CHEUNG KONG PROPERTY (BUSINESS DEVELOPMENT) LTD v. GOLD BRILLIANT INVESTMENT LTD AND ANOTHER

HCA 280/2021

[2021] HKCFI 2330

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 280 OF 2021

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DECISION ON COSTS

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A.  COSTS DECISION

1.  This costs decision follows my 5 March 2021 decision on the Plaintiff’s injunction summons (“the Summons”), ordering that (1)  interim relief be granted against the Defendants up to 12 March 2021 (“the Interim Injunction”), (2)  the Defendants disclose full copies of the exhibits to Mr Pan’s Affirmation in opposition to the Summons (“Mr Pan’s Affirmation”)  by 8 March 2021 (“the Disclosure Order”), and (3)  costs be reserved.

2.  On 10 March 2021, the parties filed a consent summons for the withdrawal of the Summons and discharge of the Interim Injunction.

3.  The Plaintiff now seeks its costs of the Summons, including the 5 March 2021 hearing (“the Hearing”), with certificate for two counsel. The Plaintiff’s costs are claimed on an indemnity basis upon a contractual indemnity. For their part, the Defendants seek costs in their favour to be summarily assessed, with certificate for two counsel.

4.  Having considered the written submissions of counsel for each side, I will order costs to the Plaintiff in the terms and for the reasons addressed below.

B.  BACKGROUND

(1)  Alleged breach of the ROFR Deed

5.  On 12 January 2017, the Defendants entered into an agreement with the MTR Corporation Limited (“MTRC”)  for the development of a site in Ho Ma Tin (“the Development”).

6.  On 1 September 2020, the Plaintiff and the Defendants entered into a deed which granted the Plaintiff a right of first refusal (“ROFR Deed”)  in relation to any transaction that transfers the 1^st Defendant’s rights in relation to the Development. Clause 2.02(a)  of the ROFR Deed requires the Defendants to notify the Plaintiff of any proposed transfer of such rights (“Proposal Notice”). Once notified, the Plaintiff may under Clause 2.03(a)  elect to become the transferee of such rights.

7.  On 9 February 2021, Great Eagle Holdings Limited (“Great Eagle”)  published an announcement (“the Announcement”)  that Great Eagle entered into heads of agreement with the Defendants (“the GE Heads of Agreement”), under which the 1^st Defendant will novate all its rights and liabilities in relation to the Development to Great Eagle (“the GE Transaction”).

8.  On 10 February 2021, the Plaintiff’s solicitors wrote to the Defendants, citing the Defendants’ obligation to issue a Proposal Notice in relation to the GE Heads of Agreement, and the Plaintiff’s right of first refusal of the GE Transaction. In their written reply the next day, the Defendants stated that at a meeting on 4 February 2021, Mr Gerald Ma of the Plaintiff had represented to the Defendants that the Plaintiff no longer wished to participate in the Development, thus releasing the Defendants from the ROFR Deed.

9.  On 19 February 2021, the Plaintiff filed a Statement of Claim against the Defendants seeking specific performance of the ROFR Deed.

10.  The GE Transaction was completed on 24 February 2021. The Plaintiff says that this fact was deliberately concealed by the Defendants. While denying any such concealment, the Defendants do not dispute that they only informed the Plaintiff of the completion until after the Summons was filed.  

(2)  The interim injunction

11.  The Summons was filed on 1 March 2021. It essentially sought to restrain the Defendants from proceeding with the GE Heads of Agreement without honouring the Plaintiff’s rights under the ROFR Deed.

12.  The Summons was scheduled for hearing in the morning of 5 March 2021. In the afternoon of 4 March 2021, shortly before 5 pm, Mr Pan’s Affirmation was filed. According to Mr Pan’s Affirmation, the GE Transaction had already been completed and all rights and liabilities of the 1^st Defendant had been novated to Great Eagle. There were however gaps in the evidence which were potentially relevant to the question of novation in the form of extensive redactions and missing documents.

