PEKING UNIVERSITY FOUNDER GROUP COMPANY LIMITED (北大方正集團有限公司) v. HONGKONG JHC CO., LIMITED (香港京慧誠有限公司)(IN LIQUIDATION)

FACV No. 7 of 2024,
FACV No. 8 of 2024 &
FACV No. 9 of 2024

[2025] HKCFA 14

FACV No. 7 of 2024

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 7 OF 2024 (CIVIL)

(ON APPEAL FROM CACV NO. 184 OF 2023)

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FACV No. 8 of 2024

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 8 OF 2024 (CIVIL)

(ON APPEAL FROM CACV NO. 185 OF 2023)

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BETWEEN

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FACV No. 9 of 2024

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

FINAL APPEAL NO. 9 OF 2024 (CIVIL)

(ON APPEAL FROM CACV NO. 186 OF 2023)

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BETWEEN

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JUDGMENT ON COSTS

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Mr Justice Ribeiro PJ:

1.  This is the judgment of the Court.  Allowing the appeals, the Court made a costs order nisi in favour of Peking University Founder Group Company Limited (“PUFG”) and gave the parties liberty to make submissions seeking to vary the same.[1]  PUFG and the Respondents[2] have each lodged such submissions. 

A.     The costs orders made

2.  Those submissions are made against the background of the following orders:

(a)  At first instance,[3] Harris J held that the contractual breaches alleged against PUFG had not been made out and dismissed the Respondents’ claims.  He ordered them to pay PUFG’s costs with a certificate for three counsel.

(b)  The Court of Appeal[4] allowed the Respondents’ appeal, granting declarations that PUFG was in breach and that PUFG became liable to Nuoxi and HKJHC in the sums of US$306,672,000, US$202,116,000 and US$404,816,000.  It declared likewise that PUFG was in breach and became liable to Kunzhi in the sums of US$312,647,400 and US$505,141,000.  However, because the Respondents had failed on certain grounds advanced, PUFG was ordered to pay only 50% of the Respondents’ costs, certified fit for three counsel.  The Court of Appeal also set aside Harris J’s judgment and directed that PUFG should pay the Respondents’ costs with a certificate for three counsel.

(c)  This Court reversed the Court of Appeal and held that the Respondents had not shown that they had suffered any actionable loss. The orders of the Court of Appeal were varied so that the breaches were declared to sound only in nominal damages.  An order nisi was made that the costs of the appeals in the Court of Appeal and in this Court should be paid by the Respondents to PUFG, with liberty to the parties to lodge submissions thereon as mentioned above.[5]

B.     The issues raised by the parties

3.  The variations sought by PUFG are straightforward.  It seeks an order that the costs payable by the Respondents to PUFG be certified fit for four counsel or alternatively, for three counsel comprising two leading counsel and one junior.  It also seeks restoration of Harris J’s order that the Respondents pay PUFG’s costs at first instance, with a certificate for three counsel.

4.  The Respondents join issue with PUFG’s proposals, both as to the number of counsel to be certified and, more basically, as to how costs at each level of court should be awarded.  It is convenient to begin with the latter issues.

C.     Costs at each level of court

5.  The Respondents seek variations to the Court’s order nisi as it applies at each level of court. 

(a)  They ask that the Court of Appeal’s reversal of Harris J’s order as to costs be sustained so that PUFG remains liable to pay their costs in the Court of First Instance.[6]

(b)  They submit that the Court of Appeal’s order that PUFG should pay 50% of their costs should be varied merely by reducing the amount payable to them by 20% so that PUFG should have to pay 30% of their costs in the Court of Appeal.  Alternatively, at worst they contend, there should be no order as to costs in the Court of Appeal.

(c)  While they acknowledge that they have to pay the costs in the Court of Final Appeal, they submit that it would be fairer for them to pay only 80% of those costs.

