CHINA METAL RECYCLING (HOLDINGS) LIMITED (IN COMPULSORY LIQUIDATION) AND ANOTHER v. CHUN HEI MAN AND OTHERS

HCMP 3396/2015

[2018] HKCFI 520

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 3396 OF 2015

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D E C I S I O N
(On Costs)

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Introduction

1.  On 18 November 2016, this Court handed down a judgment in which the 1^st and 2^nd defendants, collectively called Ds, were found not guilty of contempt of the undertakings given by them to the Court and a disclosure order made against them in the main action HCA 1412 of 2013 (“18.11.16 Judgment”).  Costs were reserved.  

2.  In this decision, save as otherwise indicated, I shall follow the abbreviations in the 18.11.16 Judgment.

3.  The hearing on costs was fixed before this Court almost a year after the 18.11.16 Judgment, and about a month prior to Ps’ appeal against the 18.11.96 Judgment.  This Court reserved its decision on costs, and thereafter, on 22 December 2017, the Court of Appeal handed down a judgment, dismissing Ps’ appeal and made a costs order nisi that Ps shall pay Ds’ costs of the appeal (“CA Judgment”).  In light of the CA Judgment, this Court directed further written submissions be lodged by the parties in relation to (i) whether the CA Judgment can be relied on and (ii) the impact of the CA Judgment, if admitted. 

4.  Mr Dobby, solicitor-advocate, appears at the hearing and lodged skeleton submissions on behalf of Ps (“Ps’ 1^st Submissions”).  Subsequently, Counsel Ms Eva Sit lodged supplemental submissions on behalf of Ps (“Ps 2^nd Submissions”).  Counsel Mr Alexander Tang appeared for Ds and lodged the submissions on their behalf.

5.  Mr Dobby had argued at the hearing that there were exceptional circumstances in the present case in justifying this Court to exercise its discretion, not only to deprive Ds of their costs notwithstanding Ps had failed in their application, but to order Ds to pay Ps’ costs.  Ps’ latest position is that this Court should order Ds to pay Ps costs up to 14 March 2016 (the date of Fung’s 2^nd affirmation when it was confirmed for the first time that all cooperation from Mr Li/Ms Chen had ceased) and thereafter, there should be no order as to costs.

The CA Judgment

6.  First of all, this Court has a wide discretion in costs under section 52A of the High Court Ordinance, which is to be exercised in accordance with Order 62 as provided under Order 62 rule 2(4) of the Rules of the High Court.  Wide though the discretion is, it is a judicial discretion and must be exercised on fixed principles, that is according to rules of reason and justice, not according to private opinion[1].

7.  The question is whether this Court can take into account matters or findings in the CA Judgment when exercising its discretion.

8.  Ps’ initial position on the CA Judgment appeared to be it would not be admissible under the Ladd v Marshall principles[2]. However, in Ps’ 2^nd Submissions, Ms Sit has referred the Court to two authorities.

9.  The first one is a wardship case Chen Hsiao Mei Oung Lilian v Chen Shih Ta Michael [1992] 1 HKC 40 where Kaplan J made an order that the mother in that case should pay the father’s costs of a number of previous hearings on an indemnity basis.  Cons ACJ had referred to  Robinson v Robinson [1981] 2 FLR 1 where Scarman LJ in refusing  to intervene regarding a costs order made by the judge below even though he disagreed with the conclusions of the judge, had said that  the discretion must be exercised on facts or matters connected with, or leading up to the litigation and that the judge had acted judicially[3].

10.  Cons ACJ had further said Kaplan J was assisted to his conclusion by events which happened subsequently and after the dates to which the particular orders of costs referred.   Cons ACJ then said whether that was permissible was a question on which there seemed to be no helpful authority but as a matter of principle, he would think that it would, provided the subsequent events illustrated a state of affairs that was relevant to the earlier dates and had that this was consistent with the approach of Sir Robert Megarry V-C in Computer Machinery Ltd v Drescher [1963] 1 WLR 1379; [1983] 3 All ER 153[4]. 

