CHAN YIN NANCY v. KUI LEE SAUCE & PRESERVED FRUIT FACTORY LTD

HCMP 1265/2023

[2023] HKCFI 2425

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 1265 OF 2023

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REASONS FOR DECISION

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1.  On 8 August 2023, the Plaintiff (“P”) took out an Originating Summons application (“OS”) for delivery up of documents and records pertaining to the Defendant Company (“D”/“the Company”). The Plaintiff is, as the supporting evidence to the OS shows, the sole executrix of the last will of a shareholder of the Company who passed away on 12 May 2022. By an instrument of transfer dated 30 August 2022, the Plaintiff became a shareholder of the Company (amounting to 4.35% of the total issued shares).

2.  The Plaintiff says that she took out the OS because of the Company’s non-payment of dividends and because of its failure to respond to her requests for documentation. The evidence also set out the correspondence prior to the issue of the OS wherein originally the Company proposed only limited inspection was to be allowed, and only from the date of transfer of the shares (i.e. 30 August 2022).

3.  After the issuance of the OS, on or about 14 August 2023, the Company’s board of directors then consented to inspection, but forbade the making of copies and removal of any records. On 21 August 2023, P was informed by the Company’s solicitors that she would be allowed to inspect and take copies subject to her undertaking to pay the prescribed fee, and they also suggested that there be no order as to costs.

4.  On 23 August 2023, P’s solicitors wrote back objecting to the proposed costs order, contending that costs had been incurred and counsel had been engaged. D’s solicitors then wrote back on 24 August 2023, saying that the engagement of counsel was premature, given the simple nature of the application.

5.  The substantive dispute as to discovery has thus been resolved, and by summons dated 14 September 2023, the Plaintiff seeks leave to discontinue.

6.  What remains is the issue of costs.

7.  At the hearing, counsel Ms Rachel Ronald appeared for the Plaintiff and counsel Ms Cyndi Ho appeared for the Defendant Company.

8.  There can be little dispute as to the guiding principles in a scenario such as this. These are helpfully summarised by To J in Coqueen Company Limited v Chui Wai Kwan & Others (unreported, HCMP 438/2010, 8 December 2015). See also 深圳正高金露製品有很公司v lu Ho Construction Engineering Co Ltd [2022] HKCFI 2685, §18, per DHCJ Au-Yeung; Perrine Chamonix Limited v Star League Limited & Another (unreported, HCA 1139/2017, 13 September 2017), §27, per DHCJ William Wong SC (as he then was).

9.  In the simplest terms:

(1)  Where a plaintiff wishes to avoid the consequence of having to pay costs for a withdrawal of an action, he should seek leave under O.21, r.3(1), RHC. The court has complete discretion to grant leave on such terms as to costs as it thinks fit.

(2)  In terms of principles or rules of thumb, O.62, r,10(1), RHC is a starting point (where in this scenario, costs are generally to the defendant); but also, there are scenarios where a second principle, viz that costs follow the event, will come into play.

(3)  The plaintiff ought to show a good reason to discontinue the action. This will depend on the particular circumstances of each case. If a good reason is shown, then the second principle will come into play.

(4)  To persuade the court to depart from the general rule (that the defendant should get his / her costs), the plaintiff has to show that the discontinuance is for reasons other than an acknowledgment of defeat or likely defeat, in other words, he would have succeeded at trial or in the application. The burden of proof is on the plaintiff, to the civil standard. The Court also has regard to the underlying objective.

10.  Ms Ronald argues as follows:

(1)  P is the effective winner. As a shareholder, she had various statutory rights to inspection for the relevant documents pursuant to ss.430, 618, 620, and 740 of Cap 622. She exercised these rights for a proper purpose – namely, her queries regarding the share of dividends for the 2022 year (citing Re Bank of East Asia Ltd [2015] 4 HKC 137, §§24-25, per Harris J).

