PACIFIC ELECTRIC WIRE & CABLE CO LTD v. TEXAN MANAGEMENT LTD AND OTHERS

CACV 90/2012, CACV 91/2012, CACV 93/2012,
CACV 94/2012, CACV 95/2012 AND CACV 96 /2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS. 90, 91, 93, 94, 95 AND 96 OF 2012

(ON APPEAL FROM HCCL NOS. 16, 17 AND 18 OF 2009)

________________________

HCCL 16/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO. 16 OF 2009

(TRANSFERRED FROM HIGH COURT ACTION NO. 2203 OF 2004)

________________________

________________________

________________________

________________________

Heard together

________________________

DECISION ON COSTS

________________________

Hon Kwan JA (giving the decision of the Court on costs):

Our orders on costs

1. On 17 September 2013, this court gave judgment dismissing the appeals of Hu and Top Selection in CACV 93, 94, 95 and 96/2012 and made an order nisi that they should pay PEWC’s costs of the appeals brought by them, with a certificate for four counsel[1].

2. We refused to give leave to Ma to appeal out of time in CACV 90/2012[2].  We allowed Ma’s appeal in CACV 91/2012 and set aside the judgment against him in HCCL 18/2009 as well as the costs order against him in HCCL 16/2009 and HCCL 18/2009.  For the costs of Ma’s two appeals, we made an order nisi on a global basis, awarding Ma 85% of his costs, with a certificate for three counsel.  Having set aside the costs order made by Reyes J against Ma in HCCL 16/2009 and HCCL 18/2009, we gave directions to the parties to make written submissions on the costs of the trial against Ma[3].

The respective positions of the parties

3. We will first set out the respective positions taken by the parties in their submissions filed pursuant to our directions.

4. PEWC asked us to vary our order nisi in respect of the costs in its favour in the appeals brought by Hu and Top Selection and instead award costs on an indemnity basis.  It also sought an order that Hu should bear its costs of the respondent’s notices filed in CACV 94 to 96/2012.

5. PEWC has no submission on the costs order nisi of Ma’s two appeals.  For the costs of the trial against Ma, it asked this court to make no order as to costs of the action in respect of Ma, so that Ma should bear his own costs of the trial.  Alternatively, Ma should only have a proportion of his costs below, at such proportion as this court sees fit.  And irrespective of any costs order to be made against Ma personally at trial, PEWC sought an order from this court that the order made by Reyes J that Hu and Top Selection do pay 70% of PEWC’s costs of proceeding against Ma[4] should remain undisturbed.

6. Hu’s position is that the costs of his appeals should be taxed on a party and party basis, as provided in the order nisi.  PEWC’s costs of the respondent’s notices would be subsumed in the costs of the appeals and the order sought by PEWC is superfluous.  The certificate for four counsel in PEWC’s favour should be varied to three.  In respect of the present application regarding costs, the certificate for counsel should be reduced to two.  As for the order made by Reyes J that Hu should pay 70% of PEWC’s costs of proceeding against Ma, this should be set aside and PEWC must bear its own costs for proceeding against Ma.

7. The position taken by Top Selection is the same as Hu.

8. Ma has no submission in respect of the costs of his appeals.  For the costs of his trial, he sought an order that PEWC should pay his costs in HCCL 16/2009 and HCCL 18/2009 on a party and party basis, alternatively on an indemnity basis.

9. The issues thus raised by the respective positions of the parties are addressed as follows.

If PEWC should be awarded costs on appeal on an indemnity basis

10. For the court to award costs on an indemnity basis, the successful party should show that the case has some “special or unusual feature” (Town Planning Board v Society for Protection of the Harbour Ltd (2004) 7 HKCFAR 114 at §15, approving Overseas Trust Bank Ltd v Coopers & Lybrand (a firm) & Ors [1991] 1 HKLR 177 at 182J, and Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570 at 575C to D).  The courts have emphasised the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made, it has been said that the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate” (Town Planning Board v Society for Protection of the Harbour Ltd at §17).

11. PEWC submitted it is appropriate to order Hu and Top Selection to pay the costs of their unsuccessful appeals on an indemnity basis for these reasons:

(1)  Reyes J had ordered indemnity costs against Hu and Top Selection[5], having made findings of fraud against them[6].  The courts have considered it appropriate to order costs on an indemnity basis where a fraud has been perpetrated in favour of the victim against the perpetrator.

