ANMOL KUMAR SAWLANI v. YESHMA GOBINDRAM SAWLANI

HCA 2231/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2231 OF 2011

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D E C I S I O N

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1.  The plaintiff and the defendant are brothers. They are children of the late Gobindram Artumal Sawlani, which I shall call “the father”.

2.  The father passed away testate on 22 March 2008.  He left two wills, one dated 20 June 1996, and the other dated 30 November 1997.  For present purposes it is not necessary for me to go into the details as to the two wills and the dispositions made by the two wills except to say that under both wills the beneficiaries are the plaintiff, the defendant, four other siblings, plus the plaintiff’s mother, Violetta.

3.  By an ex parte order made by Master Levy on 28 July 2008, letters of administration ad colligenda bona of the father’s estate were granted to the plaintiff and the defendant limited for the purpose only of collecting, getting in and receiving the estate and doing such acts as may be necessary for the preservation of the father’s 100 per cent share of an interest in System Far East Insurance Brokers Limited (“the company”).

4.  By way of background, the company was engaged in the insurance brokerage business.  The entirety of the share capital of the company formed part of father’s estate.  Pursuant to Master Levy’s order, the plaintiff and the defendant were appointed directors of the company on 19 December 2008.

5.  Differences developed between the plaintiff and the defendant, and the plaintiff commenced this action concerning the following matters.  First, withdrawal of funds by the defendant from the account of a company called Cornerstone International Incorporation (HK) Limited, which I shall call “Cornerstone”, a company in which it is said the father had 100 per cent beneficial shareholding.  The plaintiff asked for an account of the whereabouts of a sum of $19,781,518.44 (I am not sure if it is Hong Kong or US dollars).  Second, the addition of the plaintiff as a joint signatory to four accounts held by the company at Citibank; alternatively, the opening of new accounts with Hong Kong Bank to be signed by him and the defendant jointly.  Hitherto, the signatories to the Citibank accounts were father and the defendant, each signing singly, and after father’s death, the Citibank accounts were operable by the defendant signing by himself.

6.  The action is in the form of an ordinary High Court action, and the beneficiaries were not joined.

7.  The defendant contested liability and filed a defence.  As to the bank accounts, he contends that he is under no duty to make the plaintiff a joint signatory.  But on 30 March 2012, the Honourable Mr Justice To granted an interlocutory mandatory injunction compelling the defendant, as a director of the company, to join in with the plaintiff to open new accounts with Hong Kong Bank with the plaintiff and the defendant as joint signatories.  Apparently difficulties developed in the operation or carrying out of that order, and therefore on 12 April 2012, Mr Justice To issued a further order compelling compliance.

8.  As to funds withdrawn from Cornerstone, the defendant admitted that funds had been withdrawn, but he says that they were withdrawn to avoid intermeddling by Violetta, and eventually by letter dated 13 June 2012, he said that the sum withdrawn had eventually been refunded to Cornerstone.

9.  The upshot of all this is that all issues in the action have become academic in one way or another. 

10.  By summons dated 21 February 2013, the plaintiff seeks leave to discontinue this action with costs in his favour and for his solicitor’s and own client costs to come out of the estate.  It is trite law that costs and basis of taxation are in the discretion of the court. While that is so, case law has generated helpful starting points in different factual scenarios.  Generally speaking, upon an application for leave to discontinue, the discontinuing plaintiff pays the costs of the defendant.  The fact that the discontinuance had been caused by the issues becoming academic does not of itself justify departure from this starting point as a matter of discretion.  See Inchroy Credit Corporation Limited v Cheung Man Chung [1992] 1 HKLR 120, a decision of Mr Justice Kaplan.  In the case of Ta Chung China and Arts Limited v Fontana Restaurant Limited [1999] 1 HKLR 404, Mr Justice Godfrey JA said at 407:

“Where a plaintiff seeks to recover costs against a defendant in an action in which the substantive issues have been determined in one way or another before the trial, the only way in which the plaintiff can recover his costs if the defendant refuses to pay them is to bring the action to trial for the purpose of doing so.”

11.  At page 406 at letter I, Mortimer VP said:

“There is no doubt that there are two ways in which a party can have the matter of costs determined if the liability issues of the action have become academic. First, he may apply for leave to discontinue the action and ask for the costs to be determined. In those circumstances, although it would not be impossible for the plaintiff to ask for an order for the payment of the costs by the party against whom he is discontinuing, it undoubtedly would be most unusual. For my part, I have never come across such a case.”