13.  At the Hearing, the Plaintiff proposed and I accepted that it should have one week to verify whether the Defendants’ assertions as to the completion of the GE Transaction and the novation of rights and liabilities to Great Eagle were sound, with the benefit of full unredacted copies of the exhibits.

14.  So I granted the Interim Injunction, restraining the Defendants until 12 March 2021 or further order from proceeding with the GE Transaction unless and until the Plaintiff was served with a Proposal Notice. I also made the Disclosure Order, requiring the Defendants to produce full copies of the exhibits referred to in Mr Pan’s Affirmation by 8 March 2021. The Summons was adjourned to 12 March 2021 with costs reserved.

15.  Pursuant to the Disclosure Order, the Plaintiff received a full set of the exhibits to Mr Pan’s Affirmation on 8 March 2021.

16.  On 10 March 2021, the parties filed a consent summons for the Summons to be withdrawn and the Interim Injunction to be discharged.

(3)  Rival costs positions

17.  As noted, the Plaintiff presently seeks its costs of the Summons on an indemnity basis, with certificate for two counsel. The Plaintiff’s main grounds are that:

(1)  Clause 9.05 of the ROFR Deed provides the Plaintiff with a contractual indemnity as to its costs incurred in connection with enforcement of the ROFR Deed.

(2)  It was reasonable for the Plaintiff to have issued the Summons and proceeded with the Hearing, which were necessitated by:

(a)  the Defendants’ breach of the ROFR Deed, for which the Defendants provided no arguable defence;

(b)  the Defendants’ deliberate concealment until the day before the Hearing of the fact that the GE Transaction had completed on 24 February 2021; and

(c)  the Defendants’ failure to fully disclose the exhibits to Mr Pan’s Affirmation until 8 March 2021, including documents relating to the GE Transaction and alleged novation.

(3)  The injunction application would have succeeded had the Defendants not proceeded with the completion of the GE Transaction in breach of the ROFR Deed.

18.  The Defendants contest each of the Plaintiff’s grounds and say that the costs of the Summons should instead be to them, their main grounds being that:

(1)  Even where a plaintiff is allowed an application for an interlocutory injunction, “the usual costs order” would be the plaintiff’s costs in the cause. The Plaintiff’s position that it is entitled to costs “when it had withdrawn the injunction application on its own accord is contrary to all known principles” (bold and italicised text theirs).

(2)  The Plaintiff failed to even demonstrate any issue to be tried as at the time of the Summons. In particular, the only substantive relief sought in the original Statement of Claim was an order for provision of a Proposal Notice in respect of the GE Heads of Agreement under Clause 2.02 of the ROFR Deed. But (the Defendants maintain)  there could be no possibility of such relief being granted following the novation agreement.

(3)  The approach to the costs of a withdrawn application set out in Brooks v HSBC Bank plc [2011] EWCA Civ 354 applies to the present circumstances, which are such that the presumption of costs recovery against the Plaintiff is not displaced.

(4)  The overall circumstances of the case justify costs to the Defendants in any event.  

C.  DISCUSSION

19.  The Plaintiff should in my view have its costs of the Summons, on an indemnity basis, having regard to: (1)  the principles on interlocutory costs addressed below; and (2)  Clause 9.05 of the ROFR Deed.

(1)  Law on costs in interlocutory proceedings

20.  The broad starting position is that the Court may make any costs order as it sees fit. Order 62, rule 3(2A)  of the Rules of the High Court (Cap 4A)  (“RHC”)  states in terms:

“If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.”

21.  In exercising its costs discretion, the Court should take into account the conduct of all the parties: RHC Order 62, rule 5(1)(e)  and (2).

22.  As I see it, there is no “usual costs order” for interlocutory injunctions in any prescriptive sense post-Civil Justice Reform.