(2)  Hu and Top Selection sought to challenge the trial judge’s findings on appeal, including the findings of fraud, and this court has rejected all their challenges, including their challenge to the trial judge’s costs order against them[7].  In pursuing their appeals, and in seeking to overturn the findings of fraud, Hu and Top Selection must necessarily have been seeking to maintain their fraud against PEWC.  As their challenges have failed on appeal, it should follow as a matter of principle that they should bear PEWC’s costs on appeal on an indemnity basis.  Examples where the appeal court has awarded costs on appeal on an indemnity basis where the appeal is entirely without merit and the perpetrator of fraud has persisted in pursuing a dishonest case are: Non-no Fashion Wholesale Ltd v Chung Kam Wing, & Anr, CACV 168/2001, 8 August 2001, at §43; and Chinachem Charitable Foundation Ltd v Chan Chun Chuen & Anr, CACV 62/2010 and CACV 101/2010, 14 February 2011, at §117.

12. On behalf of Hu and Top Selection, it was submitted that costs awarded against them should not be taxed on an indemnity basis for the following reasons:

(1)  When considering an application for the award of costs on an indemnity basis, the court is concerned principally with the losing party’s conduct of the case, rather than the substantive merits of his position (Simms & Ors v The Law Society [2006] 2 Costs LR 245 at §16).

(2)  PEWC’s reliance on the costs orders made on an indemnity basis in other cases does not assist, as questions of costs are highly fact-sensitive, and each case turns on its own facts.  As costs are always in the discretion of the court, a practice relating to costs, however widespread and longstanding, must not be allowed to harden into a rule (Bolton Metropolitan District Council v Secretary of State for the Environment [1995] 1 WLR 1176 at 1178F).

(3)  As stated by Lord Woolf LCJ in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) [2002] CP Rep 67 at §39: “The question will always be: is there something in the conduct of the action or the circumstances of the case which takes the case out of the norm in a way which justifies an order for indemnity costs?”

(4)  The appeal process is distinct from the trial procedures.  Whilst indemnity costs were awarded by the trial judge, it does not and should not follow that upon dismissing the appeals indemnity costs should be awarded.  The appropriate question to consider is whether the appeals were pursued in a manner which would place them outside the bounds of properly arguable appeals, such that the case has some “special or unusual feature” which would justify indemnity costs.  There is nothing in Hu’s or Top Selection’s conduct of their appeals which deserves some mark of disapproval.  Their appeals are not vexatious or totally unarguable. They were merely exercising their right of appeal, and the mere pursuit of a case advanced at first instance cannot in itself be an act of wrongdoing, absent any other conduct out of the norm.  Hu and Top Selection have merely been acting consistently throughout.

13. We are of the view there is something in these appeals which takes the case out of the norm in a way which justifies an order for indemnity costs.  Fraud was practised on PEWC on a massive scale in that the assets acquired with its funds were transferred to Hu beneficially via a network of companies.  The judge found there was overwhelming evidence of fraud.  In challenging the judge’s findings on appeal, Hu and Top Selection sought to maintain their case of the Takeover Arrangement, which was rejected by the judge as a fiction and belated fabrication.  This court has rejected all their challenges to the judge’s findings.  We think it is right to say that their conduct of the case on appeal was to persist in pursuing a dishonest case.  It is appropriate in these circumstances that Hu and Top Selection should pay the costs of their appeals on an indemnity basis.

14. As regards PEWC’s costs of the respondent’s notices in Hu’s appeals, we do not think it necessary to make separate provision that Hu should bear such costs as the costs of the respondent’s notices would be subsumed in the costs of the appeals.

Certificate for counsel for PEWC

15. At the trial, Reyes J gave a certificate for four counsel in favour of PEWC[8].

16. On behalf of Hu and Top Selection, it was contended that the number of parties and issues in these appeals do not justify the appearance by four counsel for PEWC.  The position on appeal was different from that at the trial.  The number of defendants was reduced from 33 at the trial to three on appeal.  The agreed list of issues at the trial had 96 issues and most of them had fallen away by the time the appeals were heard.  Whilst the appeals were admittedly complex, they were not as difficult or voluminous as the trial.  And three of the four counsel that appeared for PEWC on appeal had been present at the trial and thus had intimate knowledge of the facts, the legal arguments and the issues raised.  It was submitted that three counsel for PEWC would have been perfectly capable of addressing the issues raised in the appeals.