12.  In the case of Leung Yuet Ching v Leung Yuet Kun HCA9924/2000, Deputy Judge Muttrie observed at paragraph 23:

“However, the general rule remains that the defendant should have his costs on the discontinuance and that there must be good reasons to depart from that general rule. To award costs to a plaintiff would be to depart a very long way from it. As I see it, this could only happen where the plaintiff’s case is certain of success and the discontinuance comes about because the defendant accepts that. Certainty of success means, in my view, that the defence if found would be open to striking out under Order 18 Rule 19 of the Rules of the High Court on the ground that it discloses no reasonable cause of action or defence, as the case may be, or it is unrealistic, frivolous or vexatious, or it may prejudice, embarrass or delay the fair trial of the action, or it is otherwise an abuse of the court.”

The learned judge did go on to say at paragraph 24:

“I put forward this proposition with some diffidence, remembering that even in Burgess v Hills, where the defendant had accepted that the plaintiff’s case against him was justified even before the plaintiff applied for the injunction, it was held that the only way for the plaintiff to get his costs was to bring the action to trial for the purpose of doing so.”

13.  The plaintiff contends that these cases were pre‑CJR cases and that post‑CJR the courts have adopted the approach that the parties need not go to trial in order to have the question of costs resolved.  Among the cases cited by the plaintiff is the decision by Mr Recorder Jat, SC, in Graham Morley v Kwan HCA4366/2003.  After rehearsing a number of authorities, including Ta Chung, the learned Recorder observed in paragraph 31:

“With respect, I agree with Madam Justice Kwan that Ta Chung does not purport to limit the way in which the court may approach questions of cost where the substantive issues between the parties have become happily resolved. I say so for two reasons.”

Then paragraph 32:

“First, the decision in Ta Chung must be considered in context. In that case, the parties, having settled their dispute, only wanted the court to determine the question of costs without in some way disposing of the action. The Court of Appeal held it was not possible to decide a pure question of costs without also disposing of the action. That is not the situation in the current case, as the action has been disposed of by the consent order and it is continuous of the action against Mr Tung. I consider that the scenario in the current case is indistinguishable from that in Re China United Establishment Limited, where the action is disposed of by consent order, leaving only the issue of costs outstanding.”

This is paragraph 33:

“Secondly, and in any case, it seems to me that to hold that in the absence of agreement or an application to discontinue the action, the parties must go to trial in order to resolve any outstanding questions of costs would be contrary to the overriding objective enshrined in RHC Order 1A Rules 1 and 2.”

14.  Reading these authorities in context, I do not believe that the cases about post‑CJR approach and the possibility of resolving costs without going to trial have any bearing on the facts of this case.  First of all, Graham Morley is not a case on leave to discontinue, and no one is asking in this case that the issue of costs should be determined by having a trial, and therefore in this connection, the relevant test to be applied in a case where leave to discontinue is sought and where the issue of costs is to be determined on paper is that laid down by Deputy Judge Muttrie in the Leung case that I have referred to.

15.  In my respectful view, there is a good deal of sense in the judgment of Deputy Judge Muttrie, and he need not have been so diffident, because if the parties were not to go to trial to resolve a costs dispute in an application for leave to discontinue, then the normal rule should apply, namely a discontinuing plaintiff should pay costs unless it can be demonstrated, without the need to go to trial, that his case is so strong that he is bound to win had it gone on to trial and therefore he was justified in commencing the action in the first place.  I cannot see how a lesser standard such as he may be 70 per cent right would suffice, because at the end of the day to award costs to a party is to recompense him for the fact that he was justified in issuing the writ in the first place.

16.  At the end of the day, the questions as to whether or not the plaintiff should pay the defendant’s costs on discontinuing, or the appropriate merit threshold that the plaintiff should be required to achieve in order to be able to reverse the normal starting point, have been rendered academic, because the defendant had, in his words, “generously” agreed by a letter dated 31 October to pay the plaintiff’s costs on discontinuance, but not on an indemnity basis and not agreeable to any part of the taxed off costs being borne by the estate.  But in the face of that, the plaintiff took out his summons for discontinuance seeking costs.

17.  There is some dispute as to whether or not the offer by the defendant dated 31 October 2012 had in any way been withdrawn or was in any way unclear.  Having read the letter, I am of the view that it had not been withdrawn, nor are the terms unclear.  The terms are simply that the defendant is amenable to paying the plaintiff’s costs if there is application for leave to discontinue, and no more and no less; certainly not indemnity and not agreeable to the estate bearing any costs.  And therefore, if the defendant succeeds in persuading me to make that order, it may well have costs consequences which I will come to in due course.

