TRENDZON HOLDINGS GROUP LTD v. SU CHUNYAN

HCMP 1456/2023

[2023] HKCFI 2383

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO. 1456 OF 2023

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REASONS FOR DECISION

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INTRODUCTION

1.  By Originating Summons filed on 5 September 2023 (“the Originating Summons”), the plaintiff applied for, inter alia, an order that the defendant be restrained from presenting any petition to this Court for the winding up of the plaintiff based on a sum claimed in a statutory demand dated 23 August 2023.

2.  At the same time, the plaintiff took out an inter parte summons (“the Summons”) and asked for the same order, pending the disposal of the Originating Summons.

3.  The call-over hearing of the Summons was fixed to be heard before this Court on 11 September 2023, during which the plaintiff asked for and was granted leave to discontinue the Originating Summons and to withdraw the Summons.

4.  What remained to be dealt with was the costs of the Originating Summons and the Summons.  The plaintiff initially suggested that the defendant should bear its costs.  However, the plaintiff changed its stance shortly thereafter and submitted that the Court should make no order as to costs.  On the other hand, the defendant submitted that she should be entitled to costs which should be assessed on indemnity basis.

5.  Having heard parties’ submissions, I held that the plaintiff should bear the defendant’s costs of the action (including the costs of the Summons), which should be assessed on party and party basis. Upon summary assessment, such costs were assessed at $49,000, and the plaintiff had been ordered to pay the defendant such costs no later than 25 September 2023.

6.  The followings are the reasons of the above decision.

BACKGROUND

7.  I shall first of all set out the relevant background facts.

8.  On around 23 August 2023, the defendant served a statutory demand (“the Statutory Demand”) on the plaintiff, under which it was asserted that the plaintiff was indebted to the defendant for a sum of over $3.8 million pursuant to a bond (“the Alleged Bond”).

9.  By letter dated 31 August 2023 (“the 31 August Letter”), the plaintiff’s solicitors pointed out to the defendant’s solicitors, inter alia, that:

(1)  The plaintiff had no record of the Alleged Bond as alleged in the Statutory Demand and had grounds to suspect that the Alleged Bond was a forgery;

(2)  It should be clear to the defendant, by virtue of the 31 August Letter, that there plainly existed bona fide disputes on substantial grounds in respect of the alleged debt;

(3)  In any event, another winding-up petition (HCCW 380/2023) (“the Pending Petition”) had been issued and was pending against the plaintiff.  Under trite legal principles, the issuance of any further winding up petition against the plaintiff is improper and is an abuse of process.  The attention of the defendant’s solicitors was drawn to the authority of Re China Greenfresh Group Co. Ltd. [2021] HKCFI 36.

10.  The 31 August Letter was concluded with the plaintiff’s demand that the defendant’s solicitors to give an undertaking by 12 noon on 5 September 2023 not to file any winding-up petition against the plaintiff on the basis of the Statutory Demand.

11.  It was further stated that if the defendant’s solicitors refused to give the undertaking as demanded or if they did not reply by the aforesaid deadline, the defendant shall be “deemed to have every intention to file a winding-up petition against the plaintiff on the basis of the Statutory Demand”.

12.  On 4 September 2023, the plaintiff’s solicitors called up the defendant’s solicitors and reminded them of the need to pay attention to the 31 August Letter.  The defendant’s solicitors replied that while they had advised the defendant, they did not have instructions from the defendant as to whether to give the undertaking as requested or to file a winding-up petition against the plaintiff[1].

13.  By letter dated 5 September 2023 (which was faxed to the plaintiff’s solicitors at 12:18pm on that day) (“the Reply Letter”), the defendant’s solicitors stated that:

“We refer to your letter dated 31 August 2023.

We are given to understand that there is a pending action no. HCCW 380/2023 and are currently taking instructions from our client and shall revert to you within 7 days i.e. on or before 11 September 2023”

14.  As the plaintiff took the view that the defendant’s refusal to give an undertaking as requested was a demonstration of her intention to file a winding up petition on the basis of the Statutory Demand, the plaintiff proceeded to file the Originating Summons at around 3:30pm[2] on the same day.