17. Each of the defendants on appeal was represented by three counsel.  We think it reasonable and proper for PEWC to be represented by four counsel on appeal, as it had to address the separate arguments advanced against it by three parties.  Besides, as we are inclined to order costs in favour of PEWC to be taxed on an indemnity basis, we do not think it can be said that the engagement of four counsel for PEWC on appeal was unreasonable.  We decline to vary the order nisi in this respect.

Ma’s costs of the proceedings below

18. PEWC did not succeed against Ma in a claim of dishonest assistance in HCCL 16/2009 and succeeded against Ma in a claim of knowing receipt in HCCL 18/2009.  Although Ma was the successful party in one action, Reyes J departed from the usual rule of awarding costs in his favour in that action.  Instead, the judge made an order on a global basis that Ma was to pay 70% of PEWC’s costs of proceeding against him in both actions.

19. On appeal, we refused to give leave to Ma to appeal the costs order in HCCL 16/2009 out of time.  We allowed Ma’s appeal against the judgment in HCCL 18/2009, holding that he would not have a case to answer on the claim of knowing receipt as pleaded and the judge was wrong to draw adverse inferences against him in not giving evidence in respect of a claim that was bound to fail[9].  We set aside the judgment against him in HCCL 18/2009 and the global costs order against him in HCCL 16/2009 and HCCL 18/2009.

20. On behalf of PEWC, it was submitted that although it had failed in all its claims against Ma, nevertheless he should be deprived of his costs or should only have a part of his costs.  Reliance was placed on the statement of Atkin LJ in Ritter v Godfrey [1920] 2 KB 47 at 60 in that a wholly successful defendant may be deprived of costs if there is evidence that the defendant brought about the litigation.  Further, under Order 62 rule 5(1)(e) of the Rules of the High Court, the court in exercising its discretion as to costs shall take into account, inter alia, the conduct of all the parties which, in turn, includes (under rule 5(2)):

(1)  whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(2)  the manner in which a party has pursued or defended his case or a particular allegation or issue; and

(3)  conduct before and during the proceedings.

21. PEWC contended Ma effectively brought the litigation on himself for the following reasons:

(1)  He was extensively involved in the wrongful activities and devices of Hu, in particular his involvement in Trident Asia (which was used to manage the accounts and records of PEWC’s overseas investments), CPE (which was the key entity used to channel funds into and out of PEWC) and Trident Bank (which was the entity in which round-robin deposits were placed).  The discovery of documents from Ma and Trident Bank was scanty, such that it is not possible to have a complete picture of the fund flows between PEWC or PEWC-related companies and PCHL.

(2)  In respect of the PacMOS shares, it was contended that Ma assisted Hu to misappropriate and conceal these assets acquired on behalf of PEWC, in that he procured the transfer of PCI’s 51% stake in Texan to All Dragon (a company controlled by Hu at all times), the transfer of PPH’s 49% stake in Texan to All Dragon, and the change of the declared ultimate owner of PacMOS in its annual reports to All Dragon[10].  It was argued that no relief was necessary against Ma because the PacMOS shares were still held by Texan which was still held by All Dragon, but that does not mean PEWC should not have sued Ma in the first place.  Had the PacMOS shares been dissipated so that PEWC could not recover in full on a proprietary basis, the claim against Ma would become significant.  Further, the judge found “given uncertainty as to precisely who were complicit in Hu’s diversion of PCHL, it was reasonable for PEWC to have joined Tung, Sun and Ma as parties”[11].

(3)  As for the claim in knowing receipt, Ma had filed a witness statement in which he asserted that the reason why Town Sky was allowed to use PEWC’s assets as security for its loans was because he was entitled to an arrangement fee for arranging the HSH loan for PEWC to refinance its Rabobank loan and the use of PEWC’s assets as security was a payment in kind[12].  Further, it was only after the commencement of the proceedings that Ma produced a letter from HSH Bank stating that the loans granted to Town Sky were fully repaid by November 2006 without resorting to the security.  Even so, there was no explanation from him as to how the loans were repaid.  The judge had found that Town Sky appears to be an alter ego for Ma[13]. PEWC had expected to cross-examine Ma to explore the weaknesses and inherent implausibility of his explanation.  As it transpired, Ma chose not to give evidence at the trial.  It was not unreasonable for PEWC to have pursued its claim against Ma.

