WADDINGTON LTD v. CHAN CHUN HOO THOMAS AND OTHERS

HCA 3291/2003

[2018] HKCFI 1546

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3291 OF 2003

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DECISION

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INTRODUCTION

1.  On 29 March 2018, the Plaintiff issued 2 summonses seeking leave to appeal against the following orders made by this court:-

(1)   an order dated 19 March 2018 (“the Disclosure-Refusal Order”) dismissing the Plaintiff’s application for further disclosure of information and documents by Reed Smith Richards Butler (“RSRB”) relating to the funding arrangement in respect of the 5^th Defendant’s costs in this action and in CACV 142/2015; and

(2)   an order dated 21 March 2018 (“the Taxation Order”) directing the Plaintiff to commence proceedings and proceed with the taxation against the 5^th Defendant pursuant to various costs indemnity orders previously made by the court in favour of the Plaintiff more particularly referred to in paragraph 16 of the court’s written decision handed down on 21 March 2018.

2.  The two applications came before me on 4 July 2018.  At the conclusion of the hearing, I dismissed the two applications, with reasons to be given later.  This I now do.

INTENDED APPEAL AGAINST THE DISCLOSURE-REFUSAL ORDER

3.  The background facts giving rise to the Disclosure-Refusal Order and Taxation Order are set out in the court’s previous written decisions handed down on 19 March 2018 (“the Second Disclosure Decision”) and 21 March 2018 (“the Taxation Decision”) respectively, and shall not be repeated here.  Unless otherwise expressly indicated, I shall continue to use the expressions and abbreviations as defined in the two written decisions in these reasons.

4.  The test for deciding whether to grant leave to appeal under Section 14AA of the High Court Ordinance, Cap 4, is well established.  Leave to appeal shall not be granted unless (a) the appeal has a reasonable prospect of success, or (b) there is some other reason in the interest of justice why the appeal shall be heard.  For this purpose, reasonable prospects of success involve the notion that the prospects are more than “fanciful”, without having to be “probable” (see SMSE v KL [2009] 4 HKLRD 125, at paragraph 17 per Le Pichon JA).

5.  Three intended grounds of appeal against the Disclosure-Refusal Order are raised in the Plaintiff’s draft notice of appeal, namely:-

(1)   The court erred in law and in principle in holding that the purpose of a non-party costs order can be achieved by directing such an application against the 3^rd Defendant (plus PIL Finance Limited and Belmont Limited) as the funder of the 5^th Defendant’s costs.

(2)   The court erred as to the applicability of the “Preservation Purpose” in the present case formed on the basis of the court’s other reasons to dismiss the Plaintiff’s further discovery application.

(3)   The court erred in taking the view that “there is a valid basis for the 3^rd Defendant to lend monies to the 5^th Defendant to fund litigations which the 5^th Defendant would otherwise be unable to pursue for lack of funds”, “the 5^th Defendant had a proper interest to oppose the Interim Payment Application”, and “it was [not] improper for the 5^th Defendant to be legally represented and take part in the relevant applications” (see paragraphs 22, 23 and 25 of the Second Disclosure Decision).

6.  As stated in paragraph 5 of Mr Lam’s Skeleton Argument dated 29 June 2018 for the Plaintiff, the key question which the Plaintiff seeks to raise in the intended appeal is as follows:-

(1)   should the Plaintiff be satisfied with the ability to issue a non-party costs application against the 3^rd Defendant, PIL Finance Limited and Belmont Limited (“the Paying Companies”); or

(2)   should the Plaintiff be entitled to seek further information as to the real party responsible for controlling the litigation or actively assisting the 5^th Defendant behind the scenes, such that a non-party costs application can be issued against such party?

7.  In relation to (1) above, it should be noted that the court dismissed the Plaintiff’s Third Disclosure Application not because, or merely because, it considered that the Plaintiff should be “satisfied” with the ability to issue a non-party costs application against the Paying Companies.  At paragraph 19 of the Second Disclosure Decision, the court pointed out that, prima facie, the Plaintiff’s ability to pursue an application for non-party costs against the Paying Companies should be sufficient to satisfy or protect the Plaintiff’s position as regards costs.  The court went on to state that unless there were some good reasons justifying the Plaintiff’s attempt to go beyond or behind the actual funder of the 5^th Defendant’s costs, it should not exercise its discretion to order RSRB to provide further disclosure to assist the Plaintiff in such exercise which would likely, or at least potentially, lead to further satellite litigations.  The court then considered the specific facts and circumstances of the present case, and came to the conclusion that the further disclosure sought by the Plaintiff should be refused.  In coming to that conclusion, the court took into account, inter alia, the fact that Section 52A(2) should not be used for collateral purposes (such as for pursuing a complaint of breach of fiduciaries against Mr Thomas Chan) or be allowed to generate satellite litigations, and the view taken that the information and documents sought by the Plaintiff would not likely be of great potential value to the fair determination of the Plaintiff’s intended application for non-party costs, or elucidate considerations highly probative to the exercise of the court’s discretion on whether to make a non-party costs order (see paragraphs 20 to 30 of the Second Disclosure Decision).

8.  In relation to (2) above, Mr Lam argues, at paragraph 6(a) of his Skeleton Argument, that the “Preservation Purpose” of an application for a non-party costs order under Section 52A(2) of the High Court Ordinance would be defeated if the Plaintiff were to pursue such application against the Paying Companies only. This is because, according to Mr Lam, “[i]f a non-party costs order were to be made against the Paying Companies, D5’s assets would still ultimately [be] used to settle the same improperly incurred legal costs (by paying off the Loans)”. It should be noted, however, that the Plaintiff’s intended application for a non-party costs order relates to the costs which the 5^th Defendant has been ordered to pay to the Plaintiff arising out of its resistance to the various interim payment applications taken out by the Plaintiff, but not the costs which the 5^th Defendant has itself incurred, whereas the Loans made by the Paying Companies to the 5^th Defendant were used to fund the 5^th Defendant’s own costs in relation to (inter alia) various applications referred to in paragraph 24 of the Second Disclosure Decision.  In so far as the 5^th Defendant is under a liability to repay the Loans to the Paying Companies, such liability (if any) would remain regardless of whether the Plaintiff’s intended application for a non-party costs order is directed against the Paying Companies or Mr Thomas Chan, or the outcome of such application.