15.  As aforesaid, the plaintiff filed the Summons at the same time.

16.  At the call-over hearing of the Summons on 11 September 2023, this Court drew the attention of Mr Yeung, the plaintiff’s counsel, to the case of Re Grand Peace Group Holdings Limited [2021] HKCFI 1142, in which Harris J held that in the case where the petitioner of the subsequent petition was aware of an earlier petition filed against the same company, the appropriate course for the Court to take is to order dismissal of the subsequent petition with costs against the subsequent petitioner.  This Court enquired whether the plaintiff would proceed with the present case despite the clear acknowledgment on the part of the defendant of her knowledge about the Pending Petition.

17.  Having taken instructions, Mr Yeung sought leave to discontinue the action and to withdraw the Summons.  However, parties could not agree on the costs order to be made.

LEGAL PRINCIPLES

18.  In Yoe Han Yauw v Yoe Han Hian & Others [2022] HKCA 498, Au JA had set out the general principles as follows:

“19. It is trite that costs are a matter of wide discretion for the judge. The discretion is to be exercised in accordance with principles and with a view to reality and justice […]

20. The relevant principles on the exercise of discretion as to costs has further been succinctly summarised by Lam VP (as he then was) in YBL v LWC (No 2) [2017] 2 HKLRD 783 at [10]:

‘(a) Whilst the courts often started with the proposition of costs following the event, it was no longer the general rule but a starting point (Hung Fung Enterprises v Agricultural Bank of China [2012] 3 HKLRD 679 applied);

(b) There had to be some justification for depriving a successful party of his costs;

(c) In measuring who was the successful party and the extent of his success, the court must examine the reality and justice of the case. Thus, in Hysan Development Co Ltd v Town Planning Board (No 2), no order as to costs was made notwithstanding the success of the appellant in reversing the Court of Appeal's decision because they did not achieve the full objects of their appeals (Hysan Development Co Ltd v Town Planning Board (No 2) (2016) 19 HKCFAR 635 applied);

(d) In addition, under O.62 r.5, the court in exercising its discretion should take into account the matters set out in r.5(1) as might be appropriate in the circumstances;

(e) Order 62 r.5(2) highlighted conduct which the court could take into account including whether it was reasonable for a party to take an issue, the manner in which the matter was pursued or defended, the extent of success, and conduct before, as well as during the proceedings;

(f) If a successful party had brought the litigation upon himself or had done some wrongful act in the course of the transaction, he could be deprived of his costs.’

21. It is also not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of whole or part of its costs.  The Court may so order where the failed allegation of the successful party has caused a significant increase in the length or costs of the proceedings: Re Elgindata Ltd (No 2) [1992] 1 WLR 1207 at p1214; and Zhuhai International Container Terminals (Jiuzhou) Limited v Lo Tong Hoi (unreported, CACV 181/2011, 31 July 2012) at [33].  However, while the Court in the exercise of its discretion may refuse to make a costs order in favour of a successful party, it is most unusual and rare for a successful party to be ordered to bear the costs of the unsuccessful party: Jiang Zhong v Yeung Chun Leung [2018] 1 HKLRD 886 at [6.21] per Cheung JA.”

19.  In Coqueen Company Limited v Chui Wai Kwan & Others (HCMP 438/2010, unreported, 8 December 2015), To J also had the following to say:

“37. If a plaintiff wishes to avoid the consequence of having to pay costs for the withdrawal, he may seek the court’s leave to discontinue under Order 21 rule 3(1). Under this rule, the court has complete discretion to grant leave to discontinue on such terms as to costs as it thinks fit. The guiding principle is fairness and justice in the circumstances: Covell Matthews & Partners v French Wools Ltd. Invariably the court takes into account two legal principles when deciding on the terms as to costs. First, Order 62 rule 10(1) provides a convenient starting point. Second, the principle that costs follow event usually applies.

38. A plaintiff applying under this rule has to show he has a good reason to discontinue the action. What is a good reason depends on the circumstances of the case. Examples of good reasons include: that the dispute has become academic; that a crucial witness has died or has otherwise become unavailable; that the subject matter of litigation has ceased to exist; or that the defendant has no means to satisfy any judgment which may be awarded against him. A good reason does not necessarily entitle a plaintiff to unconditional leave to discontinue. It is only the threshold which he must overcome before the court would even consider whether to grant leave to discontinue on terms without costs. Absence of good reason must necessarily mean the starting point applies.