18.  The only issue alive before me now is the basis of taxation and whether or not any taxed off costs or irrecoverable costs should be borne by the estate.

19.  Notwithstanding the defendant’s concession to pay costs, I would still have to comment on the merits and configuration of the claim, because one relevant factor in considering indemnity costs in the exercise of my discretion is whether the plaintiff’s merits are so strong and the defendant’s resistance or conduct is so unmeritorious that it takes the case out of the league of party and party costs and up to a higher level of taxation on principles that are too well known to rehearse.

20.  I should state at the outset that in the papers before me there are some quibbles about alleged misconduct or wrongdoing in matters not covered by the subject matter of the statement of claim.  I do not believe that it is appropriate for me to take those into account in the exercise of my discretion.  I must say I have some difficulty in seeing why it can be said to be a wrongdoing or breach of fiduciary duty for the defendant not to agree to make the plaintiff a joint signatory in the Citibank account or in any new account to be opened.  Even though Citibank had indicated in May 2010 that it would close the account, and so new accounts would have to be opened with some other bank, it does not necessarily follow that any new account must have two joint signatories comprising the plaintiff and the defendant.  The plaintiff may very well wish to be a joint signatory, but that does not translate into an entitlement.

21.  The plaintiff says that there were concerns over unauthorised dealings, but that was not quite the way in which the matter was presented on the pleading.  On the affidavit evidence, some alleged wrongdoings outside of the company were relied upon by the plaintiff, but it is a matter of debate whether those are so strong as to warrant indemnity costs (for example, there is a dispute as to the beneficial ownership of a property owned by Smartnet) and also it is a matter of debate how those alleged wrongdoings outside of the company would translate into risk of unauthorised withdrawal from the account held by the company.  Insofar as the company is concerned, it does not appear that the plaintiff had identified any incident of unlawful withdrawal.  Anyway, the defendant had deposed to his reasons as to why the plaintiff might not be suitable as a co‑signatory.  For example, he was not seeing eye to eye with the defendant, and the plaintiff’s alleged lack of maturity, etc.

22.  These are all matters to be seriously addressed insofar as they may go to the issue of whether or not it can be said that the defendant was acting in breach of fiduciary duty as a grantee so as to call for enforcement action, so to speak, by the plaintiff, and is not susceptible to paper determination, certainly not on an application for indemnity costs.

23.  But more importantly and more fundamentally, the order of Master Levy relates to the estate.  The estate consists, among other things, of shares in the company.  The assets of the company do not belong to the estate.  The assets of the company belong to the company.  The plaintiff and the defendant were both constituted directors of the company, and any disagreement between them as to what the company should do can be resolved within the rubric of the ammunition provided by the general company law when there is a deadlock among directors, as in a case like this, but not by way of a direct personal action by one brother against another, by one director against another.

24.  As I see it, Master Levy’s order does not cloak the plaintiff or the defendant with omnipotent authority to apply to the court for compulsion or assistance whenever there is some disagreement over the management of the company the shares of which belong to the estate.  Otherwise one can imagine situations where parties trouble the court not just on matters concerning ownership or assets held by them directly as assets belonging to the estate, but by companies maybe several lines down the corporate chain, thereby completely bypassing relevant principles and checks and controls imposed by company law.

25.  As it were, the plaintiff tried and they succeeded in obtaining the relief that they wanted to on the basis of that interlocutory mandatory injunction, but it does not mean that the defendant’s conduct in defending the action warranted indemnity costs in view of the many and varied arguable issues arising from the way the case had been presented and which I have discussed above.

26.  I am aware that interlocutory mandatory injunctions have been granted by Mr Justice To and on general principles, such an injunction is not to be granted unless a very high merits threshold has been demonstrated by the plaintiff.  However, such an interlocutory decision does not create any sort of issue estoppel.  In any event, if anything, even if it were to amount to any finding or issue estoppel, it only amounts to an issue estoppel that the learned judge on that occasion found that there were very strong merits.  It does not go to show that it is a case whereby the defence is susceptible to be struck out, and it does not bind me as to my discretion as to costs.

27.  In any event, I have looked at the skeleton argument put before the learned judge on that occasion, and it does not appear that any of the issues of concern flagged by me above had been really ventilated or discussed.

