LAU CHO KWAN, LEO AND ANOTHER v. LAU SIU FAN, ELAINE AND OTHERS

HCCW 262/2020

[2021] HKCFI 3448

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP)  PROCEEDINGS NO. 262 OF 2020

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COSTS RULING

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A.  Introduction

1.  As in my previous Judgment and Ruling, I will continue to refer to the petitioners as Leo and Betty and the 8^th respondent as the Company, and to adopt the other definitions.

2.  Following a hearing on 11 October 2021, I gave Judgment dated 18 October 2021 [2021] HKCFI 3067, by which:

(1)  I dismissed a summons dated 6 September 2021 (“Set Aside Summons”), by which the Company applied to set aside the Carry On Order that appointed Betty to represent the estate of Leo to carry on these proceedings and the proceedings to be carried on as if she had been substituted for Leo;

(2)  I dismissed a summons dated 10 March 2021 (“Strike Out Summons”), by which the Company sought to strike out the prayer for winding up relief in the original Petition and the relevant paragraphs and prayer for winding up relief in the draft Amended Petition, on the grounds that the winding up relief sought is plainly and obviously unsustainable and seeking such relief against the Company is frivolous, vexatious or otherwise constitutes an abuse of process;

(3)  I allowed a summons dated 8 January 2021 (“Amendment Summons”), by which Leo and Betty sought leave to amend the Petition;

(4)  I dismissed a summons dated 12 April 2021 (“Injunction Summons”), by which Leo and Betty applied for an order restraining the Company expending its money or other assets, or otherwise incurring any further legal costs, in participating in the present proceedings (HCCW 262/2020), or any other legal proceedings;

(5)  I ordered that, without prejudice to any subsequent ruling as to its operation or effect whilst extant, §1 of the then extant Validation Order should immediately cease to be of effect (and, for the avoidance of doubt, the remaining paragraphs are to continue in effect);

(6)  I ordered that any future intended costs expenditure by the Company in these or any other proceedings are to be made the subject of an application for a validation order in these proceedings.

3.  I also reserved the question of costs of the summonses and, on the assumption that costs would not be agreed between the parties, I directed that any costs submissions should be mutually exchanged and filed in two rounds on 1 and 15 November 2021.

4.  Costs submissions have indeed been filed: (1) by Mr Victor Joffe and Mr Felix Ng, Counsel for Leo and Betty; and (2) by Mr Abraham Chan SC and Ms Natalie So, Counsel for the Company.

5.  This is my Costs Ruling.

B.  The Contest

6.  It is helpful first to identify the orders which the competing parties invite me to make as regards the four summonses.

7.  Mr Joffe’s submission in respect of the four summonses is as follows:

(1)  the Set Aside Summons: The costs of and occasioned by this summons should be paid by the Company to Betty, with certificate for two Counsel, to be summarily assessed and payable forthwith.

(2)  the Strike Out Summons: The costs of and occasioned by this summons should be paid by the Company to Leo and Betty, with certificate for two Counsel, to be summarily assessed and payable forthwith.

(3)  the Amendment Summons: The costs of the amendment should be payable to the Company, to be summarily assessed.  But the costs of and occasioned Company’s opposition to the amendments should be paid by the Company to Leo and Betty, with certificate for two Counsel, to be summarily assessed and payable forthwith.

(4)  the Injunction Summons: The costs of and occasioned by the summons should be paid by the Company to Leo and Betty, with certificate for two Counsel, to be summarily assessed and payable forthwith.

8.  I also note, but need not comment on, Mr Joffe’s statement that his submissions are made without prejudice to Leo and Betty’s stance that, in the event that the Court grants any costs order(s)  against the Company, Leo and Betty are entitled to seek recoupment of any costs paid by the Company from the appropriate parties, including Elaine and Rose.

9.  Mr Chan submits that the overall costs provision should simply be no order as to costs for all four summonses.  But, as an alternative, if the simple option of making no order as to the overall costs of all summonses is followed, Mr Chan submits that the proper order would be for costs to follow the event on each summons.

10.  Mr Chan also argues that any costs orders in favour of a party should fall to be taxed if not agreed, and be payable in any event.

