CHINA MEDICAL TECHNOLOGIES, INC (IN LIQUIDATION) AND OTHERS v. WU XIAODONG AND OTHERS

HCA 3391/2016 & HCA 1417 /2013

[2023] HKCFI 2735

HCA 3391/2016

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 3391 OF 2016

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HCA 1417 /2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1417 OF 2013

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(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

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J U D G M E N T

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Introduction

1.  By summons dated 13 October 2022 (“Joinder Summons”), the 2^nd Defendant viz Mr Samson Tsang applied:

a.  to join the Bank of China (Hong Kong) Ltd (“BOC”) and the Bank of East Asia Ltd (“BEA”) (collectively “Banks”) as interested parties in the present consolidated Action “in respect of the adjudication on the nature of the FISH and SPR Transactions by the Court”; or

b.  for “other appropriate case management direction be made by the Court so as to avoid inconsistent findings on the nature of the FISH and SPR Transactions to be made by other Courts”.[1]

2.  The Joinder Summons was opposed by the Plaintiffs, BOC and BEA. Further, none of the other active Defendants in the present Action supported the Joinder Summons - the 3^rd, 5^th, 6^th and 13^th Defendants had indicated that they would adopt a neutral stance.

3.  Specifically, regarding para 1b. above, no other appropriate case management directions had been suggested by the 2^nd Defendant.

4.  After hearing the parties on 19 June 2023, this court handed down a Judgment dated 15 September 2023 (“Judgment”). By the Judgment, this Court dismissed the Joinder Summons.

5.  As far as Costs are concerned, the parties had made submissions on costs in their skeletons and/or orally at the hearing. The 2^nd Defendant’s position was that whether the Joinder Summons was allowed or not, this court should make a neutral costs Order ie costs in the cause or no order as to costs. The Plaintiffs, BOC and BEA all asked for costs on an indemnity basis should the Joinder Summons be dismissed. In the end, this court was persuaded to order costs of and occasioned by the Joinder Summons be to the Plaintiffs, BOC and BEA on an indemnity basis to be summarily assessed and paid by the 2^nd Defendant forthwith (“Costs Order”).

6.  This is the hearing of the 2^nd Defendant’s summons dated 29 September 2023 (“Summons”) whereby he applies for leave to appeal against the Costs Order. There is no application for leave to appeal against the dismissal of the Joinder Summons as such, which is important since there could be no argument on the merits of the joinder application.

7.  The initial grounds of appeal were set out in the draft Notice of Appeal annexed to the Summons. In his skeleton, Mr Lung seeks to rely on the revised draft Notice of Appeal annexed to it. In the revised draft Notice of Appeal, the 2^nd Defendant seeks an Order that “[t]here be no order as to costs of the Joinder Summons or alternatively, the 2^nd Defendant shall only pay 2 sets of hypothetical proper or necessary costs for resisting the Joinder Summons (being that of (i) the Plaintiffs and (ii) BOC / BEA) on a party and party basis to be summarily assessed”.

Deliberation

8.  The applicable legal principles are not seriously in dispute.

9.  First, leave to appeal should only be granted if the Court is satisfied that the intended appeal has a reasonable prospect of success or there is some other reason in the interests of justice why it should be heard.

10.  Second, with respect to an appeal on costs only, the Court of Appeal will not interfere unless the Court below had erred in principle or its decision was plainly wrong: LLC v LMWA [2019] 2 HKLRD 529 at [7]. In particular, the Court of Appeal must be very careful not to interfere with the judge’s exercise of the discretion which has been entrusted to him and not substitute its discretion for that of the judge, unless satisfied he was plainly wrong: Re Up Energy Development Group Ltd (in liquidation) [2023] HKCA 536 at [8].

11.  Third, the Court has a general and unfettered discretion to award indemnity costs in “appropriate” circumstances: Re Guy Kwok Hung Lam, ex p Tor Asia Credit Master Fund LP [2023] HKCA 1099 at [22].

