HONG KONG RACING PIGEON ASSOCIATION LTD AND OTHERS v. LAM KOON NAM AND OTHERS

HCMP 1454/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO. 1454 OF 2003

(ON APPEAL FROM HCA NO. 18376 OF 1999)

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REASONS FOR JUDGMENT

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Hon Cheung JA (giving the reasons for judgment of the court):

1. On 26 November 2003 we refused the plaintiff's application for leave to appeal against the costs order made by Deputy High Court Judge To on 4 October 2002. These are our reasons.

Application for leave to appeal

2. On 21 June 2002 after an eight-day trial, the judge gave judgment for the plaintiffs against the defendants for a declaration that a purported extraordinary general meeting held on 30 November 1999 was not a meeting of the Hong Kong Racing Pigeon Association Limited and all resolutions purportedly passed at the meeting were not binding on the association. The judge, however, dismissed the plaintiffs' claim for breach of fiduciary duty against the 1st and 2nd defendants.

3. The judge made a costs order nisi that there be no orders to costs. The costs order was made absolute on 4 October 2002 after hearing the parties.

4. The judge refused the plaintiffs' application for leave to appeal against the costs order. The plaintiffs then applied for leave before Yuen JA to appeal against the costs order. She refused the leave application. The plaintiffs renewed the leave application before this Court. This is an ex parte application.

Facts

5. Very briefly the facts are that the 1st plaintiff is an association ("the association") incorporated in 1975 under the Companies Ordinance as a company limited by guarantee. There were eight original subscribers including the 2nd to 5th plaintiffs and the 1st and 2nd defendants. The other two original subscribers had ceased to become subscribers.

6. The eight subscribers were validly appointed as the directors of the association with the 2nd plaintiff acting as the chairman of the board of directors since 1975. The day to day operation of the association was run by the 1st defendant. He admitted members into the association without observing the procedures set out in the articles of the association. The 3rd to 13th defendants were appointed and had acted as directors of the association between 1984 and 1986.

7. In 1999 the 2nd plaintiff felt that his position was challenged by the recruitment of the 3rd to 13th defendants into the board of directors. He called for a subscribers' meeting where it was decided that the 3rd to 13th defendants should not be recognized as directors of the association.

8. On the other hand the 1st defendant and 65 members (including the other defendants in this case) who were admitted in the same way as the other defendants in this case requisitioned an extraordinary general meeting in order to regularize the appointment of the 3rd to 13th defendants as directors.

9. A meeting was duly held on 13 November 1999 ("the meeting") in which the position of the 3rd to 13th defendants was regularized. It is against the meeting that the plaintiff brought this action.

10. As can be seen from the judgment the central issue before the judge was on the validity of the membership of the 3rd to 13th defendants. The judge held that these defendants together with other members were not properly appointed as members and hence the meeting they had called was invalid and the resolutions passed at the meeting were not binding on the association.

How leave application should be considered

11. In applications for leave to appeal the court will only refuse leave if it satisfies that the applicant has "no realistic prospect of success on the appeal" or that he has "no arguable case". These two formulas are in fact the same. The word "realistic" is used to make it clear that a fanciful prospect or an unrealistic argument is not sufficient : Smith v. Cosworth Casting Processes Limited [1997] 4 All ER 840.

Principles on costs

12. The case of Re Elgindata Limited (No. 2) [1992] 1 WLR 1207 contains a useful summary of the relevant principles on how costs should be awarded :

(1)	Costs are in the discretion of the court;
(2)	They should follow the event, except when it appears to the court that in the circumstances of the case some other order should be made;
(3)	The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs;
(4)	Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party's costs.

13. These principles can be gathered from section 52A of the High Court Ordinance, the relevant provisions of Order 62 of the Rules of the High Court namely, Rules 2(4), 3(2) and 7 and also the established practice.

The plaintiffs' argument

14. The plaintiffs argued that they are entitled to costs because they had succeeded in their claim against the defendants.

The reason

15. The reason why the judge did not make an order for costs in favour of the plaintiffs is that he considered the plaintiffs had brought upon the litigation themselves by allowing members to be admitted to the association without observing the provisions of its regulations.

Evidence of the 2nd plaintiff

16. The evidence of the plaintiffs came from the 2nd plaintiff who, while on one hand, challenged the validity of the membership of the 3rd to 13th defendants and other members who requisitioned the meeting, had also, on the other hand, maintained that 323 members (i.e. 388 less the 65 members who requisitioned the meeting) who were admitted in similar circumstances as those who requisitioned the meeting were in fact properly admitted members.

No halfway house

17. There cannot be any halfway house as far as the validity of the memberships is concerned if all of the two categories of members were admitted on the same basis.

18. The judge found that the Association had run in a casual manner and for more than 20 years members had been admitted without observing the provisions of the articles. It is not clear when the 3rd to 13th defendants became members of the association. However, according to the judgment, the defence's case is that the 4th defendant was appointed in January 1984 to replace one of the subscribers. The 3rd, 5th to 13th defendants were appointed pursuant to resolutions passed on 4 and 7 March 1984 and 5 December 1986 and that all along they had acted as de facto directors.

19. The plaintiffs only began to challenge the validity of the appointment of the defendants as directors in April 1999.

20. The evidence showed that for a substantial period of time, the 3rd, 5th to 13th defendants had participated in the affairs of the association as directors. This must be on the basis that they were treated by the association as having been validly admitted as members in the first place. When the dispute came to a head in 1999, litigations had to be resorted to.

21. This being the background, we do not regard that the judge had erred in principle to order each party to bear its own costs of the action. We agree with the judge's view that the plaintiffs had brought the litigation upon themselves by allowing the situation to be carried on for such a lengthy period. All the individual plaintiffs had chosen to join in the litigation and they must take the consequence of the decision.

22. The circumstances in which costs will not follow the event cannot be exhausted. This is one of those cases where the judge was clearly justified in imposing the order as he did. We would have come to the same conclusion ourselves.

Conclusion

23. We are of the view that the plaintiffs have no realistic prospect of success in appealing. Accordingly, we refused to grant leave to the plaintiffs to appeal against the costs order.