23.  According to Recommendation 122 of the Working Party on Civil Justice Reform:

“The principle that the costs should normally ‘follow the event’ should continue to apply to the costs of the action as a whole. However, in relation to interlocutory applications, that principle should be an option (which would often in practice be adopted)  but should not be the prescribed ‘usual order.’ Costs orders aimed at deterring unreasonable interlocutory conduct after commencement of the proceedings should be given at least equal prominence in practice, with the court being directed to have regard to the underlying objectives mentioned in relation to Recommendation 2.” (my emphasis)

24.  As Au J (as he then was)  stated in Mendlowitz & Associates Inc v Winner International Group Ltd & another, HCA 574/2009, unrep 14 May 2010, at §28:

“I do not think it is now right to say that as a matter of principle, the costs of an interlocutory injunction should be in the cause unless there is justification for its departure. The Court is entitled to and should look at the merits of the injunction itself as at the time of the application to decide what should be the proper costs order for that application in all the circumstances, which do not necessarily depend on the outcome of the trial.” (italics in original; underlined emphasis mine)

25.  The reasonableness of the party making the application has long been recognised as relevant to costs, even pre-Civil Justice Reform. In Guangzhou Green-Enhan Bio-Engineering v Green Power Health Products HCA 4651/2002, unrep. 8 June 2005, Lam J (as he then was)  stated at §11 that:

“At the interlocutory stage, the court has a number of options in dealing with costs, including but not limiting to the following.

(a)  costs in favour of one party either payable in any event or in an appropriate case, payable forthwith;

(b)  costs of one party be costs in the cause;

(c)  costs of both parties be costs in the cause;

(d)  costs reserved.

These options give the court some flexibility in dealing with costs of interlocutory application to meet the justice of the case. If an application is so devoid of merit that the court considers that it should not have been made at all, the court could exercise its discretion by an order under option (a). On the other hand, if the court is of the view that even if the application fails, the justice of the case demands that the question of costs be decided by reference to the ultimate merits of the case, the court may go for options (b), (c)  or (d).”

26.  The Defendants have referred me to the commentary at §29/1/55 in Vol. 1 of Hong Kong Civil Procedure 2021. I see nothing there that really detracts from the above points. The starting observations in the §29/1/55 commentary are that the court “has a broad discretion as to costs” and that in interlocutory matters “costs to follow the event is but one option”. Later in the same section, Au J’s judgement in Mendlowitz (above)  is cited for the principle that, when deciding costs, the court should consider the merits of the injunction application at the time when it was brought, and not the possible outcome of the hearing of the substantive matter. See likewise Hong Kong Civil Procedure 2021, Vol. 1 at §62/3/3B.

27.  In my assessment, the Plaintiff’s decision to file the Summons was understandable and the application was in the prevailing circumstances reasonably pursued. While I have taken into account the full history and circumstances of the Summons in reaching this view, the following matters are of particular note.  

28.  On 9 February 2021, it came to the Plaintiff’s attention that the Defendants entered into the GE Heads of Agreement with Great Eagle without notifying the Plaintiff pursuant to Clause 2.02(a)  of the ROFR Deed. The Plaintiff’s solicitors promptly wrote to the Defendants on 10 February 2021, reminding them of their obligations to issue a Proposal Notice and the Plaintiff’s rights under the ROFR Deed.

29.  The Defendants however refused to issue a Proposal Notice, arguing that the Plaintiff had released them from the ROFR Deed by reason of Mr Gerald Ma’s alleged oral representations on 4 February 2021. Though I need and no not make any definitive ruling on the matter, I note that the Defendants’ position seems difficult to reconcile with the provisions under Clauses 9.04 and 9.05 of the ROFR Deed, which require matters of discharge, variation or the like to be effected by an instrument in writing.

30.  While the Plaintiff filed a Statement of Claim against the Defendants on 19 February 2021 seeking specific performance of the ROFR Deed, the Defendants proceeded with completion of the GE Transaction on 24 February 2021 without notifying the Plaintiff.

31.  Taking all these matters into account, it was reasonable for the Plaintiff to file the Summons on 1 March 2021, seeking to restrain the GE Heads of Agreement from proceeding to the extent that they had not been completed. Put simply, the Plaintiff was doing what it could, based on the information that it had, to protect its rights under the ROFR Deed. The timeframe for doing so was tight, and taking into account the lack of notification to the Plaintiff at various stages there was in my view no culpable delay by the Plaintiff in acting.