12.  Fourth, costs may be awarded on a more generous than the usual basis of taxation, specifically indemnity basis, so as to achieve a fairer result: Commissioner of Inland Revenue v Poon Cho Ming John (No 2) (2020) 23 HKCFAR 74 at [4]:

a.  It is for the receiving party to show that the case has some special or unusual feature.

b.  Such features are not confined to an ulterior motive, an improper purpose, deception or underhand conduct on the part of the paying party.

c.  Neither the attributes of the parties nor the character of the proceedings are irrelevant to the question of whether a more generous than usual basis of taxation should be ordered.

d.  The discretion to order a more generous than usual basis of taxation is not to be fettered or circumscribed beyond the requirement that such taxation be ordered only when it is “appropriate” to do so.

e.  The grounds on which a more generous than usual basis of taxation is to be ordered must be “connected with the case” ie any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation.

13.  Fifth, the Court’s discretion to order indemnity costs may be exercised where the application is entirely devoid of merits and should never have been launched or persisted, but the party has nevertheless unreasonably and unjustifiably persisted: Huge Dragon Corp Ltd v Lung Mun Oasis (IO) [2014] 3 HKLRD 286 at [13]- [15].

14.  As set out in Mr Lung’s skeleton, there are 2 broad grounds of appeal:

a.  Ground 1 – the Court should have made no order as to costs of the Joinder Summons; alternatively, the 2^nd Defendant should only pay 2 sets of costs, being that of (i) the Plaintiffs and (ii) BOC/BEA. As explained by Mr Lung at the hearing, the Banks should have been represented by 1 set of lawyers; alternatively, BOC should have adopted BEA’s submissions on the Joinder Summons, or vice versa.

b.  Ground 2 – there is no or no sufficient basis for costs to be ordered on an indemnity basis.

Ground 1

15.  According to Mr Lung’s skeleton, the gist of Ground 1 is that:

a.  As regards case management matters, a neutral costs order is generally more appropriate unless a party acts in a culpable way: Lau Muk Fat (Manager of Lau Shau Wo Tso) v Wong Kwok Wa [2023] 1 HKLRD 1067 (Recorder Rachel Lam SC).

b.  It was eminently reasonable for the 2^nd Defendant to take out the Joinder Summons invoking the Court’s active case management powers conferred by RHC Order 1B rule 1(2) when no other parties in the various proceedings brought by the Plaintiffs have done so. This is more so in view of the common factual issues regarding the nature of the FISH and SPR Transactions and common causes of action, including a s.275 claim, dishonest assistance and knowing receipt.

c.  The Joinder Summons was taken out by the 2^nd Defendant precisely to offer a case management proposal to the Court which sought to avoid the need for repeated presentation of the same materials, including expert evidence, on the nature of the FISH and SPR Transactions[2] in the future trials of the present Action as well as the actions against BOC, BEA and Paul Weiss.

d.  The fact that the Court does not prefer a joinder does not per se render the taking out of the Joinder Summons unreasonable or useless. Instead of finding the 2^nd Defendant culpable, the Court should not criticise him for attempting to provide a solution to an obvious case management issue. Hence, a neutral costs order is appropriate.

e.  Alternatively, the 2^nd Defendant should only pay 2 sets of costs for resisting the Joinder Summons because the Banks essentially adopted a “united front” ie they insisted the issue(s) on the nature of the FISH and SPR Transactions be tried in their respective actions and there is plainly no conflict of interest between them.

16.  In this court’s view, Ground 1 has no reasonable prospect of success.

17.  To start with, this court does not see Recorder Rachel Lam SC as intending to lay down in Lau Muk Fat a principle that in all case management matters, a neutral costs order is generally more appropriate unless there is some culpable act by the “unsuccessful” party. It is just that a neutral costs order ie costs in the cause was considered to be appropriate on the facts of that application which was for the consolidation of various proceedings and was described by the learned Recorder as “often a complex and difficult case management issue”: see [5]. In other words, the decision in Lau Muk Fat is facts-sensitive, as in all decisions on costs.