6.  These are somewhat startling submissions given that PUFG succeeded on its appeals.  They rest on the propositions (i) that the critical issue in the case was whether or not PUFG was in breach of the Keepwell Deeds; and (ii) that Harris J had erred in holding that there was no breach, but he had been corrected by the Court of Appeal and the existence of a breach was sustained by this Court.[7] The Respondents submit that accordingly, they had succeeded “on the primary issue of breach before the Court of Appeal” and that PUFG “ultimately succeeded in the Court of Final Appeal only on the consequences of that breach”.[8]  Moreover, they assert “that the present cases do not concern monetary remedies but declaratory reliefs”.[9]  They go so far as to suggest that:

“The present appeals are unique in the sense that the Respondents do not litigate for their self-interests, but they seek declaratory reliefs in the context of the reorganisation proceedings in Mainland China for the benefit of their creditors, including in particular the bondholders.”[10]

D.     Costs to follow the event

7.  The Respondents propositions are unsustainable. It is wholly unreal to suggest that their Actions are only about establishing breaches of the Keepwell Deeds and not about the consequences – not about monetary remedies.  The Respondents sought and obtained from the Court of Appeal declarations that PUFG was in breach and consequently became liable to them in amounts exceeding US$1.7 billion.  As they explained to the Court of Appeal,[11] they sought relief in the form of declarations “as evidence to prove their claims in the reorganisation proceedings to which PUFG is subject in the Mainland”.  In their Notice of Appeal to the Court of Appeal, they pleaded that the sums in question represented loss they had suffered.[12]  The objective of their Actions was obviously not achieved when this Court declared that there was a breach which sounded only in nominal damages. 

8.  Neither can it plausibly be contended that the Respondents were not acting in their own interests, but were acting for the benefit of their creditors, particularly the bondholders.  The immediate reason for the failure of the Respondents’ claim is that breach of the liquidity obligation under the Keepwell Deeds did not result in any net loss to the Respondents since it entailed the replacement of one debt liability for another. But a deeper underlying reason for such failure, as Mr Justice Allsop NPJ points out, lay in the capacity in which the Respondents brought proceedings against PUFG as compared, for instance, to possible action by the Trustee suing on behalf of the bondholders.  Their capacity as mere “creatures or vehicles” of the borrowing Company entailed the absence of actionable loss that was at the core of the case. 

9.  As Allsop NPJ puts it:

“The subsidiary Issuers and Guarantors were creatures or vehicles (to use metaphor to illuminate intention) to give comfort to the parties who did eventually lose something: the bondholders. There is no commercial utility in granting substantial damages, in the amount of the debt to the bondholders, to the creature or vehicle of the borrowing Company in order to sue the Company for loss, when the true loss caused by the Company is to the bondholders for which they can sue the Company or prove in its re-organisation administration.

The creature or vehicle has, undeniably, suffered no diminishment of wealth. Yet, on the argument of the Respondents, they have the right to obtain substantial damages in the amount that the bondholders have suffered. This either sets up a double claim (now within the re-organisation, a double proof) or (but there was no suggestion of this in argument) Nuoxi, Kunzhi and HKJHC should hold the benefit of their proofs on account for the bondholders. If the latter be the case, there would be very little purpose in construing the circumstance to allow a party which has suffered no diminishment of wealth to recover substantial sums in damages, the equivalent of which other parties (the bondholders) can claim and recover for themselves through the Trustee.”[13]

10.  Our view is that costs should follow the event.  The Respondents must pay PUFG’s costs in the Court of Appeal and in this Court. The Court of Appeal’s order having been set aside, Harris J’s order requiring the Respondents to pay PUFG the costs in the Court of First Instance should be restored.

E.     Certificate for counsel

11.  The parties were represented by equal numbers of counsel at each stage. At first instance PUFG and the Respondents were, respectively, represented by three counsel – one Senior Counsel and two juniors.  And in the Court of Appeal and in this Court, they were represented by four counsel on either side: two leading counsel (one local and one from London) and two juniors. 

12.  There is no dispute that the orders for costs made in favour of PUFG should be certified as fit for three counsel at all levels of court.  The controversy concerns PUFG’s application for a certificate for four counsel or alternatively, for three counsel comprising two leading counsel and one junior.  The Respondents argue that no basis exists for certifying more than three counsel, comprising one silk and two juniors.

