NICE & WELL LTD v. FU MEE YUK SHIRLEY

HCA2726/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 2726 OF 2008

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RULING ON COSTS

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1.  A written Judgment was handed down on 31 December 2010 in this matter after trial.

2.  That claim was brought by the plaintiff by way of a statutory derivative action upon leave being granted to the applicant Leung Ka Fai (“LKF”) in HCMP2148/2008 to bring the claim against the defendant in the name of the plaintiff’s company pursuant to section 168BC of the Companies Ordinance.

3.  In that Judgment I dismissed the plaintiff’s claim and found in favour of the defendant.

4.  At the end of the Judgment, I requested written submissions on costs from the parties and in particular expressly stated that I needed to hear from the parties as to why LKF should not be ordered to bear the costs of the proceedings.

5.  Written submissions having now been lodged by the parties, this is therefore my ruling on costs in the matter.

Power of the court

6.  There is no dispute that the court has wide powers to make costs orders under section 168BI of the Companies Ordinance where such statutory derivative actions are brought under section 168BC.

7.  Section 168BI(1) gives the court the power to make any order it considers appropriate about the costs incurred or to be incurred by (a) the member, (b) the specified corporation, and (c) any other parties to the application or proceedings, in relations to, inter alia, any proceedings brought under section 168BC(1).

8.  Section 168BI(2) provides that a costs order made under sub-section (1) may require the specific corporation to indemnify out of its assets against the costs incurred by the member in making the application or in bringing the proceedings.

9.  Section 168BI(3) however, lays down a qualification that the court may only make an order of costs (including the requirement as to indemnification) in favour of the member if it is satisfied that the member was acting in good faith in, and had reasonable grounds for, making the application, or bringing the proceedings.

Applied to the present case

10.  In the present case, I had found in favour of the defendant and the plaintiff’s case had been dismissed.

11.  LKF has made serious and unwarranted allegations of dishonesty, fraud and misappropriation against the defendant.

12.  Such allegations made by LKF has been found after trial to be wholly unfounded and were not believed.

13.  In making such allegations, LKF were not acting for the legitimate interests or the welfare of the plaintiff company but did so for his own personal gain and interests.

14.  LKF therefore was not acting in good faith and had no reasonable grounds for bringing the proceedings.

15.  In the circumstances I can see no good reason why costs should not follow the event such that the defendant gets the costs of her having to defend the plaintiff’s claim.

16.  For the same reasons given above, LKF should be the party to personally bear the defendant’s costs of defending these proceedings rather than the plaintiff company.

17.  Moreover, LKF will also be ordered to personally bear the plaintiff’s own costs in bringing these proceedings.

Whether indemnity costs should be ordered

18.  The defendant has asked for the defendant’s costs to be paid on an indemnity basis.

19.  The general principles relating to when indemnity costs could properly be ordered are where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner.

20.  However, the discretion to order indemnity costs were not restricted only to the above circumstances.

21.  The conduct of the parties are also to be looked at to determine whether it is appropriate in a given case for the court to exercise its discretion.

22.  Moreover, the court may also have regard to the events prior to the institution of proceedings rather than merely confine itself to the way in which the litigation was conducted by the losing party (see Note 62/App/12, Hong Kong Civil Procedure 2011).

23.  While it is true that there is very little to be said about the good faith of LFK and/or his motive in bringing the proceedings, I must also take into account the conduct of the defendant, on a number of occasions, in making out and signing herself alone a number of cheques all for $10,000 in favour of herself on the same day, instead of issuing one cheque and getting LFK to countersign it with her.

24.  What was done by the defendant was done out of convenience to herself, but it was that conduct which opened herself up to suspicion.  It took a full trial after hearing evidence and cross examination to exonerate the defendant from such suspicion of wrongdoing.

25.  In this respect, it can hardly be denied that the defendant, by her own conduct, to some extent brought it upon herself to have to defend such a claim by the plaintiff.  The defendant was therefore not entirely free from blame although after trial she was exonerated from any wrongdoing.

26.  In the circumstances, I am not persuaded that this is a proper case for ordering indemnity costs.

Costs Order

27.  Accordingly, I will make the following costs order :

(1) the defendant’s costs in defendant the plaintiff’s claim herein are to be paid by LKF personally to be taxed if not agreed;

(2) the plaintiff’s costs for bringing the action herein are also to be borne and paid by LKF personally; and

(3) in view of the costs order made in HCMP2148/2008 that the costs therein are to be costs in the cause of the present proceedings, there will be the further order that the costs of HCMP2148/2008 be also borne and paid by LKF personally.