TRADEPOWER (HOLDINGS) LTD (IN LIQUIDATION) v. TRADEPOWER (HONG KONG) LTD AND OTHERS

FACV No. 5 of 2009

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 5 OF 2009 (Civil)

(ON APPEAL FROM CACV No. 101 of 2008)

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JUDGMENT ON COSTS

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Mr Justice Ribeiro PJ :

1.  On 30 November 2009, the Court dismissed the defendants’ appeal[1] and made an order nisi for the costs of the appeal to be paid by the defendants to the plaintiff.  The parties were given leave to file written submissions regarding that order and such submissions have now been served on behalf of the plaintiff and the 2nd to 5th defendants respectively.

The position of the 1^st defendant

2.  The gist of the plaintiff’s action against the 2nd to 5th defendants was that they had caused the 1st defendant to dispose of its main asset to the 2nd defendant, a company owned and controlled by 4th and 5th defendants, with intent to defraud the 1st defendant’s creditors.

3.  The plaintiff submits that the order nisi should be varied so as to exclude the 1st defendant from any order of costs in the plaintiff’s favour.  It is concerned that an order for costs against the 1st defendant would unjustifiably enable the other defendants to seek contribution from the 1st defendant in respect of their liability for costs.

4.  The 2nd to 5th defendants argue that since the 1st defendant has not separately filed costs submissions, the order nisi affecting it has become absolute.  They point to the fact that, when granting the parties leave to file costs submissions, the Court ordered that “in default of such submissions” the order nisi should become absolute without further order.  They contend that the Court now lacks jurisdiction to direct that there be no order as to costs against the 1st defendant.  They argue that the 1st defendant should in any event be treated as a substantive party who had actively resisted the plaintiff’s claim.

5.  In our view, the Court plainly has jurisdiction to deal with the 1st defendant’s position as to costs.  The order was only to become absolute in default of any submissions bearing on the order nisi.  Submissions affecting the 1st defendant’s position were filed by the plaintiff and answered by the 2nd to 5th defendants.  The Court must determine the issue raised, whether or not the 1st defendant has filed any submissions on its own behalf.

6.  We accept the plaintiff’s contention that the order nisi should be varied so that no order for costs is made against the 1st defendant.  The company was joined as a party, not because it was an active participant in the fraudulent scheme, but because it was a necessary party to proceedings brought to set aside the disposition of its main asset in fraud of its creditors.  It would be wrong in principle to make a costs order against the 1st defendant enabling part of its assets – the very assets sought to be protected – to be made available to its fraudulent former directors by way of contribution towards their liability for costs.

The position of the 3rd defendant

7.  The 3rd defendant submits that she should not be ordered to pay any costs since she was always merely acting on the instructions of the 4th and 5th defendants and as their nominee.  She also argues that this should be so since (i) no substantive relief is sought against her personally; and (ii) no finding of any knowledge on her part of the 4th and 5th defendants’ fraudulent intent has ever been made.

8.  The 3rd defendant was the 1st defendant’s company secretary.  At the request of the 4th and 5th defendants, she sought advice which led to the scheme in question.  She signed the resolutions needed to implement the scheme and became the registered owner of one “A” share which she held on trust for the transferee company, the 2nd defendant. 

9.  Contrary to her submission, substantive relief was clearly sought against her as the legal owner of the share mentioned since the court was being asked to set aside the disposition by which she had acquired such ownership.  At no stage did she seek to withdraw from participation in the proceedings, for instance, by agreeing simply to abide by the court’s decision.  Instead, she actively defended the action, filing pleadings and being represented by the same firm and the same counsel as those acting for the 2nd, 4th and 5th defendants.  She went on to give viva voce evidence on their behalf at the trial.   

10.  It is true that the recorder absolved her, alongside the 4th and 5th defendants, of any intent to defraud creditors.  However, as explained in our judgment, the recorder proceeded on an erroneous basis, failing to recognize that the case fell within the rule in Freeman v Pope.  As we have held, the inference that the 1st defendant was insolvent or became insolvent as a result of the disposition was irresistible and the defendants have failed to discharge the burden of showing solvency at the relevant date.  In cases within the rule, the intent is inferred with no need for a finding of actual intent to defraud.   It might in any event be observed that no one was better placed than the 3rd defendant, as company secretary with the day-to-day management of the company’s books and accounts, to be aware of the impact of the disposition on the company’s financial condition and on its creditors.

11.  Accordingly, the order for costs is properly made against the 3rd defendant.  We accept that she was acting as nominee for and under the instructions of the 4th and 5th defendants.  But in the light of her stance and active participation in the litigation, that is an insufficient basis for exempting her from liability as to costs.  Nominees and agents who attract liability by their conduct must look to their principals for indemnity.

The position of the 2nd, 4th and 5th defendants

12.  There is no basis upon which these defendants can resist an order as to costs.  They have not sought to do so, their submissions being limited to contending (as noted above) that the order nisi for costs against the 1st defendant should stand as absolute.  That argument has been disposed of above.

Conclusion

13.  We accordingly order that the costs of the appeal be paid by the 2nd, 3rd, 4th and 5th defendants to the plaintiff.