11.  Ms Sit also referred to the Computer Machinery case.  In this case, Sir Robert Megarry V-C had said that it was common enough for the parties, without objection, to refer to correspondence and other documents when costs came to be argued after judgment had been given; and this had not been limited to correspondence before action brought, or to correspondence or other documents which had been put in evidence during the trial.  It was far from uncommon for some document which had no probative value on what was in issue at the trial nevertheless to be of considerable relevant on costs[5].

12.  Ms Sit submitted that the CA Judgment is neither fact nor evidence to which the above authorities were on.  However, she accepts that this Court must not proceed on an erroneous factual basis when deciding the question of costs, so insofar as the Court of Appeal has held that there was in fact no breach of the Disclosure Order, this Court should take account of that.  She further submits that as for facts and matters that transpired leading up to and in the course of the trial, this Court must exercise its discretion on the basis of such facts and matters.

13.  On the other hand, Mr Tang has submitted that in the Computer Machinery Case, Megarry V-C adopted an expansive approach in that  he had said  that neither in the statutory provisions or rules he could see anything which would prevent evidence relevant to costs from being considered if it had not already been admitted during the trial[6].

14.  The CA Judgment is binding on this Court, in particular its findings on the relevant matters in the present costs argument.  In any event, I see nothing in our legislation or in the rules to prevent this Court in considering the relevant matters in the CA Judgment.

Ps’ Reasons for seeking costs 

15.  Ms Sit submitted that the relevant factual matters this Court should take into account included the following:

(i)   The Undertaking was proferred by Ds and they did not oppose the making of the Disclosure Order and they were represented by solicitors and counsel, and as such, Ps were fully entitled to expect Ds to comply with them;

(ii)   The Fung Report was indisputably deficient and this was recognised in the CA Judgment;

(iii)   Despite the detailed letter of complaint from Ps’ solicitors dated 14 October 2015, and notwithstanding Ds’ solicitors letter of 26 October 2015 (“26.10.15 Letter”)  that they were contacting Mr Li for more information, neither the Court nor Ps were informed of any difficulties Ds had encountered in relation to Mr Li, or any suggestion that the Disclosure Order had been made on an assumption that turned out to be wrong or had inherent problems that made it unworkable at any time before Ps sought and obtained leave to commence committal proceedings;

(iv)   After the Originating Summons was served on Ds, they accepted through counsel at the hearings on 4 and 15 February 2016 that they were in breach of the Disclosure Order, and only sought an opportunity to purge their contempt;

(v)   It was not under 26 July 2016 that Ds set out clearly the difficulties they claimed to have encountered in relation to Mr Li such that they could not properly comply with the Disclosure Order;

(vi)   The non-disclosure of the 26.10.15 Letter was irrelevant to the question of costs.

16.  Ps also relies on various findings of this Court including:

(i)   D1 took no step to provide any confirmation of matters in the Fung Report as required by the 17.08.15 Order which she admitted in cross – examination and she had continued to deny any breach of the 17.08.15 Order;

(ii)   D1 abdicated all responsibility to her mother and Mr Fung;

(iii)   The findings this Court made in relation to Mr Fung including that Ps had “good reasons” to complain about Mr Fung’s competence;

(iv)   This Court had referred to a game of “cat and mouse was being played”.

Discussion

17.  In Ps’ 1^st Skeleton Submissions the exceptional circumstances relied by Ps were essentially that:

(i)   The fact that, notwithstanding contempt had not been proven, the Undertaking and Disclosure Order had been breached as a matter of fact;

(ii)   The fact that Ds and/or their agents had acted unreasonably and improperly such that Ps had a right to complain.

18.  As found by the Court of Appeal, there was ambiguity on the part of this Court as to the effect of the Undertaking.  However, this Court had clearly found that Mr Li and those involved in the liquidation process of the Jiangsu Company were not the servants or agents of Ds, and that Ps had not discharged the burden on them to prove beyond reasonable doubt that Ds had failed to comply with the Undertaking intentionally or they had the requisite mens rea in failing to comply with the Undertaking[7].

19.  Further,  the Court of Appeal held that the Undertaking, which was agreed by the parties to be a negative undertaking,  properly construed was only a limited personal undertaking, in that Ds were only responsible for their personal acts or those of their servants or agents[8], and that the restraints in the Undertaking should be confined to the personal acts of the Ds or acts of their servants or agents[9].  The Undertaking was not a guarantee by the Ds that the assets of these companies would not be depleted by acts or events occasioned by some third parties.  The Court of Appeal held that there was no breach of the Undertaking by Ds.