C.  Applicable Principles

11.  The applicable principles are well-settled, and need little if any reference to authority.  Costs are in the discretion of the Court, that discretion to be exercised judicially.

12.  In the exercise of its discretion when making an order as to the costs of or incidental to any interlocutory proceedings, the Court may order the costs to follow the event or make such other order as it sees fit: see RHC Order 62 rule 3(2A).  That rule was introduced by the CJR, since which the Courts are more ready to deal with costs of interlocutory applications by making final orders, rather than putting them off to await the final outcome of proceedings.

13.  Reference can also be made to Order 62 rule 5, which identifies what the Court shall take into account, to such extent if any as may be appropriate in the circumstances.  Among the matters that the Court should take into account are the underlying objectives set out in Order 1A rule 1.  Those objectives include increasing the cost-effectiveness of any practice and procedure to be followed in relation to proceedings before the court, and promoting a sense of reasonable proportion and procedural economy in the conduct of proceedings, as well as ensuring fairness between the parties and facilitating settlement of disputes.  The court shall, to the extent appropriate, also take into account the conduct of the parties, including whether it was reasonable for a party to raise or pursue or contest a particular allegation or issue, and the manner in which the party has done so.

14.  In broad terms, the Court will be concerned to identify the ‘successful party’, as that may provide a sufficient answer to what was the event in respect of costs.  Further, the general starting point of the approach of costs following the event does not cease to apply simply because the successful party raises issues or makes allegations on which he fails.  But where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs.  A departure from a global costs order, so as to take an issue-based approach, should be approached with some circumspection, and is likely to be employed only when there are discrete issues which can be separated out one from another.  In effect, the unsuccessful party will bear the burden of showing why some different approach should be adopted on the facts of the particular case to warrant a departure from the ordinary starting point that cost should follow the event.

D.  The Set Aside Summons

15.  Betty is to be regarded as the successful party, because the Set Aside Summons was dismissed.  Further, it was dismissed on its merits, in part by rejecting the Company’s submissions that Betty could not bring herself within the ambit of RHC Order 15 rule 15.

16.  I acknowledge that neither of the provisions originally put forward for Betty – namely Order 15 rules 6A and 7 – were found by me to be applicable in this case, and it was only after consideration of the shift to Order 15 rule 15 that I upheld the Carry On Order.  Therefore, there is some force in Mr Chan’s submission that the ultimately successful resistance to the Set Aside Summons was entirely different from the original basis of the application for the Carry On Order.

17.  But, that the Company might have had a concern as to the proper “gateway” of the application does not seem to me to justify the Company’s taking the point, in circumstances where I doubted its real locus to do so, and where I held that no real prejudice could be suffered by the Company anyway.  First, my costs order does not deal with the costs of obtaining the Carry On Order in the first place.  Second, though it might be said that the Court was assisted by the submissions made by Mr Chan, those submissions were not offered as though from an amicus curiae, but from a party positively challenging and seeking to set aside an earlier order.  (As an aside, it might be pointed out that the aim of all submissions made to the Court should be to assist the Court.)

18.  Further, though argument was put forward on the other rules in written skeletons, at the oral hearing Mr Joffe mainly placed reliance on the applicability of Order 15 rule 15.  On the other hand, it is correct to say that my ruling made clear that the effect of rule 15 was to ensure that costs orders made in the action would properly bind Leo’s estate.

19.  I do not think I need otherwise to go into the various allegations and cross-allegations about conduct, though I have noted them.

20.  Overall, taking all matters into account in the exercise of my discretion, it seems to me they are properly reflected by an order that the Company pay 80% of Betty’s costs of the summons.

E.  The Strike Out Summons

21.  The Company failed in its attempt to strike out the relevant parts of the Petition and proposed Amended Petition.  It did so for the various reasons identified in my Judgment, as reminded by Mr Joffe in his submissions.

22.  I do not think that result is somehow “neutralized” (my word, not Mr Chan’s)  by seeking to point to a “net result” (Mr Chan’s words, not mine)  of the Company failing to manage to strike out the winding-up relief, whilst at the same time preventing the injunction sought by Leo and Betty.  In my view, as my Judgment makes clear, the question of striking out and amendment are properly considered together; but I disagree that the injunction point is either conceptually or practically linked to them.