18.  In this court’s view, case management applications, as in any other applications, the incidence of costs depends on numerous factors including inter alia the merits of the case management proposal put forward by an applicant. The 2^nd Defendant had proposed the joinder of the Banks in the present Action. For reasons explained in the Judgment, that proposal was wholly without merits and was rejected. There is no appeal against that part of the Judgment.

19.  Second, this court does not agree it was eminently reasonable for the 2^nd Defendant to take out the Joinder Summons in order to invoke the Court’s active case management powers. The Court’s active case management powers can be proposed by a party to an Action, with or without the agreement of the other parties. In the present case, case management proposals can be raised by the 2^nd Defendant in a Case Management Conference, the latest one being scheduled on 30 October 2023. If the 2^nd Defendant chooses to do that, the incidence of costs of the Case Management Conference may well be different from that of the Joinder Summons. But the 2^nd Defendant has chosen not to do that.

20.  Third, this court did not just “not prefer” a joinder of the Banks in the present Action. This court found the Joinder Summons to be unmeritorious.

21.  Fourth, regarding the proposal that there should be 1 set of costs for BOC/BEA, the fact of the matter is that BOC and BEA have been separately represented from the very beginning of the proceedings against them. The 2^nd Defendant issued the Joinder Summons with his eyes open. Whether or not there is conflict of interest between BOC and BEA vis-à-vis the Joinder Summons is irrelevant. Each of the Banks was entitled to separate legal representation and came to its own view as to the merits of the Joinder Summons. The Banks objected to the Joinder Summons for reasons of their own. If conflict of interest were the test, the Plaintiffs, BOC and BEA should only get 1 set of costs since they all opposed the Joinder Summons on the ground that it had no merits. The 2^nd Defendant’s proposition that there should be 1 set of costs for BOC/BEA need only be stated to be rejected.

22.  Ultimately and importantly, this court found the Joinder application is just another attempt to delay the present Action by the 2^nd Defendant. This is what this court said in the Judgment at [31] – [34].

“31. And this court asks: what is the benefit to the 2^nd Defendant if the Banks are joined? The answer is none. In the 5^th affidavit of Mr Tang Shu Pui Simon (“Tang” and “Tang 5” respectively) for the 2^nd Defendant, Tang does not claim the joinder application is for the 2^nd Defendant’s own benefit. Rather, it is for the benefit of the Banks. This is what Tang says in Tang 5 at paras 33 - 34:

‘33. Further, BOCHK, BEAHK and Paul Weiss, being independent third party to the 1^st and 2^nd Plaintiffs, obviously lack the requisite and complete knowledge of the subject transactions and that may cause serious disadvantage to them when conducting its defence in their respective actions when disputing the true nature of the FISH and SPR Transactions alleged by the Plaintiffs (the Theft Claim or the Conflict of Interest Claim) during the Plaintiffs’ proof of case to the Court. In other words, BOCHK, BEAHK and Paul Weiss do not have the necessary knowledge to plead the Ordinary Transaction Defence as pleaded by Mr. Tsang in the Consolidated Action.

34. However, if BOCHK, BEAHK and Paul Weiss are involved in the Consolidated Action, they will benefit from the respective defence of Mr. Tsang and Dr. Chen (the 3^rd Defendant in the Consolidated Action) who have direct knowledge of the FISH and SPR Transactions. If Mr. Tsang proves his Ordinary Transaction Defence to the Court, the Plaintiffs’ claims against BOCHK, BEAHK and Paul Weiss will fall away and Paul Weiss will not be required to prove that they had properly discharged their professional duties of care in the said internal investigation.’

32. This is wholly unconvincing. The Banks, being independently advised by reputable solicitors and counsel, do not want the purported benefit conferred on them by the 2^nd Defendant. The 2^nd Defendant should have withdrawn the Joinder Summons.