(4)  Lastly, Ma, whilst clearly in possession of information and documents as to the assets acquired by Hu and the funding therefor, refused to co-operate with POIM, PricewaterhouseCoopers, Allen & Overy, and the liquidators of CPE.  He asked his staff, Amy Lui, not to co-operate fully with the liquidators of CPE, and attempted to influence Pang Hong, an officer of PCHL, not to disclose anything about Hu and any of the Hong Kong companies to PEWC or assist PEWC in its investigation[14].

22. On behalf of Ma, it was submitted that costs of the actions against Ma should follow the event and it would appear the only reason for Reyes J to order Ma to pay part of PEWC’s costs in both actions was that Ma was found liable in HCCL 18/2009.  Given that the judgment against Ma in HCCL 18/2009 is set aside on appeal, the onus is on PEWC to show why the present case is so exceptional to justify departure from the normal rule.

23. Ma contended that the exceptions for departing from the normal rule in Ritter v Godfrey must be approached with caution and kept within proper limits.  Whether the matter is analysed in terms of the exceptions in Ritter v Godfrey or Order 62 rule 5(1)(e), the ultimate question is whether it was reasonable for the unsuccessful party to have brought the proceedings which failed.

24. In HCCL 16/2009, Reyes J has found that despite the adverse inferences which might properly be drawn against Ma by reason of his failure or refusal to give evidence, the case against him is not made out. Implicit in that finding is that even taking the evidence in PEWC’s possession at the highest, PEWC still could not succeed in its claim against Ma.  The judge has not thought fit even to grant PEWC any declaratory relief.  In view of the judge’s finding “it is not clear to what extent (if at all) Ma assisted Hu”[15], PEWC cannot now contend that Ma assisted Hu to misappropriate and conceal the assets acquired on behalf of PEWC.

25. In HCCL 18/2009, this court has held on appeal that Ma would not have a case to answer on the claim of knowing receipt as pleaded and the judge was wrong to draw adverse inferences against him in not giving evidence in respect of a claim that was bound to fail.

26. Hence, it cannot be said that PEWC had acted reasonably to have brought the proceedings which failed.

27. It was further submitted that a responsible litigant in PEWC’s position would have re-assessed the strength of its claim against Ma when all the available evidence was disclosed and the hopeless claims against Ma should be dropped before the trial commenced.  And Ma’s counsel had informed the court on the 6^th day of the trial of his decision not to give evidence[16], so PEWC had the opportunity to re-assess its case.  PEWC should not have persisted with its claims against Ma in the hope that something incriminating might turn up in the course of the trial.  What appeared to have happened here was that Ma, being a reluctant witness, was joined as a defendant in a tactical manoeuvre to get evidence from him in cross-examination in the belief that such evidence would assist PEWC’s claim against the other defendants.  It was submitted that the speculative manner in which PEWC chose to prosecute its unfounded claims against Ma was frivolous and vexatious and an abuse of the process of the court such that it could be justified to award costs to Ma against PEWC on an indemnity basis if the court were minded to do so.

28. As for the judge’s statement that “given uncertainty as to precisely who were complicit in Hu’s diversion of PCHL, it was reasonable for PEWC to have joined Tung, Sun and Ma as parties”, this was said in the context of explaining the order against Hu and Top Selection.  It was contended that as between PEWC and Ma, the reasonableness or otherwise of the decision to join Ma is not a reason for departing from the normal rule that costs should follow the event and in no circumstances should the winning party be ordered to pay the costs of the losing side.

29. It is not in dispute that the burden is on PEWC to show why costs should not follow the event in respect of the costs below.  We are persuaded by PEWC’s submission that it has done so in that Ma has effectively brought the litigation on himself.  We are inclined to think that the two actions were reasonably commenced against Ma, because of his extensive involvement in the activities of Hu.  We do not accept the submissions on behalf of Ma and Hu that the apparent reason why he was sued was because he was a reluctant witness and his joinder as a defendant was a tactical move to get evidence to implicate other defendants.

