HIND INTERNATIONAL INVESTMENT LTD v. K & L GATES (a firm of solicitors)

HCA 1325/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1325 OF 2011

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R U L I N G
(VARIATION OF COSTS)

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Introduction

1. This court handed down a judgment on 15 April 2014 (“Judgment”) in respect of 3 summonses taken out by the plaintiff by Main Action and the defendants by Counterclaim (“Hind Parties”) in respect of specific discovery of certain documents, and I will adopt the same abbreviations therein in the present ruling.

2. In the Judgment, the Hind Parties succeeded in obtaining almost all the documents in the first 5 paragraphs, out of 7, of its 1^st SD Summons, and this court dismissed their two other specific discovery summonses.  I made an order nisi that the Hind Parties, being the overall successful party of the 1^st SD Summons, should be entitled to the costs of that summons, and that KLG should be entitled to the costs of the other two of Hind Parties’ failed summonses, with certificate for 2 Counsel for all 3 summonses (“Order Nisi”).

3. KLG issued a summons on 16 July 2014 to vary the Order Nisi, seeking an order that there should be no order as to costs of the 1^st SD Summons.  As neither side sought any variation of the Order Nisi as to the other two summonses, the application before this court was thus confined to the costs of the 1^st SD Summons.

4. The 1^st SD Summons was in relation to 3 classes of documents, namely Class A Documents concerning KLG’s client account under the client’s name RIM for the Period relating to Payment Records concerning the Hind Parties, Class B Documents concerning accounting documents in respect of other persons listed in annexures in the agreed Summary of Facts in the Criminal Hearing against Aggarwal, and Class C Documents concerning KLG’s partnership deed/documents.

5. The Hind Parties succeeded in an order for most of Class A Documents, but not the Class B and Class C Documents.  For Class A Documents, in respect of Class A1, the court found the request was too wide, being for unspecified period, and only allowed discovery of those documents for the Period.

KLG’s grounds for variation

6. KLG’s grounds were mainly:

(i)   The Class A Documents were only partly allowed, and also the Hind Parties moved the goal posts in relation to the Class A Documents in that what were sought by them initially were file records of RIM, a genuine client, and not file records “purported” to be those of RIM, and that was the basis which KLG opposed the application in respect of the Class A documents;

(ii)   Class B and Class C Documents were disallowed and Class B formed the most substantial class of documents sought in the 1st SD Summons.

Legal Principles

7. It is trite that the issue of costs is a matter of discretion for the court.  Ms Leung, for the Hind Parties, had referred to Melvin Waxman and another v Li Fei Yu and Anor, HCA 1972/2012, 11 September 2013. As pointed out by To J therein, post CJR, there is a distinction between costs in interlocutory proceedings and costs in other proceedings and a change in the court’s approach to costs in interlocutory proceedings.  The former Order 62 rule 3(2) of RHC has been amended to apply to proceedings other than interlocutory proceedings, and Order 62 rule 3(2A) has been added, which provides that for interlocutory proceedings, the court may, subject to Order 62, order the costs to follow the event or make such other order as it sees fit.

8. Ms Leung also referred this court to Recommendation 122 of the Working Party on Civil Justice Reform cited in paragraph 62/3/3B of the Hong Kong Civil Procedure 2014, and also quoted by To J in Melvin Waxman, and submitted that in relation to interlocutory applications, the principle of “costs to follow the event” is no longer the prescribed usual order but is instead an option.  Further Order 62 rule 5 has now set out special matters for the court to take into account in exercising its discretion of costs, which is of general application and also applies to costs in interlocutory proceedings.

9. There was no dispute on the above by Ms Lok, Counsel for KLG, and which I accept reflect the principles and approach adopted by the courts.

Discussion

10. In KLG’s List of Documents, they had disclosed 167 pages of Payment Records in relation to the monies paid by the Hind Parties to KLG, and it was clear from those Payment Records that the withdrawals were recorded under KLG’s client RIM with File Reference Number 404 and there were also signed payment instructions from RIM signed by a “Chris Chen”.

11. In the first letter of request on 19 June 2013 from the Hind Parties’ solicitors, for voluntary disclosure and clarification from KLG’s solicitors, they had asked KLG’s solicitors to, among other things, clarify whether RIM was/is indeed KLG’s client, and they asked for particulars of all services provided by KLG to RIM, and also all file records concerning RIM under the File Reference Number 404.

12. In reply, KLG’s solicitors confirmed that RIM was a client at the material times, but that they were not prepared to provide the details as those matters were subject to legal professional privilege and that the file records of RIM were not relevant nor necessary.

13. KLG’s reply led the Hind Parties’ solicitors to comment on whether KLG could rely on legal professional privilege in the circumstances where there was fraud, and in light of KLG’s Counterclaim against the Hind Parties.

14. On 19 August 2013, KLG’s solicitors wrote commenting that the Hind Parties’ request to “relevant file records” was not sufficiently precise for them to reconsider their request, and that the references to “Chris Chen” were part of Aggarwal’s fraud against KLG.

15. At this preliminary stage, KLG did not disclose nor make it clear that RIM was a dormant client, nor  the payment instructions of “Chris Chen” from RIM were forged.

16. As I indicated at this costs hearing, at that stage, the Hind Parties would not know whether RIM was a genuine client or not, or whether RIM was dormant or not.  All the information they had at that time was from documents provided by KLG that all the Payment Records were under RIM’s Reference Number 404.  It was those documents which gave rise to their request relating to the Class A Documents sought by them in their 1^st SD Summons.  I am unable to accept that the Hind Parties had shifted their goal posts, since it should be clear to KLG what the Hind Parties were seeking were basically those documents in relation to the Payment Records of their monies under KLG’s RIM’s Reference Number 404.