9.  In paragraph 6(b) of his Skeleton Argument, Mr Lam further argues that if the Plaintiff were to simply require the Paying Companies to pay the costs which the 5^th Defendant has been ordered to pay to the Plaintiff, it would be wholly nugatory in serving the Preservation Purpose as the depletion of the Paying Companies’ assets has exactly the same detrimental effect as the depletion of the 5^th Defendant’s assets insofar as the shareholders of the 3^rd Defendant are concerned.  This point was considered and dealt with in paragraph 22 of the Second Disclosure Decision, and will not be repeated here.

10.  There is one other matter that I should mention here.  Mr Lam refers to and relies upon paragraph 26 of the First Disclosure Decision, where I stated that “it is debatable whether it was reasonable for the 5^th defendant to oppose the Interim Payment Application and to lodge an appeal against the November Order”.  In resisting the First and Second Disclosure Applications, RSRB argued, at the hearing on 17 January 2017, that it was not unreasonable for the 5^th Defendant to oppose the Plaintiff’s Interim Payment Application.  The 5^th Defendant was not, however, represented at that hearing, and thus the court did not have the benefit of receiving or considering any submissions from the 5^th Defendant.  In the First Disclosure Decision given on 25 January 2017, the court left open the question of whether it was reasonable for the 5^th defendant to oppose the Interim Payment Application and to lodge an appeal against the November Order.  Subsequently, on 14 March 2017, the Plaintiff made the Third Disclosure Application.  On 5 April 2017, the court granted leave to the 5^th Defendant to intervene in the Third Disclosure Application.  Mr Edward Chan, SC (together with Mr Law Man-chung) appeared for the 5^th Defendant at the hearing of the Third Disclosure Application on 12 December 2017.  As can be seen from paragraph 23 of the Second Disclosure Decision, I accepted Mr Chan’s submission that the 5^th Defendant had a proper interest to oppose the Interim Payment Application because the money in court belonged, as a matter of law, to it, even though the opposition ultimately turned out to be unsuccessful.  In this regard, in paragraph 18 of the Court of Appeal’s judgment in Waddington Limited v Chan Chun Hoo Thomas (HCMP 1326/2017, 18 October 2017), the Court of Appeal also expressed its agreement with the submission of Mr Chan that “whilst a company in a derivative action should take a neutral stance in the trial of the action, this is not necessarily the case in respect of interlocutory applications that may directly concern or affect the interest of the company”.

11.  Taking into account the threshold required for a successful appeal against an exercise of discretion by a judge at first instance, I do not consider the Plaintiff’s intended appeal has a reasonable prospect of success.  Neither do I consider that there is some other reason in the interest of justice why the appeal shall be heard, bearing in mind, in particular, the principle of proportionality referred to in paragraph 15(4) of the Second Disclosure Decision.

INTENDED APPEAL AGAINST THE TAXATION ORDER

12.  Five intended grounds of appeal against the Taxation Order are raised in the Plaintiff’s draft notice of appeal, namely:-

(1)   The court erred in law and in principle at paragraphs 22 to 23 of the Taxation Decision in holding that its jurisdiction to make an indemnity costs order in a favour of a minority shareholder in a derivative action is based on Section 52A(1) of the High Court Ordinance, instead of it being derived from the court’s equitable jurisdiction to order a full indemnity for charges and expenses to be paid out of a fund.

(2)   The court erred in law and in principle at paragraph 24 of the Taxation Decision in holding that the analogy of the full indemnity of a trustee is not exact.

(3)   The court erred in law and in principle at paragraphs 29 to 31 of the Taxation Decision in following the obiter dicta in Wallersteiner (a judgment of the English Court of Appeal not binding on this court) and holding that the indemnity of a minority shareholder in a derivative action ought to be taxed.

(4)   The court did not have jurisdiction to vary the First Instance Indemnity and the CA Indemnity because they are full indemnity orders and not costs orders.

(5)   Alternatively, the court erred in law and in principle at paragraph 30 of the Taxation Decision in holding that the indemnity of a minority shareholder in a derivative action should be taxed on a common fund basis, as opposed to an indemnity basis.

13.  All these points were considered in the Taxation Decision, and I do not propose to repeat the reasoning and analysis here:-

(1)   for Ground 1, see paragraph 22 of the Taxation Decision, which refers to an earlier decision given by me in this case on 12 June 2015 (in particular, paragraphs 17 to 26 thereof);

(2)   for Ground 2, see paragraph 24 of the Taxation Decision;

(3)   for Ground 3, see paragraphs 26 to 28 of the Taxation Decision;

(4)   for Ground 4, see paragraphs 32 to 33 of the Taxation Decision; and

(5)   for Ground 5, see paragraphs 29 to 31 of the Taxation Decision.

14.  Mr Lam has not raised any new arguments in support of the intended grounds of appeal.  I am not satisfied that the Plaintiff’s intended appeal has a reasonable prospect of success.  I also do not consider that there is some other reason in the interest of justice why the appeal shall be heard.

DISPOSITION

15.  For the foregoing reasons, I dismiss the Plaintiff’s two summonses both dated 29 March 2018, with costs to the 5^th Defendant, to be taxed if not agreed.