been made that might have resolved the matter. 

50.  With respect, I think the ball is in their court because the money was transferred by the 1^st respondent to the 2^nd respondent.  There is nothing to indicate that the 2^nd respondent considered that he owed a duty to the company to return the money.  There was sufficient opportunity in terms of the time available for the respondents to consider the matter after the petitioners regained control in the company to offer the return of the money back to the company.  But that was not the stance adopted by them and they did not take that position until after the judge indicated at the hearing that they really have no defence in that matter.  I do not think there is anything unreasonable for the petitioners to proceed with the hearing of the petition in these circumstances.

51.  All in all, having considered all these matters, I am of the view that the judge was plainly in error: firstly, in adopting a wrong starting point in considering what should be the order for costs after 30 April 2019 and; secondly, in terms of the three factors he placed regard to, none of them are valid reasons for not giving the petitioners the costs of the petition up to the hearing.

52.  I am aware of the high threshold for disturbing an order for costs made by the Court of First Instance.  But in this particular case I am able to come to the conclusion that the judge’s decision was wrong in principle and that he had failed to take into account relevant consideration in terms of the history of the matter and also the effect of the petitioners being the successful parties in reality and how the withdrawal of petition came about. Also, the decision on costs as made by the judge was plainly wrong.

53.  For these reasons, I will allow the appeal and set aside the order for costs made by the judge and order instead that the 1^st respondent shall pay the costs of the petitioners in the petition, including those incurred after 30 April 2019 up to the end of the proceedings.

Barma JA:

54.  I agree with the judgment of the learned Vice-President and have nothing to add.