17. The Hind Parties eventually obtained a copy of the Summary of Facts and the transcript of Aggarwal’s Criminal Hearing sometime in September/October 2013. They then found out that from the Summary of Facts that there were 92 Investors named who were victims of Aggarwal’s fraud and there were payments to some 333 named payees.  This then gave rise to their request for the Class B and Class C Documents.

18. The Hind Parties’ 1^st SD Summons was issued on 15 November 2013.  So far as Class A Documents were concerned, as mentioned earlier, the request was raised earlier.  Although it appeared from KLG’s letter of 19 August 2013 that they might be willing to reconsider the request of the Hind Parties if the request was more precise, and notwithstanding the now much more detailed request of the Class A Documents in the 1^st SD Summons, there was no reconsideration or concession from KLG on providing any of those document or any voluntary disclosure.  KLG’s case was that the Hind Parties had failed to show the relevance of the Class A.1 documents, and for Class A.2-A.4 documents, the Hind Parties had failed to show prima facie existence of those documents and that they were not relevant/necessary.  They also maintained their position in their letters, which as mentioned earlier, had at first included an objection to the Class A documents based on Legal Professional Privilege, which objection was later no longer pursued. 

19. So far as the Class B and Class C Documents were concerned, KLG had indicated in their solicitors’ letter of 23 October 2013 in relation to Class B Documents, they were irrelevant and not necessary for the fair disposal of this action, and further the documents were significant in volume.  As for Class C Documents, KLG’s solicitors had said in that letter that such documents irrelevant and that the issue of authority on the part of Aggarwal vis a vis the Hind Parties “had nothing to do with the partnership deed”. 

20. There were no further relevant correspondence produced prior to the issue of the 1^st SD Summons. 

21. In relation to the proportionality of the Class B Documents, the Hind Parties’ solicitor Mr Kwan had in his supporting affidavit stated that these documents should be kept together in KLG’s accounting records and easily retrievable, and further as KLG’s solicitors was handling a total of 17 civil litigations concerning the fraud perpetrated by Aggarwal, he verily believed that KLG’s solicitors should have already or would need to collate such documents for the discovery in the other civil proceedings.  What he had pointed out was that KLG did not even offer to produce a summary table setting out the key information, ie dates and signatories and amounts on the various payment requisitions and cheques and whether or not each of the payments were supported by relevant payment authorization letters from RIM.

22. In the affidavit of KLG’s partner Mr Tso filed in opposition to the 1^st SD Summons, he relied on the reasons set out in correspondence, in particular in the letter of 23 October 2013, which were brief.  Anyway, in relation to the Class B Documents, Mr Tso seemed to be criticising the Hind Parties’ solicitors in relying on the Summary of Facts as being relevant and legitimate.  These comments then led Hind Parties’ solicitors to make enquiries and clarifications with the Department of Justice which compiled the Summary of Facts and annexures for the Criminal Hearing.  Subsequently, as I have said in the Judgment, it seems that KLG’s position in relation to the Summary of Facts moved somewhat later when their Counsel submitted that the Hind Parties could rely on the Summary of Facts, instead of seeking discovery of Class B documents. 

23. Having said this, I accept that Mr Tso did point out in his affidavit that the Class B documents were substantial, comprising thousands of documents and tens of thousands of pages of material, and also there would be substantial, time consuming amount of work and expensive exercise in reviewing all the documents including in considering whether any redaction was necessary. However, I am of the view that it would have been more helpful had KLG made clear what parts of the Summary of Facts they were disagreeing with, and what parts they were not, and the Hind Parties would then be in a better position to assess whether the agreed parts would be sufficient, or that they still wanted to pursue with their request for the Class B Documents.

24. As for Class C documents, the main reason for seeking these partnership documents was in relation to the partner’s signing authority for agreements and cheques drawn from client accounts.  In this respect, Mr Tso’s response to this request in his affidavit was described by the Hind Parties’ Counsel Mr Maurellet to be “no more than a riddle”, and I have said in the Judgment that Mr Tso had chosen to respond in a rather indirect manner.  He could have simply stated that there was no provision in the partnership deed or no such Class C documents in the possession, custody or power of KLG which had set out the authority of a partner.  In fact, Mr Maurellet had said at the main hearing that this matter could be resolved if Mr Tso stated no such Class C Documents existed.

25. Having considered the circumstances of this case, the Hind Parties had not acted unreasonably nor misconducted themselves, nor should they be blamed for taking the course they did[1].  As for KLG, even though I did not find some of their responses helpful in resolving the matter, I am not really able to say that they had acted unreasonably or misconducted themselves. 

26. In terms of volume, although Class B Documents could be said to be the most substantial, the time and submissions spent on the application for the Class B Documents were not that substantial, since apart from the 1^st SD Summons, there were two other summonses fixed for that morning and the hearing lasted less than 3 hours. 

27. Having considered the above, I do not consider that it would be appropriate for the Hind Parties to be deprived of all of their costs of the 1^st SD Summons.  They had to come to court to obtain the Class A Documents, even though the period for Class A.1 was restricted.  Although they did not succeed with Class B and Class C Documents, they had at least obtained from this court some indication as to the extent of KLG’s disagreement with the Summary of Facts, and a clarification that the Class C Documents did not exist.

28. In light of the above and taking into account that the Hind Parties did not succeed entirely and in particular in respect of the Class B Documents, and having reconsidered the matter, I am of the view that there should be a slight variation of the Order Nisi.  In my view, a fairer order for the 1^st SD Summons is that KLG should pay 90% of the Hind Parties’ costs of the 1^st SD Summons including the present variation of costs hearing.  I order that the Order Nisi be varied to this effect.  All other orders in the Order Nisi shall remain unchanged and be made final.