33. In these circumstances, it is difficult to escape the conclusion, submitted by Mr Manzoni SC in his skeleton, that the application is just another attempt to delay the present Action by the 2^nd Defendant.

34. In conclusion, this court is of the view that the Joinder Summons is without merits and should be dismissed.”

23.  Hence, this court has made it clear in the Judgment that the Joinder Summons is an attempt to delay the present Action by the 2^nd Defendant, unsuccessful though it turned out to be. Whether or not one uses the term “culpable” to describe the Joinder Summons, the end result is that the 2^nd Defendant’s application had received no support from anyone but he nonetheless persisted and had failed. A costs Order should reflect that.

Ground 2

24.  As for costs on an indemnity basis, this was what Mr Manzoni SC said in his skeleton[3] for the hearing of the Joinder Summons which this court found persuasive.

“45. In exercise of its discretion as to costs, the Court may consider the conduct of all parties inter alia ‘whether it was reasonable for a party to raise, pursue or context a particular allegation or issue’ and ‘conduct before, as well as during, the proceedings’ (O.62, r.5(2)(a) and (d)).

…

47. This Court in the decision of the Plaintiffs’ expert evidence summons noted that ‘if any party has taken out or takes out unnecessary and unmeritorious interlocutory applications for no useful purpose other than delay, such applications will no doubt be met with the appropriate costs sanctions, including indemnity costs” (at [49]).

48. The Joinder Summons received no support from any parties, and Mr Tsang has demonstrated no good reasons in support of the Joinder Summons.

49. On 25 October 2022, the Plaintiffs wrote to Mr Tsang setting out their opposition to the Joinder Summons and inviting him to withdraw it on the basis that there be no order as to costs. Given that Mr Tsang continues to pursue the Joinder Application, the Plaintiffs seek a costs order against Mr Tsang on an indemnity basis, to be paid forthwith.” (emphasis added)

25.  It is clear from the Judgment at [31] to [34] that (i) the Joinder Summons was of no benefit to the 2^nd Defendant and was brought by him as another attempt to delay the present Action - in other words, it was brought with an improper purpose; (ii) the Joinder Summons was devoid of merits and should not have been brought; (iii) once the Banks made known that they did not want the “benefit” of joinder, the 2^nd Defendant should have withdrawn the Joinder Summons ie he should not have persisted.

26.  Mr Lung submits that in order for indemnity costs to be awarded, the successful party should show that the case has some “special or unusual features”: Town Planning Board v Society for Protection of the Harbour Ltd (No. 2) (2004) 7 HKCFAR 114 at 123I-J.

27.  It seems to this court that the matters stated in para 25 above are “connected with the case” in the sense used in Commissioner of Inland Revenue v Poon Cho Ming John (No 2) and are sufficiently “special or unusual” to warrant indemnity costs. Ultimately, as shown in all prior and subsequent authorities to Town Planning Board v Society for Protection of the Harbour Ltd (No. 2), all that needs to be shown is that indemnity costs are “appropriate”, which this court has found to be the case.

28.  In this court’s view, Ground 2 also has no reasonable prospect of success.

Disposition and costs order

29.  To conclude, the proposed appeal against the Costs Order has no reasonable prospect of success. Nor can this court find any reason in the interests of justice why the proposed appeal should be heard.

30.  The application for leave to appeal against the Costs Order is hereby dismissed with costs to the Plaintiffs, BOC and BEA. Costs will be summarily assessed on a party and party basis, certificate for counsel, and paid forthwith by the 2^nd Defendant. While Mr Keith Lam argues at the hearing that this application is a continuation of the Joinder application, so that costs should also be taxed on an indemnity basis, this court does not agree. The present application is against the Costs Order only and cannot be regarded as a continuation of the joinder application as such.

31.  The parties have, at the invitation of this court, made submissions on costs at the hearing - this costs Order is not on a nisi basis.

32.  This court’s summary assessment on costs will be notified to the parties in due course after considering all parties’ statements of costs and the 2^nd Defendant’s lists of objection.