THE SECRETARY FOR JUSTICE v. HUI YAT FAI AND OTHERS

CACV 187/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 187 OF 2004

(ON APPEAL FROM HCMP 5714/2001)

____________

____________

______________________________

JUDGMENT ON COSTS

______________________________

Hon Yeung JA:

1.  I agree with the judgment of Cheung J.  I have nothing to add.

Hon A Cheung J:

2.  On 8 February 2005, this Court handed down judgment in this appeal.  For reasons set out in the judgment, we allowed the appeal.  We also made a costs order nisi that the Bank shall have one-third of the costs of the appeal, with the remaining two-thirds to be borne by the parties themselves.  The Receiver now seeks to vary the costs order nisi.

3.  Mr Jeremy Bartlett, appearing for the Receiver, argued that the Bank did not win and the Receiver did not lose in the appeal.  Furthermore, this Court did not make any investigation (let alone finding) regarding the responsibility for the amended order of the judge below, which was set aside on appeal.  Counsel therefore argued that it is fair to order each party to bear its own costs.

4.  I do not agree that the appeal resulted in a draw.  It did not – the appeal from the amended order was allowed.  Prima facie, costs should follow the event.  The reason why this Court only gave one-third of the costs of the appeal to the Bank in its order nisi was that the Bank did not succeed on its main argument, i.e. that the ruling made by the judge was wrong – this Court was not prepared to deal with that argument.  Rather the Bank succeeded on a point raised by the Court during the hearing itself, which the Bank, unlike the Receiver, agreed with and adopted in its submission.  As substantial efforts had been expended by the Bank on its main argument, the Court found it appropriate to apply a discount of two-thirds to the Bank’s costs.

5.  In my view, all this does not distract from the undeniable fact that the Bank did succeed in its appeal in overturning the amended order of the judge.  The fact that the Bank did not obtain the declaration sought in the re-amended notice of appeal has already been reflected in the two-third discount.

6.  I therefore do not agree with counsel that the Bank did not succeed in the appeal.

7.  Nor do I agree with counsel’s submission that the Receiver did not lose.  As has been emphasised in the judgment, what was under appeal was the amended order of the judge, but not the ruling as such.  The Receiver resisted the appeal and sought to uphold the amended order on two grounds, namely that the ruling was correct and that it was in any event a matter of case management and discretion.  The Court did not deal with the first ground, but rejected the second argument based on case management and discretion.  The Receiver’s argument on case management and discretion was directly related to the ground based on which this Court decided to set aside the amended order, namely that the judge below had no jurisdiction or power to make paragraph 1 of the amended order.

8.  Given that the Receiver’s argument was rejected and its attempt to uphold the amended order failed, it is difficult to see how one could describe the Receiver as not having failed in the appeal.

9.  It is true that this Court did not investigate into the genesis of the amended order and the responsibility (if any) of either party for it.  But that is neither here nor there.  Whether one should approach the matter by assuming that neither party was responsible for the wording or that both were partly responsible for it, it would not affect the analysis of the situation.

10.  In short, the Bank was successful in the appeal and that fact must be reflected in the costs order.  As the Receiver has not been able to point out any fault on the part of the Bank as appellant in the conduct of this appeal, the Receiver’s proposed order for each party to bear its own costs must be prima facie unfair. 

11.  I have already pointed out that as substantial efforts have been expended by the Bank on challenging the correctness of the ruling, it is appropriate to apply a discount to the costs incurred by the Bank as the successful appellant in this appeal.  In my judgment, a discount of two-thirds, which is accepted by the Bank, is fair.

12.  Having considered all the arguments and looked at the matter in the round, I would refuse the Receiver’s application to vary the costs order nisi and make it absolute instead.

13.  All this is subject to another matter raised by the Receiver, namely that the costs awarded against the Receiver should not be borne by him personally. 

14.  That never was the intention of the costs order nisi, and Mr Daniel Fung SC appearing for the Bank did not really suggest otherwise.  The costs should form part of the costs of receivership.

