CHU PO LING v. CHUNG CHUN SHING AND ANOTHER

DCCJ32/2012

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 32 OF 2012

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REASONS FOR DECISION ON COSTS

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1.  On 28 March 2014, I handed down judgment after a trial of the action over 7 days, by which I gave judgment in favour of the plaintiff against the 1^st defendant and dismissed the 1^st defendant’s counterclaim (“the Judgment”). I also made a costs order nisi that the plaintiff shall have the costs of the action against the 1^st defendant, to be taxed on a party and party basis.

2.  In short, the action was concerned with the plaintiff’s claims against the 1^st defendant for vacant possession, outstanding rent and mesne profits in respect of a parcel of agricultural land in the New Territories (“the Lot”) and the 1^st defendant’s counterclaim for possessory title.  These reasons should be read to together with the Judgment.

3.  On 19 May 2014, the plaintiff issued a summons seeking orders that (1) the costs order nisi be varied; (2) Chung Chor Yuen be joined as the 2^nd defendant in this action; (3) Chung Chor Yuen do pay the costs of the entire action including all reserved costs orders. 

4.  The summons came before me on 13 August 2014.  At the end of the hearing, I ordered that Chung Chor Yuen be joined as the 2^nd defendant in this action, but I dismissed the remainder of the summons with costs to the 2^nd defendant, to be taxed by way of summary assessment, with reasons to follow. I now give my reasons below.

Applicable legal principles

5.  Section 53 of the District Court Ordinance (Cap 336) (“the Ordinance”) confers a wide discretion on the court to determine by whom and to what extent costs are to be paid.  Section 53(2) also makes clear that the court may, in accordance with the rules of court, make an order awarding costs against a non-party if the court is satisfied that it is in the interests of justice to do so.  RDC Order 62 r 6A provides that where the court is considering whether to exercise its power under section 53 or 53A of the Ordinance to make a costs order against a non-party, that person must be joined as a party for the purposes of costs only and that person must be given a reasonable opportunity to attend a hearing at which the court shall consider the matter further.

6.  There was no real dispute between the parties as to the principles in an application such as the present.  Mr George Chu, counsel for the plaintiff, referred me to the decision of Dymocks Franchise Systems (NSW) Pty Ltd v Todd and others [2004] UKPC 39, where the Privy Council reviewed at paragraphs 23 to 29 a number of English and Commonwealth authorities on the circumstances in which the court may exercise its discretion to order costs against a non-party.  Some of the principles set out by the Board which are relevant to the present case are as follows:-

“(1) Although costs orders against non-parties are to be regarded as “exceptional”, exceptional in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. The ultimate question in any such ‘exceptional’ case is whether in all the circumstances it is just to make the order. It must be recognised that this is inevitably to some extent a fact-specific jurisdiction and that there will often be a number of different considerations in play, some militating in favour of an order, some against.

(2) Generally speaking the discretion will not be exercised against “pure funders”, described…as “those with no personal interest in the litigation, who do not stand to benefit from it, are not funding it as a matter of business, and in no way seek to control its course.” …

(3) Where, however, the non-party not merely funds the proceedings but substantially also controls or at any rate is to benefit from them, justice will ordinarily require that, if the proceedings fail, he will pay the successful party’s costs.  The non-party in these cases is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes.  He himself is ‘the real party’ to the litigation, a concept repeatedly invoked throughout the jurisprudence… Nor, indeed, is it necessary that the non-party be ‘the only real party’ to the litigation…  provided that he is ‘a real party... in very important and critical respects’.

(4) Perhaps the most difficult cases are those in which non-parties fund receivers or liquidators (or, indeed, financially insecure companies generally) in litigation designed to advance the funder's own financial interests… their Lordships would hold that, generally speaking, where a non-party promotes and funds proceedings by an insolvent company solely or substantially for his own financial benefit, he should be liable for the costs if his claim or defence or appeal fails. As explained in the cases, however, that is not to say that orders will invariably be made in such cases, particularly, say, where the non-party is himself a director or liquidator who can realistically be regarded as acting rather in the interests of the company (and more especially its shareholders and creditors) than in his own interests.”