32.  On the information then available: (1)  there was a serious issue to be tried, namely whether the Defendants were required and should be ordered to provide a Proposal Notice to the Plaintiff in accordance with Clause 2.02 of the ROFR Deed; (2)  the Defendants had acknowledged in Clause 9.07(b)  of the ROFR Deed that damages would not be an adequate remedy for breach; and (3)  it was (at the least)  properly arguable that the balance of convenience favoured the Plaintiff.

33.  As already noted, it was only on the late eve of the 5 March 2021 hearing that the Plaintiff received Mr Pan’s Affirmation, and the account given there as to the purported completion of the GE Transaction on 24 February 2021. The Plaintiff responded to this sensibly, by simply proposing a short interim injunction in order to verify whether the Defendants’ assertions as to completion and novation were factually and legally sound.

34.  As I stated at §12 of my 5 March 2021 decision, given the substantial stakes involved, fairness required that the Plaintiff – and the Court – should have a proper chance to be satisfied that a full and accurate picture of the prevailing position was in view. This was particularly so given the various gaps in evidence presented by Mr Pan, including significant redactions within key documents, and a number of potentially missing documents.

35.  Having had more time to consider the materials provided by the Defendants on 4 March, and having received the fruits of the Disclosure Order on 8 March, the Plaintiff then agreed on 10 March 2021 to withdraw the Summons and have the Interim Injunction discharged by consent. That again was entirely proper and reasonable.

36.  Mr Mok SC has drawn attention to several authorities to the effect that the party who applies to withdraw any proceedings is normally presumed to bear the costs of the proceedings: Brookes v HSBC Bank plc [2011] EWCA Civ 354, followed in Re Lionstar Manufacturing Ltd [2019] HKCFI 1664 at §14 and Re Prosperous GlobalChina Holding Limited [2019] HKCFI 2789 at §12.

37.  In Brookes, Moore-Bick LJ stated (at §6):

“(1)  when a claimant discontinues the proceedings, there is a presumption by reason of CPR 38.6 that the defendant should recover his costs; the burden is on the claimant to show a good reason for departing from that position;

(2)  the fact that the claimant would or might well have succeeded at trial is not itself a sufficient reason for doing so; 

(3)  however, if it is plain that the claim would have failed, that is an additional factor in favour of applying the presumption; 

(4)  the mere fact that the claimant’s decision to discontinue may have been motivated by practical, pragmatic or financial reasons as opposed to a lack of confidence in the merits of the case will not suffice to displace the presumption; 

(5)  if the claimant is to succeed in displacing the presumption he will usually need to show a change of circumstances to which he has not himself contributed; 

(6)  however, no change in circumstances is likely to suffice unless it has been brought about by some form of unreasonable conduct on the part of the defendant which in all the circumstances provides a good reason for departing from the rule.”

38.  While not accepting that the above points constitute or involve any true or binding “presumption” as to costs, at least under Hong Kong law, Mr Manzoni SC for the Plaintiff accepts that they involve relevant considerations within a “holistic approach” to costs (see Re Lionstar (above)  at §30).

39.  Mr Manzoni SC also emphasises, I think rightly, that the Court’s overall discretion as to costs is unfettered, with the ultimate concern being to make a costs order that best serves justice between the parties. To that end, the Court may take into account the conduct of the parties and whether it was reasonable for a particular issue or application to have been pursued in the first place: Re Lionstar (above)  §20, §24, §30; RHC Order 62, rule 5(1)  and rule 5(2)(a), (d). 

40.  Mr Manzoni submits that, even assuming the existence of a presumption as to costs against the party that has withdrawn its application, there is ample reason to depart from it. He emphasises the following points:

(1)  In the present case, the withdrawal of the Summons was not an acknowledgement of defeat, but a consequence of the Defendants’ unreasonable and wrongful completion of the GE Transaction in breach of the ROFR (as to which the Plaintiff says no arguable defence has been shown), presenting “a fait accompli to the Court and frustrating the purpose of the Summons”.