13.  The practice in the Court of Final Appeal regarding certificates for counsel is well-established. 

(a)  It is unnecessary to ask for a certificate for two counsel, the assumption being that the appeal was fit for two counsel and, subject to the reasonableness of the fees paid, such costs will normally be allowed on taxation.[14]

(b)  As to certificates for more than two counsel, “ (a) the grant of such certificates is a matter of discretion; (b) a certificate may be appropriate in cases involving issues of sufficient importance and complexity; and (c) the grant of leave to appeal on the ground that the question involved is one of great general or public importance is not in itself enough, a certificate for more than two counsel having to be justified by ‘something exceptional’.”[15]

(c)  The mere fact that an opposing party has used a particular number of counsel will not in itself be sufficient to justify an order certifying fitness for that number of counsel, although it may be a factor in the discretionary exercise.[16]

(d)  Ultimately, the question for the Court is whether employment of the number of counsel concerned was reasonably necessary in the light of the demands of the case so as to make it fair that the losing party should have to pay those costs.[17]

14.  There have been cases where certificates for four counsel have been granted.[18] But they are rare and inevitably turn on evaluative judgments peculiar to the case at hand.

15.  PUFG seeks approval for four counsel on two related grounds.  First, it argues that this is a case involving issues of sufficient importance and complexity, pointing to the sums exceeding in total US$1.7 billion at issue; the fact that this was the first case involving consideration of the nature and effect of Keepwell Deeds; issues raised by a cross-border insolvency and important legal issues concerning causation and net loss as well as the doctrine of transferred loss.

16.  Secondly, it points to the Respondents having sought repeatedly, at each stage of the proceedings, to introduce numerous points that were unpleaded and inconsistent, or new and not relied on in the Court below, adding to the complexity and burdens on PUFG’s legal team in preparing for and arguing the case.

17.  In reply, the Respondents rely on the fact that in the Court of Appeal, both sides employed four counsel but that they did not cavil at being granted a certificate for three counsel.  They also argue that leave to appeal related only to a single question of law, showing that the case lacks complexity.  Lastly, they suggest that engaging London counsel was “to a large extent ... pursuant to the aim of cross-fertilisation” for the benefit of the Hong Kong Bar, the cost of which ought not to be visited on the Respondents.

18.  We are unable to accept the Respondents’ aforesaid arguments.  It is unsurprising that the Respondents had to be content with a certificate for three counsel in the Court of Appeal since they were there only awarded 50% of their costs.  While leave to appeal was given only in respect of one question of law, the issues referred to in PUFG’s submissions above indicate the range of important and complex issues which had to be argued and resolved.  The last argument mentioned above does not deserve to be taken seriously.  Engagement of London leading counsel was hardly “to a large extent pursuant to the aim of cross-fertilisation”.

19.  We see the force of PUFG’s above-mentioned submissions.  The issues identified were, in our view, of the requisite importance and complexity, compounded by the Respondents’ repeated attempts to augment or change their case with unpleaded and inconsistent points, as well as points raised on appeal for the first time.  It was reasonable for both sides to retain on their team the leaders and juniors who were familiar with the earlier course of the proceedings, particularly, from the point of view of PUFG, given the propensity of the Respondents to seek to widen and change their case.  In our view, this is a highly exceptional case which justifies a certificate for four counsel and we vary our order accordingly.

20.  Additionally, we accede to PUFG’s request for an order that the costs of the present application be paid by the Respondents to PUFG, certified fit for three counsel.

21.  In summary, we make the following costs orders, namely that:

(a)  The Respondents pay to PUFG the costs of and occasioned by the appeals in the Court of Appeal and in this Court, certified fit for four counsel;

(b)  The order of Harris J requiring the Respondents to pay the costs at first instance certified fit for three counsel be restored; and

(c)  The Respondents pay the costs of the present application to PUFG certified fit for three counsel.