28.  As for Cornerstone, the money had been restored.  The defendant had given a reason for taking the money out, and he said the money had been accounted for.  Even if the conduct in taking the money out was, as Mr Szeto acknowledged, a perhaps somewhat knee-jerk reaction to certain conduct by Violetta, and even assuming for the sake of argument that there had been taking of money out of Cornerstone, the question remains whether or not that could be regarded as any kind of misappropriation.

29.  The defendant says the money had been put separately.  In any event, even if there had been any kind of misappropriation, the proper complainant was Cornerstone, being the holder of the account. Again, I repeat that Master Levy’s order does not confer some omnipotent authority to bypass the requirements of company law.  The order does not even mention the name of Cornerstone, although it does mention the name of the company.

30.  In any event, the money was restored in June 2012.  The defendant actually agreed to pay costs of the action which would have covered the costs covering this Cornerstone saga.  There is no evidence concerning the conduct of the defendant in the Cornerstone aspect of the action that would justify exercising my discretion to order indemnity costs.

31.  In the exercise of my discretion, therefore, I refuse the claim for indemnity costs.  That leaves me with the alternative relief for the unrecovered part of the costs to be borne by the estate.  The problem with this is that, as Mr Brewer has fairly informed me this morning, his client had tried to get in touch with one of the beneficiaries, namely the sibling who was recuperating in a mental health hospital, namely Rita Sawlani, and had been informed that she might not have received all the papers.  I cannot therefore be satisfied that all those who had an interest in the estate had had a chance of making representations to me as to this burden on the estate.

32.  In any event, I am not convinced that this is a claim where the plaintiff was involved in his capacity as administrator or trustee.  Mr Brewer has referred me to Rules of the High Court Order 62 Rule 6(2), which says:

“Where a person is or has been a party to any proceedings in the capacity of trustee, personal representative or mortgagee, he shall, unless the court otherwise orders, be entitled to the costs of those proceedings insofar as they are not recovered from or paid by any other person out of a fund held by the trustee or personal representative or the mortgaged property as the case may be, and the court may otherwise order only on the ground that the trustee, personal representative or mortgagee has acted unreasonably or, in the case of a trustee or personal representative, has in substance acted for his own benefit other than for the benefit of the fund.”

33.  Mr Brewer referred me to the pleadings and the summons seeking interlocutory mandatory injunction whereby they were littered with references to the plaintiff suing as co-grantee and also references to Order 18(5).  However, it is the substance of the matter that counts and not the form that counts.

34.  As I said above, Master Levy’s order does not confer any kind of omnipotent authority on the plaintiff to take steps as co‑administrator relating to the operation of companies the share of which form part of the estate.  The whole manner in which the plaintiff’s claim has been conducted had elided the line between his and the defendant’s hat as co‑administrators and his and the defendant’s hat as directors.  It may perhaps be noted that Mr Justice To’s interlocutory mandatory injunction dated 30 March 2012 and also 12 April 2012 compelled the defendant, and I emphasise, as director of the company to take certain steps, which should immediately cause alarm bells to be rung as to the capacity in which the claim is brought, whether qua one director compelling another director, or whether qua one grantee compelling another grantee.

35.  In my view, it is more akin to a case where one director is seeking to compel another director to comply with his wishes.  I say no more about the merits of such a claim in view of the defendant’s agreement to pay the plaintiff’s costs.  I have expressed my reservations about this manner of pursuing the claim.

36.  Strictly speaking, therefore, there is no need to decide whether or not the plaintiff’s conduct or pursuit of the claim in such a configuration can be regarded as unreasonable within the meaning of Order 16(2), but I have addressed my doubt as to the soundness of the very configuration and formulation of the plaintiff’s claim to start with, and I would have to agree with the defendant’s attitude that the offer to pay the plaintiff’s costs on a party and party basis had been “generous”, and I would urge the plaintiff and those advising him to consider this with care.

37.  I therefore refuse the plaintiff’s application for costs on an indemnity basis and also for costs coming out of the estate.

(Submissions on costs)

38.  The order I shall make is as follows:  that leave be granted to the plaintiff to discontinue the action; the defendant to pay the plaintiff’s costs of the action on a party and party basis; the plaintiff do have leave to file and serve written submissions on costs of and occasioned by this application within seven days; the defendant do have leave to file reply submissions within seven days thereafter; the plaintiff do have leave to file reply submissions within three days thereafter.