LIN REN XIANG v. KO YIN AND OTHERS

HCMP 557/2014

[2020] HKCFI 660

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 557 OF 2014

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

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Introduction

1.  On 28 April 2017, this Court handed down a judgment (“Judgment”) on 4 actions the trial of which were ordered to be heard together.  Unless otherwise indicated, this Court adopts herein the same abbreviations in the Judgment.

2.  The 4 actions are:

(i) The Gold Glory Action, issued by Lin against Ko, Gold Glory and the Registrar of Companies, for declarations among other things that a resolution for the increase of share capital of Gold Glory be declared invalid and an order directing that the Registrar of Companies to rectify the information relating to Gold Glory on the Companies Register;

(ii) The Loan Action, in which Lin Claims against Hui HK$1m being a loan advanced by him to Hui on 26 September 2011;

(iii) The Possession Action, issued by Lin against Hui and other unknown occupiers for possession of the Property;

(iv) The Charter Port Action, issued by Charter Port against Hui for loss and damage for allegedly wrongful acts in breach of her fiduciary duties and/or in breach of trust, and without the knowledge or consent of Charter Port.

3.  In the Judgment, Lin succeeded in his claims in both the Possession Action and the Loan Action.  In the Charter Port Action, this Court held that Hui was liable to repay substantial part of the Withdrawals and directed the parties to submit an agreed schedule on the amounts which should be repaid by Hui.  After deducting Hui’s entitlement to director’s fees, no outstanding sum needed to be repaid by Hui to Charter Port[1].

4.  In the Gold Glory Action, this Court held that Lin had failed to satisfy the Court that the Purported Increase or Purported Allotment was invalid.  The parties were directed to make further submissions on rectification and the terms of the order, and a separate judgment was handed down on 11 July 2017 on the final terms of the order and also on the Clarification Issue raised on behalf of Lin (“2^nd Judgment”). 

5.  The issue of costs, as seen in both the Judgment and the 2^nd Judgment was adjourned for further argument.

6.  This Court is now informed that since the above, Lin has obtained a Bankruptcy Order against Hui on 7 March 2018, and that it is no longer necessary to deal with the issue of costs in the Possession Action, the Loan Action and the Charter Port Action in which Hui was the defendant.

7.  The present argument on costs is only concerned with the Gold Glory Action.

8.  Counsel Ms Ellen Pang appeared for Lin, and Counsel Ms Candy Tang appeared for Ko and Gold Glory.

Discussion 

9.  There was no dispute over the general legal principles on costs. Costs normally follow the event.  As Ko and Gold Glory were the successful parties, Ms Tang thus submitted that Lin should pay their costs. She further sought an order that Lin should pay such costs on indemnity basis.

10.  On the other hand, Ms Pang relied on the Order 62 rule 5 of the Rules of the High Court, pursuant to which in exercising its discretion, the Court shall take into account certain matters, including the conduct of all parties.

11.  It was submitted by Ms Pang on behalf of Lin that Ko and Gold Glory should be deprived of 25% of their costs, there being conduct on the part of Ko, which occasioned unnecessary expenses, and/or unreasonable conduct on her part.  Further as Gold Glory was merely a nominal defendant, it would not have incurred any costs in these proceedings, and that as such, Gold Glory should not be seeking any costs against Lin.

12.  To recap, at the time of incorporation, Lin was the registered shareholder of 9,900 out of 10,000 issues shares of HK$1.00 each in Gold Glory, and Hui was the registered shareholder of the remaining 100 shares.  Hui was a director and the company secretary of Gold Glory.

13.  On 28 May 1998, a total of 5 documents all dated 17 April 1998 (ie 28.05.98 Documents) were presented by Mutual Faith for filing with the Companies Registry, and this included the Registered Shareholders’ Resolution. 

14.  As a result of the 25.05.98 Documents, Ko became the majority shareholder holding 190,000 shares in Gold Glory, and she and Hui became the only two directors.  Hui remained the company secretary. 

15.  Lin’s case was that the 28.05.98 Documents were filed without his knowledge and consent and that he never agreed to the Purported Allotment, nor the appointment of Ko as a director. In the Gold Glory Action, Lin sought 3 declarations, essentially to declare the Registered Shareholders’ Resolution was invalid and the Purported Allotment to be also invalid.

16.  Ko conceded at the trial that the Registered Shareholders’ Resolution was invalid as it was not signed by Lin who was a shareholder at the time.  Thus, this Court granted the declaration as sought by Lin. 

17.  However, it was Ko’s case that the Purported Allotment was valid, relying on the (i) Unregistered Shareholders’ Resolution signed by her, Hui and Lin on 17 April 1998 and (ii) the 17.04.98 Board Resolution signed by Ko and Hui.  It was also Ko’s case that she had paid Lin HK$200,000 for the 190,000 shares allotted to her.

