CHINA ENVIRONMENTAL TECHNOLOGY HOLDINGS LTD v. SURE FAST ENTERPRISES LTD

HCMP 372/2019

[2020] HKCFI 2259

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 372 OF 2019

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D E C I S I O N

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A.   INTRODUCTION

1.  This matter was originally due to be heard on 21 July 2020. By reason of the adjournment of court proceedings occasioned as a result of Covid, directions were given for determination on paper.

B.   BACKGROUND

2.  On 25 February 2019 and 8 March 2019, the Respondent issued two statutory demands (“the SDs”) for, respectively, sums of US$7,385,095.89 and US$7,401,072.60 against the Applicant.

3.  On 18 March 2019, the Applicant took out the present proceedings (“the OS”) seeking an order restraining the Respondent from presenting any petition for winding up based on the SDs.

4.  On 20 March 2019, the Applicant sought, and was granted, an urgent ex parte injunction order restraining the Respondent from presenting any winding up petition (“the Injunction Order”).

5.  A summons was taken out on 21 March 2019 to continue the Injunction Order until determination of the OS or further order of the Court (“the Continuation Summons”). The parties agreed directions by consent for filing of evidence and the further conduct of the OS and the Continuation Summons.

6.  No evidence was filed by the Respondent.

7.  On 18 July 2019, the Respondent’s solicitors, Messrs King & Wood Mallesons (“KWM”), wrote to the Applicant’s solicitors, Messrs Cheung & Choy (“C&C”), offering an undertaking not to present any winding-up petition against the Applicant pending the determination of High Court Action No. 783 of 2019 (“the HCA”). The issues in HCA concern the validity and enforceability of a Subscription Agreement dated 16 May 2018, which subject matter forms the basis of debts that are referenced in the SDs. On the back of the undertaking, it was proposed that the Injunction Order be discharged, and the OS and Continuation Summons be stayed pending the resolution of the HCA or further order of the Court.

8.  There does not appear to have been any substantive reply in open correspondence from C&C.

9.  On 17 January 2020, C&C wrote to KWM indicating that they would attend the office of the Senior Judicial Clerk on 24 January 2020 to fix the hearing date of the OS and the Continuation Summons.

10.  On 23 January 2020, the Respondent withdrew the SDs, indicating by KWM’s letter that:

“We now have instructions from [the Respondent] to unequivocally withdraw the [SDs] with immediate effect. As the [SDs] has no further force or effect, there is no need for your client to proceed ahead with the injunction application dated 21 March 2019 as well as the Originating Summons.”

In the same letter, KWM indicated that there was no need to fix the hearing as proposed.

11.  C&C proceeded to fix the hearing on 24 January 2020 in KWM’s absence.

12.  By Summons dated 14 July 2020 (“July Summons”), the Applicant sought (i) leave to discontinue the action against the Respondent, (ii) to discharge the Injunction Order, and (iii) to withdraw the Continuation Summons.

13.  On 16 July 2020, KWM wrote to C&C indicating that there was no need to proceed to the substantive hearing as the only issue was one of costs.

C.   DISCUSSION

14.  It is clear (and the parties are agreed) that the orders sought in the July Summons ought to be granted, and I granted the same accordingly. The only issue remaining is that of costs.

15.  In addition to the open correspondence referred to in Section B above, there was also some without prejudice save as to costs correspondence exchanged. In short:

(1)  On 30 January 2020, C&C wrote to KWM stating that in light of the withdrawal of the SDs “we are of the view that it is no longer necessary to pursue the present proceedings against your client to obtain an injunction … We are also of the view that the interim injunction can now be discharged.” A proposal was set out therein (along with a draft consent summons) to the effect that the action would be discontinued, the Injunction Order discharged, the hearing vacated, and the Respondent would bear the Applicant’s costs on an indemnity basis, with certificate for two counsel.

(2)  On 6 February 2020, KWM sent a holding reply indicating that the Respondent needed more time to consider the 30 January 2020 letter, and also stating that as costs was the only issue remaining, “we urge your client not to take any further step to advance the proceedings pending our client’s substantive response.”

(3)  There was no further follow up from KWM until July 2020.

(4)  On 17 July 2020, after the July Summons had been issued, and 2 business days before the date of the substantive hearing, KWM wrote offering to pay the Applicant’s costs incurred on an indemnity basis, with certificate for two counsel, up to 23 January 2020.