39. If a good reason is shown, the second principle comes into play. Because of the starting point and the general rule that costs follow event, plaintiffs are frequently given leave to discontinue or withdraw only on terms of their paying the defendants’ costs, unless the court is satisfied that it has a proper basis for making a different order: Lloyds Bank Ltd v National Westminster Bank Ltd. This principle was confirmed by the English Court of Appeal in that same case. Hence, it was described as the ‘general rule’ by Keith J (as he then was) in Trend Publishing (HK) Ltd v Vivien Chan & Co (a firm) and by Chadwick LJ in BCT Software Solutions Ltd v C Brewers & Sons Ltd.

40. To persuade the court to depart from the general rule, the minimum a plaintiff has to do is to show that the discontinuance is for reasons other than an acknowledgment of defeat or likely defeat.  The most direct way of proof is to show that he will succeed in a postulated trial.  The burden of proof is on the plaintiff and the standard of proof is the usual civil standard.  Proof of a prima facie case is not enough.  The court has to be satisfied on proper factual basis, whether based on agreed fact or determined fact, that the plaintiff will succeed.  Discontinuance under such circumstances is consistent with the underlying objective of Order 1A.  It is also beneficial to the defendant in that further costs to be incurred by him leading to nowhere but his eventual defeat are saved.  The defendant can have no complaint that he was made to incur costs in an action which he is bound to lose but which the plaintiff chooses not to proceed.  If the plaintiff is able to discharge this burden of proof, fairness and justice must require that he be permitted to discontinue his action without costs consequence.”

DISCUSSION

Who should bear costs of the action

20.  Mr Yeung argued that the plaintiff should not be ordered to bear the defendant’s costs because:

(1)  The defendant’s conduct should be taken into account: Despite the clear explanation of the relevant legal principles in the 31 August Letter, the defendant’s solicitors did not acknowledge such principles and refused to give an undertaking as requested by noon on 5 September 2023;

(2)  There was a need for the plaintiff to take out the Summons no later than 5 September 2023 because:

(a)  If the defendant was not restrained by an injunction, she could have filed a Petition against the plaintiff on 14 September 2023 the earliest;

(b)  The last Summons Day before 14 September 2023 fell on 8 September 2023.  In order to fix a hearing to be heard on that day, the Summons had to be taken out at least two clear days before (i.e. 5 September 2023).

(3)  It was very important for the plaintiff to restrain the defendant from filing any petition because the plaintiff is a listed company; if a second petition is filed against it, it would have to issue an announcement again (it had already issued an announcement upon the issuance of the Pending Petition), and “that would not be very good in the sight of the public investors […] One petition is bad enough, two petitions would lead to a very bad impression on [the plaintiff]”[3].

(4)  While the defendant is at liberty to become a supporting creditor in the Pending Petition anyway even if she is restrained from issuing a new petition against the plaintiff, the effect of having another petition issued against the plaintiff would be much worse than having a new supporting creditor appearing in the Pending Petition in the eyes of the public.  This is so even though the plaintiff would still have to issue another announcement explaining the new alleged debt if the defendant appears in the Pending Petition as a supporting creditor.

21.  In the present case, where the plaintiff had sought to discontinue the whole action against the defendant, the starting point is that the plaintiff should bear the costs of the defendant because costs should follow the event. 

22.  Hence, there has to be a good reason (or a proper basis) before the Court would deprive the defendant of her costs of this action.

23.  In this regard, it has to be borne in mind that, at the end of the day, the plaintiff has achieved nothing out of this action, not even an undertaking coming from the defendant or her solicitors as requested. 