7.  Dymocks Franchise Systems was considered by the Court of Final Appeal in The MV Liberty Container (No 2) (2007) 10 HKCFAR 256, where their Lordships held at paragraphs 30 to 33:

“30. … Funding a litigant who could not otherwise afford to litigate facilitates access to justice. But access to justice is not the only objective to be considered. The due administration of justice involves many other objectives. These include: discouraging ill-founded claims and defences; compensating in costs litigants put to expense in the successful pursuit or defence of a claim; and leaving the control of a claim or defence in the hands of the person whose claim or defence it is. Just as it would be inimical to access to justice if all funders were seriously exposed to costs orders, so would it be inimical to these other objectives if no funder could be ordered to pay costs. No perfect solution has been found. But the balance which has emerged from cases like Knight, Hamilton and Dymocks provides, in our view, a good general guide when deciding whether or not to order costs against a funder who comes within the scope of s.52A.

31. This balance involves drawing a distinction between, on the one hand, a pure funder who funds litigation to facilitate access to justice by the funded litigant and, on the other hand, a self-interested funder who funds litigation not so much to do that as to gain access to justice for his own purposes. We hesitate to adopt or devise anything as a hard and fast test for deciding who is or is not a pure funder. But we think that the courts can usefully guide themselves by normally treating as pure funders those and only those who have no personal interest in the litigation, do not seek to benefit from it, are not funding as a matter of business and do not seek in any way to control its course. On this basis, a creditor who funded litigation for the benefit of the general body of creditors including himself is not a pure funder…

33.  At least normally, costs should not be ordered against a pure funder even though that regrettably leaves the funded litigant’s successful opponent uncompensated in costs.  But justice will normally require that a self-interested funder whom the law can reach be ordered to pay the costs of the funded litigant’s successful opponent.”

8.  Mr Kam Cheung, counsel for the 2^nd defendant, also referred me to an earlier decision of the English Court of Appeal in Symphony Group plc v Hodgson [1994] QB 179, where it was observed at 193 that it would be more exceptional for an order to be made where the applicant has a cause of action against the non-party and could have joined him as a party to the original proceedings, since:-

“Joinder as a party to the proceedings gives the person concerned all the protection conferred by the rules, as to e.g. the framing of the issues by pleadings; discovery of documents and the opportunity to pay into court or to make a Calderbank offer…; and the knowledge of what the issues are before giving evidence.

Even if the applicant can provide a good reason for not joining the non-party against whom he has a valid cause of action, he should warn the non-party at the earliest opportunity of the possibility that he may seek to apply for costs against him. At the very least this will give the non-party an opportunity to apply to be joined as a party to the action.”

Joinder application

9.  It is clear that Order 62 r 6A contemplates a two-stage process: the court first considers whether the party should be joined for the purposes of costs, and then, give that party a reasonable opportunity to attend a hearing, for the court to consider the matter further.  In Sun Focus Investment Ltd v Tang Shing Bor & Anor (No 2) [2013] 2 HKC 54, Mimmie Chan J referred to a number of English authorities and held at paragraph 19 that:-

“At the first stage of the hearing, when the court considers whether to join a non-party in the proceedings, the court should refuse the joinder only if it is plain and obvious that the application amounts to an abuse of process, by reason of delay or other misconduct on the part of the applicant, or because the application can be seen to be manifestly and fundamentally misconceived as to be an abuse by the applicant. Arguments and documents for the first stage of the hearing should be limited to those which are considered to be necessary to enable the court to determine whether non-parties should be joined in the proceedings. It is only at the second stage that the court considers whether the costs order should be made against the non-party, the overall consideration always being whether it would be in the interests of justice to do so pursuant to s 52A of the [High Court] Ordinance.”