(5)  No response from C&C was received thereto.

16.  The parties are at odds on the issue of costs.

17.  The Applicant seeks costs on an indemnity basis with certificate for two counsel, for the entirety of the proceedings, comprising the OS, the Continuation Summons and the Discharge Summons, on the basis that the Respondent had no justification in the first place to issue the SDs, and has never offered any such justification or basis.

18.  The Respondent, on the other hand:

(1)  Agrees that it should bear the costs of the OS and the Continuation Summons on an indemnity basis, with certificate for two counsel up to 23 January 2020.

(2)  Seeks costs of the proceedings incurred from 23 January 2020 onwards on an indemnity basis; the reason being that it had already withdrawn the SDs as at that date, and it was the Applicant who pressed on with the listing and preparations (unreasonably, it is said, in light of the aforementioned correspondence).

(3)  And, on similar basis, also seeks costs of the July Summons on an indemnity basis.

19.  In response to the above, the Applicant makes inter alia the following points:

(1)  It was necessary to bring these proceedings to a formal conclusion, and in order to do so, leave is required to discontinue the action, withdraw the Continuation Summons (O.21, rr.3 & 6, RHC), and discharge the Injunction Order (Gee on Commercial Injunctions, 6^th ed., §§24-003 – 24-004).

(2)  Despite the proposal in the 30 January 2020 letter by the Applicant along those very lines, no substantive response was received from the Respondent. The Respondent eventually only belatedly agreed to the same days before the substantive hearing (17 July 2020, ie the same date that the Applicant filed its skeleton submissions), but still only offered costs up to 23 January 2020 and not thereafter.

(3)  There could hardly have been any costs incurred on the part of the Respondent after 23 January 2020 in any event since it agreed with the disposal of the OS and the Continuation Summons.

20.  Parties have referenced the general rules that costs ought to follow the event, and that when a plaintiff discontinues a claim it should pay the defendant’s costs. These are, of course, only general rules, and the Court will look at the circumstances of each case in order to arrive at a fair outcome.

21.  In the present case, I have taken into account the entirety of the correspondence and history as summarized above, and would draw particular attention to the following:

(1)  The Respondent has never indicated, whether by evidence or submissions, any substantive basis for opposing the OS or the Continuation Summons. In the circumstances, and taking into account the concession that the Respondent is to be responsible for the costs up to 23 January 2020 on an indemnity basis, the only reasonable understanding is that the Respondent had no basis to contest the proceedings from the outset.

(2)  The Respondent had every opportunity to respond to the 30 January 2020 letter, but save for the 6 February 2020 holding reply, failed to do so. It does not suffice for them to point to the fact that they had urged the Applicant not to take any further steps to advance the proceedings (whether on 23 January 2020 or 6 February 2020 or thereafter), when it was incumbent on them to respond to the offer substantively.

(3)  The Respondent was all along aware of the 21 July 2020 hearing date, but took no steps to further the matter or otherwise liaise with the Applicant.

(4)  It was appropriate for the Applicant to take out the July Summons, where no substantive response had been received on the 30 January 2020 correspondence. Whilst a point might be made that this could have been taken out earlier, the fact of the matter is that ultimately, the submissions filed were targeted only at the issue of costs in any event. Given the prior lack of response from the Respondent, it was not unreasonable for the Applicant to formally seek the orders in the July Summons and also ask that the Court determine the issue of costs.

(5)  It would have been tolerably clear after 23 January 2020 that the matter was simplified (since the SDs had been withdrawn). On such basis, there was less of a need for the involvement of leading counsel (and I note from the Statement of Costs submitted by C&C that, in fact, they had not sought leading counsel’s involvement thereafter).

22.  In the circumstances, I make the following costs orders nisi:

(1)  For the period up to 23 January 2020, costs on an indemnity basis with certificate for two counsel in relation to all costs of and occasioned by the OS and the Continuation Summons (including any costs reserved).

(2)  For the period from 23 January 2020 up to the date of the order to be made, costs on an indemnity basis with certificate for one counsel in relation to all costs of and occasioned by the OS, the Continuation Summons, and the July Summons (including any costs reserved).

23.  The above costs are together summarily assessed in the sum of HK$780,000.