18.  Although it was only conceded at the outset of the trial that the Registered Shareholders’ Resolution was invalid, it was quite clear from Lin’s case that the main purpose of this action was not merely for a declaration that the Registered Shareholders’ Resolution was invalid.  What Lin wanted was for the Purported Allotment to Ko be declared invalid so that he would remain the major shareholder of Golden Glory and he wanted to regain control of the company, which at the time of the trial, was the registered owner of the Sharp Street Office. 

19.  The main issue in this case was also whether the Purported Increase and the Purported Allotment was with the knowledge, consent and/or authorisation of Lin and was carried out pursuant to Lin’s instruction.

20.  As I have pointed out in the Judgment, out of the 5 Hong Kong companies which held assets, by April/May 1998, Gold Glory and Masen were the only two companies that Lin was still on public record the majority shareholder and a director.  By end of May 1998, Lin was no longer a director nor a major shareholder of either of those companies, and that was when Lin was emigrating to Australia as well.  Then, in August 2002 by which time Lin had moved back to Hong Kong from Australia, Lin re-appeared on the public record as a director and/or majority shareholder of various companies.

21.  I have found that Lin was concerned over the investigations carried out by the authorities over Fang DaCheng in April/May and he then left for Australia and that more probable than not in May 1998, he was making arrangements for his name to be removed from public records as being a director or a majority shareholder of various companies.  I also do not find Lin’s evidence that he had no knowledge or he did not authorize or consent to the Purported Increase and Purported Allotment in Gold Glory or similarly in Masen, or the appointment of Ko as director in place of him to be credible.  I further find no sufficient evidence that Hui and Ko were “conspiring” with each other in 1998 to dilute Lin’s beneficial interest in Gold Glory or Masen or for Ko to replace Lin as director.

22.  Although I find that there was no sufficient evidence that Ko had paid Lin HK$200,000 for those shares allotted to her, I did not make any declaration that she held those shares on trust for Lin, as sought by Lin under the Clarification Issue, for reasons stated in the 2^nd Judgment. 

23.  Thus in light of the above, notwithstanding that Ko did not make out her case in relation to the payment of the HK$200,000 or other aspects of her case, Ko did make out her case, in so far as the main issue was concerned, that the Purported Increase and the Purported Allotment was with Lin’s knowledge and consent and his authorisation.  I have further clarified in the 2^nd Judgment that the effect of my findings was that there was an agreement between Lin and Ko that Gold Glory should increase its capital and the increased shares be allotted to Ko at par value and for Ko to be appointed as a director in Lin’s place. Thus, all in all, Ko was the overall winner of this action and I am not satisfied that there was any unreasonable conduct or any conduct on her part, which should deprive her of her costs, or that there should any order , other than for costs to follow the event.

24.  As for Gold Glory, whether it was a nominal defendant or not, it was made a defendant in this action, and whether it had in fact incurred any costs or the amount of such costs, in my view, this would be a matter for the taxing master.  There is no reason why a costs order should not be made in its favour.

25.  As for whether such costs should be ordered on indemnity basis, it has been held by our Court of Appeal in Pacific Electric Wire & Cable Company Limited v Texan Management Limited & Ors (unrep) CACV 90/2012, 11 October 2013, as follows:

“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)[2].”

26.  Further, Kwan JA had also referred to what was stated by Lord Woolf LCJ in Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hamer Aspden and Johnson (a firm) [2002] CP Rep 67 at §39, namely :

“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[3]?”

27.  Ms Tang also referred to what was said by DHCJ Field QC in Joe Zhixiong Zhou v Saif Partners II LP [2018] HKFCI 898, after referring to Excelsior Commercial & Industrial Holdings Ltd :

“Examples of conduct outside the norm include baseless allegations of fraud, bringing a claim that totally lacks merit, and misleading the court.”

28.  In the present case, Lin’s own case was that before his emigration to Australia, he had given pre-signed blank cheques and blank papers to Hui and that it was his allegation that Hui had used some of these pre-signed blank paper to prepare some or all of the those documents for the Purported Increase without his authorisation, including the Unregistered Shareholders’ Resolution, and other documents in the Schedule of Disputed Signatures.  This was how his allegation of “forgery” arose.  In short, it boiled down to the question of whether the Purported Increase and the appointment of Ko as director was with Lin’s knowledge, consent and/or authorisation.

29.  Although, it was Lin’s allegation that Hui and Ko were “conspiring” or had acted in collusion in 1998 to dilute Lin’s beneficial interest in Gold Glory, “fraud” or “conspiracy to defraud” was not specifically pleaded, and Hui was never made a party in the present action.

30.  Having considered all the circumstances of this case, I do not find that Lin’s conduct was outside the norm, in that he was bringing a claim that totally lacked merit and misleading the court, so as to justify an award of costs against him on indemnity basis. 

Order 

31.  In light of all said above, I order that Lin to pay the costs of Ko and Gold Glory in this action, to be taxed if not agreed, on party and party basis, with certificate for two Counsel, save only one Counsel for the costs argument.