10.  At the hearing before me, both Mr Chu and Mr Cheung indicated that they were content to deal with both stages of the application at the same hearing.  Further, Mr Cheung informed the court that he would not oppose the joinder of the 2^nd defendant for the purpose of costs.  In my view, such a concession was plainly sensible having regard to the low threshold for joinder explained above.  I therefore ordered that the 2^nd defendant be joined in this action for the purpose of costs.

Exercise of discretion

11.  In his submissions in support of the application, Mr Chu placed heavy reliance upon paragraphs 39(12) and (13) of the Judgment, where I observed in respect of the 2^nd defendant:-

“(12) Chor Yuen was also a director of a company known as Easterntech (Hong Kong) Co Ltd (“Easterntech”), a company partly-owned by his brother, Chung Chor Pun. Easterntech features in earlier proceedings concerning Lot 1303B …… which was handled by Chor Yuen on its behalf.

(13) Chor Yuen personally funded and handled the conduct of the present action as well as the earlier proceedings concerning Lot 1303B [i.e. DCCJ 3806/2003].  Although he is not personally a party to this action, he has at least an indirect interest in the outcome of these proceedings, as he currently resides at the Chung Residence and would likely benefit from any successful claim for possessory title of Lot 1303B.”

12.  There is no real dispute in this case that the 2^nd defendant had funded, at least in part, the 1^st defendant’s costs in this action.  In his Affirmation filed in opposition to the summons, the 2^nd defendant said at paragraph 7:-

“As a son of the Defendant, it is natural that I offered my help along the way so that my father can properly defend himself. In fact, all my brothers and sister did their part. We all contributed to the litigation fund and took our turn to take our father to the solicitors’ office. We all did that out of love and respect for our father. None of us have an interest bigger than the other. The reason for being apparently more active than my brothers and sister is that I live with my parents and am believed to know some law (I studied law for a few months).”

13.  I note here that the 2^nd defendant’s evidence in his affirmation is not entirely consistent with the evidence he gave at the trial.  In the witness box, he told the court that he handled all of the litigation for the family concerning land and that he paid for the most part the costs of the same.  Although the 2^nd defendant now deposes that he and his siblings all “did their part” and “contributed to the litigation fund”, no particulars are given as to how much was contributed by him as compared to the other members of the family.  It would appear, perhaps not surprisingly, that the 2^nd defendant has now sought to downplay his involvement.  Nevertheless, for the purposes of the summons, I should proceed on the basis that the 2^nd defendant did play a substantial role in handling the conduct of the action and in funding a substantial proportion of the costs.

14.  It is important to examine, however, the circumstances of the 2^nd defendant’s involvement in these proceedings. In particular, the 2^nd defendant’s actions need to be viewed in the context of his relationship with the 1^st defendant, namely, that of father and son.  Given the 1^st defendant’s elderly age (he was 71 at the time of the trial), his limited education, and my observations of him in the witness box at the trial, he plainly would have required assistance in conducting any legal proceedings, such as giving instructions to and receiving advice from his lawyers. It is only natural for his family, and in particular, his children, to provide such assistance.  The fact that the 2^nd defendant perhaps played a more prominent role than the other siblings, whether due to the fact that he was living with his parents at the time or that he had some knowledge of the law, makes little difference.  There is nothing to challenge or contradict the 2^nd defendant’s evidence that his assistance to the 1^st defendant was motivated by his love for or filial obligations toward the 1^st defendant.

15.  It is relevant to note that the 1^st defendant signed the statements of truth in the defence and counterclaim and the amended defence and counterclaim in this action, and he therefore must have borne ultimate responsibility for their contents.  The present case is quite different from DCCJ 3806/2003 where, as mentioned in paragraph 50 of the Judgment, the 2^nd defendant, even though he was not a party to that action, drafted and signed the defence on behalf of the 1^st defendant (who was acting as a litigant in person at the time) with apparently little or no input from the 1^st defendant. Under those circumstances, there would have been a stronger case of control on the part of the 2^nd defendant.  On the other hand, there is no evidence to suggest that the 2^nd defendant controlled the course of the action without regard to the 1^st defendant’s wishes.  This is in sharp contrast to the situation in Tsang Tat Keung v Lam Yun (unreported) HCMP 2903/2012, 16 July 2013, a case relied upon by Mr Chu, where the third party instructed the plaintiff’s solicitors to commence proceedings while at the same time unjustifiably denying the defendant the chance to settle the matter with the plaintiff.