15.  But Mr Bartlett took his point further and argued that the one-third costs that the Receiver has to pay the Bank should come out from the subject account balances, free of the (purported) set off/combination.  He said that this should be so regardless of whether the account balances are actually the assets of an innocent third party/the Bank, whether the (intended) criminal prosecution is eventually successful and whether at the end of the day a confiscation order is made.

16.  I have considered the authorities relied on by counsel, including a relatively recent English Court of Appeal decision of Hughes v. Customs and Excise Commissioners [2003] 1 WLR 177, which in turn referred to and discussed in some detail an earlier English Court of Appeal decision of Re Andrews [1999] 1 WLR 1236.

17.  I am afraid this is again a hypothetical question that should not be decided by the Court of Appeal without the benefit of a first instance decision, or any detailed submissions by counsel on both sides at the hearing. 

18.  Suffice it to say that the proposition of counsel, although at first blush appeared to be supported by some authorities, does not immediately appeal to one’s sense of fairness particularly in a case where the restrained asset is eventually found to be the property of an innocent third party. 

19.  I would simply observe here that even according to Hughes, there appears to be a distinction, at least for the purposes under discussion, between the legal costs of the restraint proceedings (which must include the costs of any appeal arising therefrom) and the normal remuneration and expenses of the receivership (para. 57 at p. 194A-B), and a further distinction between obtaining reimbursement from the assets of an acquitted defendant and obtaining it from the assets of an innocent third party, whose position is specifically safeguarded by section 19(4) of the Organised and Serious Crimes Ordinance (Cap. 455) (para. 58 at p. 194C-E/F and paras. 67 & 68 at p. 196C/D-G).

20.  Before the disputes between the Bank and the Receiver regarding whether the account balances are covered by the restraint order in the first place, whether the rights of set-off and/or combination of accounts could be lawfully exercised without a variation of the restraint order and whether they have in fact been lawfully exercised are finally dealt with, and before it is known whether the (anticipated) criminal prosecution will be successful and a confiscation order made, whether the confiscation order if made will include assets of value sufficient to cover, amongst other things, the one-third costs, and whether the Receiver will at the end of the day find it necessary or desirable to seek recovery of those costs from the account balances against the Bank (an innocent third party) nonetheless, the question of whether the Receiver can do so as a matter of law will not arise.  And if and when that should arise, it would be a question for the Court of First Instance to decide, from which the Receiver can seek directions pursuant to Order 30 rule 8 and/or paragraph 4(k) of the receivers’ order dated 27 December 2001.  A party dissatisfied with the decision may of course take the matter on appeal to this court.  All this highlights the hypothetical nature of counsel’s submission. 

21.  I do not see why we should prematurely deal with this hypothetical question at this stage.

22.  The only outstanding consideration under the above analysis is whether payment of the one-third costs should be made “in any event” and thus deferred until the eventual outcome is known, or whether they should be paid forthwith by the Receiver either from the assets presently under his control (i.e. exclusive of the disputed account balances) or (if that should prove insufficient) from the prosecution/public revenue, leaving the question of recovery of the same (if deemed necessary or desirable) from the account balances against the Bank to the future (as alluded to above). 

23.  In my judgment, costs of appeal should generally be paid forthwith and I do not see why the Bank should be disadvantaged by the peculiar position of the Receiver in this type of statutory receiverships.  As I said, if there is insufficient fund to meet the costs liability in the meantime, (as between the receiver and the prosecution) payment should be borne by the prosecution/out of the public revenue: c.f. section 24(2) of the Ordinance, and Hughes, supra (based on the general law on statutory receiverships of the present type).

24.  In my view, there is no sufficient justification for making the payment of the one-third costs “in any event”. 

25.  In the circumstances, the only necessary clarification of the order nisi is that the one-third costs payable by the Receiver to the Bank (forthwith) shall form part of the costs of receivership.  There is no need for further clarification or direction.  Recovery of the costs of receivership is a matter governed by law.

26.  I would therefore dismiss the Receiver’s application, and order that the order nisi be made absolute subject to one clarification only, namely that the one-third costs payable by the Receiver to the Bank (forthwith) shall form part of the costs of receivership.

27.  As for the costs of this application to vary, including the costs of this hearing, in my judgment, they should form part of the costs of the appeal and be subject to the costs order absolute made above.