20.  As for the Disclosure Order, this Court  found that Ps had not been able to establish beyond reasonable doubt that it was within Ds’ “power” to comply with the Disclosure Obligations[10].

21.  Although the Court of Appeal held that this Court had come to the right conclusion, it had difficulties with the basis on which the Disclosure Order was made in the first place, and found it unusual for this Court to make an order of this nature against a shareholder of a company when there was nothing to suggest that he was in control of the management of the company or that the company was his alter ego.  Thus, the Court of Appeal was clearly of the view that the Disclosure Order should not have been made by this Court in the first place and that there were inherent problems in the order.

22.  In any event, the burden was on Ps to prove Ds’ contempt beyond reasonable doubt and Ps were clearly not able to discharge the burden on them even during the trial.

23.  As pointed out by Mr Tang, the Court of Appeal while upholding the result of this Court, did so on findings even more favourable to Ds.

24.  In fact, the Court of Appeal had said that in the Order 52 Statement and the affidavit in support of the application for committal, Ps did not disclose the 26.10.15 Letter where Ds indicated that they were going to get more information from Mr Li, and that instead Ps alleged that Ds made no attempt to address the deficiencies set out in the letter of 14 October 2015.

25.  The Court of Appeal was of the view thatgiven the unusual nature of the Disclosure Order and the fact that Ds had apparently been doing what this Court had expected them to do to comply with the order at the time when the Disclosure Order was made, the continued willingness on the part of Ds to seek information from Mr Li must be a very material consideration in assessing whether it was oppressive to proceed by way of an application for committal against Ds.  Thus, the Court of Appeal was of the view that the 26.10.15 Letter was material and the non-disclosure of the same was a breach of the duty of full and frank disclosure.  The Court of Appeal was further of the view that the bald statements on behalf of Ps that the Ds made no attempt to address the deficiencies were in their judgment misleading[11].

26.  Ms Sit submitted that the non-disclosure of the 26.10.15 Letter was irrelevant to the question of costs in that this Court was aware of its existence and content, and that Ds never complained about any non-disclosure during the subsequent inter partes hearings.

27.  This Court only came to be aware of the existence of the 26.10.15 Letter after leave was granted.  The letter was not disclosed by Ps at the time of their leave application.  Even though Ds did not apply to set aside the leave on material non-disclosure, there was still material non-disclosure on the part of Ps as found by the Court of Appeal. 

28.  As accepted by Ms Sit, this Court has to take into account the fact that the Court of Appeal has clearly found there was no breach of the Undertaking, nor any breach of the Disclosure Order.  Further, the Court of Appeal was of the view that Ps should have brought the matter of non-compliance before the Court for further directions instead of applying for contempt[12], and that the contempt proceedings should never have been brought in the first place by Ps.

29.  In any event, even if the CA Judgment were not admitted or no reference is made to it, Ps should be fully aware that the burden was on them to prove Ds’ contempt beyond reasonable doubt, bearing in mind Ps’ case throughout was that the Gift was a sham and that Mr Chun was the ultimate beneficial owner of the Chung Shing HK and the 2 Mainland subsidiaries.  Although the Fung Report was deficient and Ds did not provide confirmation of any matters as required under the 17.08.15 Order, Ps should have been aware that committal should be a last resort.  They should have considered other alternatives rather than proceeding with the contempt proceedings against Ds which turned out to be fruitless.  In fact, in the 18.11.16 Judgment, this Court found that in light of the Receivership Order, there was an alternative way or a viable alternative for Ps to procure the necessary information through the Receivers appointed under the Receivership Order[13]. As set out in the 18.11.16 Judgment, this Court ultimately found that Ps failed to discharge the burden on them to prove that Ds were guilty of contempt. 

Conclusion

30.  Having considered all the matters submitted on behalf of Ps and the circumstances of this case, I do not find that there are any exceptional circumstances or any circumstances in the present case to depart from the usual costs order.

31.  I order Ps to pay Ds’ costs of these proceedings, including the costs argument and any costs reserved.  There be certificate for two counsel.