16.  As to the 2^nd defendant’s contribution to the funding of the action, again, this must be viewed in the context of the father and son relationship between the 1^st and 2^nd defendants.  As explained above, funding alone is not a sufficient basis for ordering costs against a non-party.  This is not a case where funding was provided to the 1^st defendant as a matter of business, and it is not suggested by the plaintiff (nor is there any evidence to suggest) that there was any arrangement between the 1^st and 2^nd defendants whereby the 2^nd defendant would receive (whether in whole or in part) the fruits of the litigation, if successful.

17.  I observed in the Judgment that the 2^nd defendant had “at least an indirect interest in the outcome of these proceedings, as he currently resides at the Chung Residence and would likely benefit from any successful claim for possessory title of Lot 1303B”.  It is true, of course, that had the 1^st defendant succeeded in his claim of possessory title, the 2^nd defendant would likely have been able to continue occupying the Lot (as a licencee of the 1^st defendant), and in the fullness of time he may well have inherited a share of the Lot from the 1^st defendant.  However, such potential eventualities do not, in my judgment, amount to a sufficient financial benefit to the 2^nd defendant.  Any successful possessory title in the Lot would have vested solely in the 1^st defendant.  It would have been a matter entirely for the 1^st defendant then to decide whom, if anyone, he would permit to remain on the Lot or who should inherit the Lot or its proceeds.  This may or may not have included the 2^nd defendant. The 2^nd defendant would have had no legal or beneficial interest in the Lot, nor would he have had any enforceable rights or expectations against the 1^st defendant in respect of the same. Putting the plaintiff’s case at the highest, it might be said that the 2^nd defendant was acting for the benefit of his family as a whole. However, it cannot be said that the 2^nd defendant was a “real party” in “very important and critical respects” in this action.

18.  As to the 2^nd defendant’s earlier involvement in DCCJ 3912/2001 in his capacity as a director of Easterntech, I do not think that this is a material consideration here. First, those were separate proceedings involving different parties.  In any event, it is clear that a director should not be rendered liable for costs merely because of the fact that he had caused the company to bring or defend an action. As Millett LJ held in Metalloy Supplies Ltd (in liq) v MA (UK) Ltd [1997] 1 WLR 1613 at 1620 (as cited in paragraph 28 of Dymocks Franchise Systems):

“It is not… sufficient to render a director liable for costs that he was a director of a company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are brought bona fide and for the benefit of the company, the company is the real plaintiff. If in such a case an order for costs could be made against a director in the absence of some impropriety or bad faith on his part, the doctrine of the separate liability of the company would be eroded and the principle that such orders should be exceptional would be nullified.”

19.  There is nothing to suggest in that action that the 2^nd defendant was acting otherwise than for the benefit of Easterntech, or that there was any impropriety or bad faith on his part.

20.  Mr Chu also contended that the court should take into account the fact that the plaintiff was likely to face an empty judgment for costs against the 1^st defendant, as the 1^st defendant did not appear to have any assets.  It is true that the 1^st defendant’s financial position is at least unclear.  However, I do not think that, in the absence of other circumstances justifying an order for costs against the 2^nd defendant, this is a factor of any weight. Whilst unfortunate, the potential unenforceability of a judgment or an order of costs against a defendant due to his impecuniosity is a risk that is well known to plaintiffs embarking upon any litigation.