30. In respect of HCCL 16/2009, given the judge’s finding, it is not open to PEWC to submit that Ma had assisted Hu to misappropriate and conceal the assets acquired on behalf of PEWC.  However, that is not to say that this action was not reasonably commenced against Ma as one of the defendants.  On the information available to PEWC at the time proceedings were brought, Ma and other defendants were involved in the diversion of PEWC’s assets.  As the judge had remarked, “given uncertainty as to precisely who were complicit in Hu’s diversion of PCHL, it was reasonable for PEWC to have joined Tung, Sun and Ma as parties”.

31. As for HCCL 18/2009, although this court has held that Ma did not have a case to answer on the claim as pleaded after analysis of the submissions on both sides, we must not assess the case against him with the benefit of hindsight.  It is pertinent to have regard to the initial lack of explanation from Ma why Town Sky was allowed to use PEWC’s assets as security for its loans, what Ma said subsequently in his witness statement, and that he produced evidence after the action was commenced that the loans were repaid in full but still did not explain how the loans were repaid.  We do not think PEWC was pursuing a speculative case against Ma.  It was not unreasonable on the part of PEWC to expect that it could explore the weaknesses and inherent implausibility of Ma’s case in cross-examination.

32. For the above reasons, we think it appropriate to exercise our discretion to deprive Ma of his costs in HCCL 16/2009 and HCCL 18/2009, notwithstanding that these actions were dismissed against him.  We would order there should be no order as to costs in HCCL 16/2009 and HCCL 18/2009 in respect of the proceedings against Ma.

PEWC’s costs of the proceedings against Ma

33. PEWC seeks an order that the order made by Reyes J that Hu and Top Selection do pay 70% of PEWC’s costs of proceeding against Ma should remain undisturbed, irrespective of the costs order at trial we are to make against Ma.  The judge had held that it was reasonable for PEWC to have joined Ma as a party.

34. On behalf of Hu, it was submitted that as this court has held that the claim against Ma in knowing receipt was bound to fail, it follows that it was unreasonable for PEWC to join him as a party.  The purpose of joining Ma was to attempt to extract from him evidence, either by way of discovery or cross-examination, in the hope that such evidence would implicate other co-defendants like Hu.  To join a party for that collateral purpose in the circumstances where the plaintiff’s claim against that party is bound to fail is impermissible in law (Wilson v Church (1878) 9 Ch D 552 at 557).

35. Top Selection made a similar submission as this court has held Ma did not have a case to answer on the claim of knowing receipt as pleaded, it follows that PEWC should bear the costs of its own folly of proceeding against Ma and the order of the judge should be set aside.

36. For the reasons given earlier, we do not think PEWC had acted unreasonably in suing Ma in HCCL 16/2009 and HCCL 18/2009.  The judge’s rationale for making Hu and Top Selection bear PEWC’s costs of suing Ma and other defendants being Tung, Sun, Chung and Yip was that there were many findings that related them to Hu and what they did was caused largely by the actions of Hu and that Top Selection was merely a cipher for Hu[17].  We would maintain the order made by the judge, so Hu and Top Selection should pay 70% of PEWC’s costs of proceeding against Ma in those two actions.

Conclusion and costs of this application

37. To recap, we make the following orders on costs:

(1)  the order nisi in respect of the appeals in CACV 93 to 96/2012 is varied in that the costs awarded in favour of PEWC are to be taxed on an indemnity basis;

(2)  there be no order as to the costs of Ma in HCCL 16/2009 and HCCL 18/2009 in respect of the proceedings against him;

(3)  the order made by Reyes J in HCCL 16/2009 and HCCL 18/2009 that Hu and Top Selection do pay 70% of PEWC’s costs of proceeding against Ma do stand; and

(4)  the order nisi in respect of the appeals in CACV 90 and 91/2012 is confirmed.

38. In respect of the costs of the present applications, we are inclined to think costs should follow the event and PEWC should have its costs.  We make the following orders nisi:

(1)  in respect of the applications in CACV 93 to 96/2012, Hu and Top Selection do pay costs to PEWC;

(2)  in respect of the application in CACV 90 and 91/2012, Ma do pay costs to PEWC; and

(3)  the costs awarded to PEWC be taxed on a party and party basis, with a certificate for two counsel.