23.  Nor do I think the fact, that there were various arguments and factors which might have pointed in different directions, leads to any appropriate departure in this case from the starting position that cost should follow the event that the Court refused the strike out.  More importantly, is the concession made by Mr Chan which I recorded in my Judgment at §43 that the company does not have an interest in whether it is or is not wound up (even if it were to assert a concern or interest as to what might happen as it potentially faces a winding up order, and until it finds out whether or not it will be wound up).

24.  Anyway, ultimately the Company failed in its strike out attempt, as it failed to satisfy the necessary test for any strike out. As Mr Joffe submits, that reason alone justifies a costs order against the Company.

25.  Overall, taking all matters into account in the exercise of my discretion, it seems to me that the Company pay Leo and Betty’s costs of the summons.

F.  The Amendment Summons

26.  I agree that the costs of and occasioned by an amendment fall into two parts, where there is an argument about the amendment. Hence, the costs of and occasioned by the amendments themselves costs to be borne by Leo and Betty.  However, I do not think those costs are readily summarily assessed, and they should be costs payable by them to the Company in any event.

27.  As to the separate costs of the argument, Leo and Betty won that argument.  Hence, the starting point seems to me to be that cost should follow that event and the Company should bear the costs.

28.  I have already rejected Mr Chan’s submission that the Amendment Summons should somehow be linked with the Injunction Summons.

29.  A better point made by Mr Chan is that in just five months, Leo and Betty “floated” no fewer than four different versions of the draft amended petition, and the last version was only put forward after the Strike Out Summons was issued.  As Mr Chan submits, it was only that last version which featured averments about the Company’s supposedly inability to purchase shares on a buy-out order.

30.  I also note what Mr Chan properly describes as a “measured” approach to the Amendment Summons, in that the Company reasonably indicated at an early stage that it had no objection to any amendments save those relating to winding-up.  This is appropriate conduct which I do take into account.

31.  Overall, taking all matters into account in the exercise of my discretion, it seems to me they are properly reflected by an order that the Company pay 80% of Leo and Betty’s costs of the summons.

G.  The Injunction Summons

32.  Whilst the summons was dismissed, I think it can properly be said that the result was ‘mixed’ or that there were roughly ‘honours even’ in light of the further order that I made in relation to the then extant §1 of the Validation Order, and the steps that would be required for any validation after the date of my Judgment.

33.  As is clear from my Judgment, my view is that the parties together in effect got themselves into this problematic position by jointly asking the Court (Linda Chan J)  to make a validation order in terms which in reality comprised little more than a statement as to the effect of section 182.  The form of order sought jointly by the parties was, in my view, always likely only to propagate disputes between them, rather than resolve them.  That is the importance of the fact that the order was made by consent.

34.  Therefore, whilst there is some force in Mr Joffe’s submission that the effect of removing §1 of the Validation Order is similar to granting some form of injunction, the particular problem faced which prompted the Injunction Summons was in part brought on by Leo’s and Betty’s own conduct.  As Mr Chan correctly identifies, my direction that §1 of the Validation Order cease to have effect reinstated the default position under section 182, and it seems to me that that process is the one which should govern the approach to any future costs expenditure which the Company might incur, rather than any form of injunctive relief, which might fall to be considered on different principles.

35.  Therefore, it seems to me that the appropriate costs order in relation to the summons is no order as to costs.

H.  The Result

36.  I make the costs orders indicated by reference to each of the four summonses above.

37.  Insofar as I have made costs orders in favour of Leo and Betty, they are all to be with certificate for two Counsel, to be summarily assessed and payable forthwith.

38.  Indeed, it seems to me that these are precisely the sort of circumstances where a summary assessment is appropriate, and where the payment of costs orders made should not have to await the ultimate outcome of the proceedings.  I do not think the fact that prior costs expenditure might yet be the subject of scrutiny within the petition itself changes that position.

39.  Leo and Betty have already provided their Statements of Costs for summary assessment.  The Company will have 14 days to provide any Objections (and, again, for the avoidance of any doubt I regard costs of so doing as being part of the costs of argument).  I will then make the summary assessment on the papers.

40.  Lastly, as neither side was wholly successful in obtaining the costs order sought, I make no order as to the costs of the costs submissions.