(2)  The Summons would have succeeded had it not been for the Defendants’ unreasonable conduct in completing the GE Transaction without regard to the Plaintiff’s contractual rights under the ROFR Deed.

(3)  Given the limited information available in that period, the Plaintiff acted wholly reasonably in pursuing the Summons and at the Hearing, as reflected in the 5 March 2021 decision itself.

(4)  The present case is comparable to Healthology Holdings v Wang Shiyun [2018] HKDC 922, where a security for costs application was withdrawn (§1)  after the plaintiff belatedly produced internal financial statements which contradicted prima facie evidence in the public domain as to its finances (§§18-23). Costs were awarded to the defendant in those circumstances.

41.  I am not prepared on the materials before me to express any settled view on the Plaintiff’s allegations of wrongful or unreasonable conduct by the Defendants. But apart from that, I accept the points above as relevant considerations in the exercise of my overall discretion.

42.  I have also taken into consideration the Defendants’ claim that by the time the Summons was filed on 1 March 2021, the Plaintiff could infer from the Announcement and subsequent correspondence between the Plaintiff and Defendants’ solicitors that the GE Transaction had been completed and that its application would fail.

43.  From the relevant documents, however, it was far from clear or certain as to whether the GE Transaction had been completed:

(1)  The Announcement on 9 February 2021 stated that Great Eagle and the Defendants entered in to the GE Heads of Agreement on novation of the 1^st Defendant’s rights to Great Eagle. But the novation arrangement was subject to a definitive agreement and no date of completion was specified.

(2)  Neither the Defendants nor Great Eagle notified the Plaintiff of the date of completion of the GE Transaction in their letters to the Plaintiff dated 11, 17, 18 and 26 February 2021.

(3)  While there was a bare assertion in the letter from Great Eagle’s solicitors to the Plaintiff on 1 March 2021 that a Great Eagle subsidiary had become the developer of the Development, no details were provided and no proof was attached.

(4)  While on 2 March 2021, Great Eagle and MTRC separately issued a short press release stating that a novation agreement has been reached between MTRC and Great Eagle Group, no details were provided and the Summons had already been filed by then. As noted, at that point in time, the Plaintiff still had incomplete information about the GE Heads of Agreement and the GE Transaction.

44.  In considering the overall position, what Coleman J noted in Re Lionstar (above),[1] addressing the costs of a withdrawn winding up petition, is similarly applicable here:

“23. A broad brush can be taken by referring to all matters already laid before the Court, including pleadings, correspondence, witness statements, transcripts and the terms of the settlement order.

24. The objective is to do justice between the parties without incurring unnecessary Court time and consequently additional cost”.

45.  With all of the above in view, and on a broad brush assessment, I consider it just and fair that the Plaintiff should have its costs of the Summons.

(2)  Clause 9.05 of the ROFR Deed

46.  Clause 9.05 of the ROFR Deed provides as follows:

“9.05  Costs

The Grantors shall jointly be responsible for and pay all costs, charges and expenses (including legal fees on a full indemnity basis and out-of-pocket expenses)  (a)  incurred and to be incurred by the Grantee in connection with the negotiation, preparation, execution and amendment of this Deed, and (b)  incurred and to be incurred by the Grantee in connection with the enforcement of this Deed.”

47.  In Twin Profit v Bank of China [2011] 3 HKC 59, the Court of Appeal ordered costs against the Defendants on an indemnity basis. Yuen JA (with Sakhrani J agreeing)  held that where the parties entered into an agreement as to costs reasonably incurred, the court should be slow to disturb the parties’ agreement:

“3. First, the Defendants have in the mortgage documents expressly agreed to pay or reimburse the bank the costs and expenses incurred in connection with the enforcement of the securities on a full indemnity basis. This is not challenged by the Defendants.