24.  Mr Yeung alleged that the defendant’s conduct justified the making of an order of “no order as to costs”.  He laid great emphasis on the failure on the part of the defendant’s solicitors to acknowledge the legal principles explained in the 31 August Letter and their failure to give any undertaking.  However, I did not accept his submission because:

(1)  The deadline imposed by the plaintiff was unreasonable as the defendant’s solicitors were only given around three working days to take instructions (not to mention that it turned out the working day on 1 September 2023 had become a gale warning day);

(2)  Despite the short period of time given, the defendant’s solicitors did give a reply on 5 September 2023 by virtue of the Reply Letter (even though it was sent 18 minutes after the deadline imposed by the plaintiff’s solicitors), in which the defendant’s solicitors clearly recognised the existence of the Pending Petition.  Mr Yeung complained that the defendant’s solicitors did not acknowledge the “trite legal principles” in the Reply Letter.  That may well be so, however:

(a)  There is no basis in this complaint, given it was not a demand/request made in the 31 August Letter that the defendant’s solicitors must give such an acknowledgment in their reply;

(b)  The legal principles had been clearly stated in the 31 August Letter.  There is no reason to assume that the defendant’s solicitors did not understand/accept those principles (they did not doubt those principles in the Reply Letter at all).  To the contrary, the defendant’s solicitors expressly referred to the Pending Petition in the Reply Letter.  If they did not accept the principles set out in the 31 August Letter, why would they refer to the Pending Petition at all in the Reply Letter?

(3)  As aforesaid, at the end of the day, the situation has not changed in that there was still no undertaking given by the defendant or her solicitors when the plaintiff asked to discontinue this action.

25.  While the defendant’s solicitors did not give any undertaking in the Reply Letter, neither did they say that they were not going to do so.  They only stated that they were taking instructions and that they would revert within 7 days.  I do not think such a conduct would justify the deprivation of the defendant’s costs, particularly when the plaintiff has now agreed not to proceed with the whole action even though no undertaking had been given by the defendant or her solicitors at all.  An objective view of the present case is that the plaintiff had eventually accepted that there was no need for the action to be commenced in the first place on 5 September 2023.

26.  In relation to the plaintiff’s explanation that the Summons must be taken out no later than 5 September 2023 so as to secure that a hearing could be held on 8 September 2023, on my part, I could not see the urgency of the matter.  There was simply no indication from the defendant or her solicitors that another petition would be issued right away on 14 September 2023, such that the plaintiff could not wait for another week for the defendant’s reply before issuing the Originating Summons and making the interim injunction application (the following Summons Day would be on 15 September 2023). 

27.  On this matter, it should also be noted that the defendant had already acknowledged the existence of the Pending Petition before the commencement of this action.

28.  Furthermore, I do not accept that there is such a big difference between the scenario where the defendant appears as a supporting creditor in the Pending Petition and the scenario where the defendant issues a new petition against the plaintiff.  In both cases, the plaintiff would have to issue an announcement to explain to the public about the same alleged debt, and under both scenarios, the public would be informed that there is another creditor who has made the allegation that the plaintiff has failed to pay an alleged debt pursuant to the Alleged Bond which the plaintiff denies having ever entered into.  In other words, even if the defendant is not restrained, and stubbornly files a new petition against the plaintiff despite repeated warnings, the plaintiff would not suffer the prejudice which Mr Yeung alleged. 

29.  In any event, even if the plaintiff did have a good reason as to why it should start the whole action no later than 5 September 2023, in my view, that would not amount to a proper basis to deprive the defendant (i.e. objectively the successful party) of her costs.  The plaintiff has to bear the consequence of its decision in commencing the action and discontinuing it.

30.  I therefore held that the plaintiff should bear the costs of the defendant.

Basis of assessment of costs

31.  While I took the view that the plaintiff had failed to justify an order of “no order as to costs”, I did not think that the plaintiff’s commencement of the present action amounted to an abuse of process of the court, such that it should be visited with an indemnity costs order. Indeed, the most that the defendant could say in this regard was that the action had been started pre-maturely because the defendant’s solicitors were still taking instructions from the defendant at the time when this case was commenced.

32.  I therefore held that the defendant’s costs should be assessed on party and party basis rather than on indemnity basis.

Summary assessment of costs

33.  The defendant produced a Statement of Costs at the hearing and asked for a sum of $59,100.  Without disrespect to counsel, I took the view that the brief of the defendant’s counsel for appearing in the hearing and the fees for perusing documents were on the high side.  I therefore summarily assessed the defendant’s costs at $49,000 on a broad brush basis and ordered that the plaintiff shall pay the said amount by 25 September 2023.