21.  Finally, I should add that the plaintiff clearly had a substantive cause of action against the 2^nd defendant for trespass and could have joined him as an additional defendant in the original proceedings.  In paragraphs 7 to 9 of the defence filed on 6 March 2012, the 1^st defendant made it clear that he and the 2^nd defendant together occupied and used the Lot and pleaded that both of them were in adverse possession of the same.  As mentioned in paragraph 20 of the Judgment, however, Mr Andy Hung, counsel for the 1^st defendant at the trial, confirmed that the 2^nd defendant was not himself making any independent claim of adverse possession in this action, and that the 2^nd defendant was occupying the Lot purportedly as the 1^st defendant’s licencee.

22.  Although the existence of a cause of action may be a potential factor weighing against making a non-party costs order, I did not consider this to be of much weight in the circumstances of this case.  The fact that the 1^st defendant’s costs were being funded, at least in part, by the 2^nd defendant did not emerge until the 2^nd defendant’s oral evidence towards the end of at the trial. It would have been too late to join the 2^nd defendant as a defendant in the substantive proceedings, and even if the plaintiff had immediately warned the 2^nd defendant then that she may seek costs against him, it is unlikely that the 2^nd defendant would have voluntarily joined himself as a party to the action at that stage.

23.  In any event, having considered the totality of the circumstances, I did not think that this was an appropriate case to exercise my discretion under section 53(2) of the Ordinance to order costs against the 2^nd defendant.  I therefore dismissed the summons with costs to the 2^nd defendant.

Summary assessment

24.  As the summons was a self-contained interlocutory application and the 2^nd defendant would not be involved in the taxation of the costs of the original proceedings, summary assessment of the 2^nd defendant’s costs in this application was appropriate.  At the end of the hearing, I directed the 2^nd defendant to file a statement of costs and the plaintiff to file her comments in response, both of which I have since received.  Neither Mr Chu nor Mr Cheung had any objection to me dealing with costs on paper.  For the avoidance of doubt, I should make clear that I make this assessment pursuant to RDC Order 62 r 9A(1)(b), so that my order is subject to the right of either party to have the costs taxed pursuant to rule 9A(2).

25.  In his statement of costs, the 2^nd defendant claims a total sum of HK$131,156.32, consisting of HK$70,000 in counsel’s fees, roughly HK$61,000 in professional fees by the solicitors and a small amount in disbursements.  The professional work done by the solicitors was over 25 hours, including advice, conferences, telephone calls, letters and discussions with counsel.  Counsel’s fees consisted of HK$20,000 for drafting the 2^nd defendant’s affirmation in opposition to the summons, and HK$50,000 for the brief for attending the hearing.

26.  The plaintiff complains that the hourly rate charged by the 2^nd defendant’s solicitors and counsel’s fees are excessive and that the time taken over the preparation of this matter has been unnecessarily long.  There is also a suggestion that there may well be a duplication of costs in respect of work done by solicitors and counsel.

27.  The court necessarily adopts a broad brushed approach in these circumstances.  In my view, the proposed hourly charge out rates are reasonable having regard to the nature of the application and the experience and qualifications of the persons involved.  I appreciate that the 2^nd defendant’s solicitors were not previously involved in this action, and therefore, had to spend time reading into the case for the first time for the purposes of this application.  That said, the amount of time spent seems to me to be far too high, especially given the early involvement of counsel.  I would therefore reduce the solicitors’ fees by HK$35,000.

28.  As to counsel’s fees, the plaintiff contends that Mr Cheung’s fees were substantially higher than those of Mr Chu.  However, once again it has to be borne in mind that Mr Cheung was not previously involved in this action, and it would have been necessary for him to spend more time familiarising himself with the facts and the evidence that transpired at the trial.  In my view, Mr Cheung’s fees are not unreasonable, and therefore, I do not propose to make any reduction.

29.  In the circumstances, there shall be a reduction of HK$35,000 from the 2^nd defendant’s statement of costs, and I make a gross sum assessment of HK$96,156.32.

30.  Last but not least, I thank counsel on both sides for their assistance.