4. Indeed, even if there had not been an express agreement, there would be an implied agreement arising from the particular relationship between mortgagee and mortgagor whereby the mortgagee has a right to costs, reasonably and properly incurred, of proceedings between himself and the mortgagor and its sureties for the enforcement of its security (Fisher and Lightwood's Law of Mortgage para. 55.1)

5. In Gomba Holdings (UK)  Ltd v Minories Finance Ltd [1993] Ch 171 Scott LJ held, after noting the court's full discretion over litigation costs in proceedings between mortgagor and mortgagee (at 182A-B), that similar language in a mortgage giving the mortgagee full indemnity costs entitled the mortgagee ‘to be paid or to retain out of the mortgaged property all their actual costs, charges and expenses…except in so far they are of an unreasonable amount or have been unreasonably incurred and with any doubts as to whether the costs have been reasonably incurred or are unreasonable in amount being resolved in favour of the [mortgagee]" (187 A-C). If however the mortgage deed went so far as to provide that even charges of an unreasonable amount or charges unreasonably incurred would have to be paid by the mortgagor, then the court may interfere on public policy grounds (188A).

6. The Gomba approach was followed by this court (Litton VP, Godfrey and Ching JJA)  in Chekiang First Bank v Fong Siu Kin [1997] 2 HKC 302 . The court again noted its unfettered jurisdiction as to costs, but held that ‘where parties have contractually provided for the basis upon which costs are to be quantified, the court would in the normal course of events give effect to that’ (309 E-H).

7. A previous decision of this court is binding on us unless we are persuaded that it was ‘plainly wrong’. I am not persuaded that Chekiang First Bank was plainly wrong. Where parties have entered into a commercial transaction on a certain basis, the court should be slow to disturb the parties’ agreement, unless the circumstances are such as to cause the court in the exercise of its discretion to intervene. For instance, the court may well consider intervention in the situation referred to in Gomba where the mortgagor is required to pay charges of an unreasonable amount or charges unreasonably incurred, but it is not suggested by the Defendants that that would be the case here.

8. Accordingly I would order that the Defendants pay the Plaintiff's costs on an indemnity basis in accordance with the mortgage documents.”

48.  The Twin Profit defendants’ application for leave to appeal to the Court of Final Appeal was dismissed, with Ribeiro PJ approving the holding of Yuen JA at §7 of the Court of Appeal decision, and further reiterating at §21 of the Appeal Committee’s determination:

“… As with all questions of costs, the Court has a discretion which it exercises judicially. No one suggests that the discretion is fettered, Yuen JA having expressly noted the contrary. The parties’ agreement as to how costs should be dealt with provides the starting point for the discretionary exercise…It would be counter-productive, were it possible, to try to lay down any less flexible ‘legal principles’ as invited by the formulated question.”

49.  As I understand it, the Defendants’ position with regard to Clause 9.05 of the ROFR Deed and the principle in Twin Profit is that these together can only determine the starting point for the Court’s determination of the basis or scale of any costs to be ordered. They do not constrain or direct the Court’s determination as to the incidence of costs, i.e. which of the parties should bear the costs of the application, on whatever basis or scale.

50.  That position strikes me, at least at first blush, as difficult to sustain. I do not however need to rule on this. That is because:

(1)  For the reasons set out in Section C(2)  above I have concluded, without reference to Clause 9.05, that the Defendants should bear the costs of the summons; or as the Defendants would put it, I have decided that the incidence of costs falls upon them.

(2)  Focusing solely then on the basis or scale of costs to be borne by the Defendants, it is not seriously disputed – and in any event, it is plain – that Clause 9.05 provides that the costs to be borne are to be “on a full indemnity basis”.

(3)  Applying the uncontested aspects of Twin Profit, the parties’ agreement under Clause 9.05 on the indemnity scale is the starting point for my discretion as to the proper basis or scale of costs.

51.  On the above footing, and having regard to the overall history and conduct of the case on both sides, and exercising my discretion on a broad brush basis, I am satisfied that the parties’ agreement as to indemnity costs under Clause 9.05 of the ROFR should not be disturbed.

D.  CONCLUSION

52.  The costs of the Summons go to the Plaintiff on an indemnity basis in any event, with certificate for two counsel.