(2)  The background speaks for itself if one has regard to the chronology of how matters unfolded. It was only upon issuance of the OS that the inspection and taking of copies was eventually agreed to.

(3)  P had all along acted reasonably.

(4)  Thus, P should get her costs.

11.  Ms Ho argues as follows:

(1)  She mainly argues around the quantum sought, as well as referring the Court to a series of without prejudice save as to costs letters exchanged shortly before the exchange of submissions, and then shortly subsequent thereto.

(2)  Originally, in her submissions she referred to the skeleton bill of costs that was put forward to D on 30 August 2023, which totalled HK$82,626. Issue was taken with various individual items, including but not limited to: hours spent on various tasks, number of fee earners involved, premature engagement of counsel, as well as other various points.

(3)  By the Calderbank letters from D’s solicitors to P’s solicitors, offers of HK$10,000 and then subsequently HK$30,000 as to costs were variously put forward as proposed settlement terms.

(4)  The parties were unable to reach agreement on costs.

(5)  She invites the Court to summarily assess the quantum of the costs for the OS, putting forward a sum of HK$24,566. Insofar as the costs of the Summons are concerned, on the basis of what D submits are excessive amounts sought by P, she asks the Court to either award D the costs of the Summons and this hearing, or in the alternative make no order as to costs thereof.

12.  I agreed that P has been substantially successful and that this outcome only came about as a result of the initiation of the OS. P has thus achieved what she set out to do. The proceedings were a necessary step in achieving this result.

13.  As to costs, at the hearing, P submitted two skeleton bills of costs which amount to HK$124,336.00 for the costs of the OS, and HK$18,320.00 for the costs of the Summons:

(1)  These are on a higher scale than the skeleton bill originally sent to D by P on 30 August 2023, and upon which parties had engaged in negotiations for the past three weeks. D took issue with the higher scale now relied upon.

(2)  As to the specific sums, I have heard both sides on the precise amounts.

(3)  D maintains various criticisms on the skeleton bills, including the double incurrence of costs by two fee earners on various occasions, the excessive time spent on various items, and complaint about the premature engagement of counsel, amongst other things. Particular emphasis is placed on the fact that the earlier skeleton bill sent at the end of August was on a scale which D says P had committed herself to.

(4)  As to D’s complaints, I have taken them under consideration. I would note as follows:

(a)  There is some merit in the complaint that there was excessive time spent on the attendance of the Defendant and/or its solicitors (Items C2 and C3), even if that is to include the inspection exercise itself.

(b)  There is a degree of overlap between the fee earners in some items, albeit in this regard I accept P’s submissions that since one of the fee earners concerned is a trainee, this justifies, to a degree, the supervision of a qualified solicitor.

(c)  I do not agree that counsel was engaged prematurely. Ms Ronald is relatively junior, and the sums claimed for drafting and attendance at the present hearing are largely commensurate with her seniority. The involvement of counsel had reduced the amount of drafting work required for the solicitors, who would charge at a similar or higher rate in any event, so there is minimal costs inflation on that front.

(d)  I do not agree it was unreasonable for P to adopt the usual High Court scale in preparing the skeleton bills for the present hearing. The earlier skeleton bill sent at the end of August did not lead to any substantially successful negotiations, and in any event, D’s various offers – respectively HK$10,000 and HK$30,000 – or assessments of what they say are reasonable costs ($24,566, as set out in Ms Ho’s submissions) fall below what the Court has ultimately considered a reasonable amount to cover the OS and the Summons (see below). Whilst the application was a relatively simple one, I do not consider these sums to be a realistic assessment of the costs involved. I note in any event that the Calderbank letters came in relatively late and combined with the amounts proposed, had little bearing on the matter overall.

14.  Having considered the various submissions as raised by both sides, and also considering matters in the round, I summarily assessed and awarded costs to P in the sums of HK$$80,000 for the OS and HK$10,000 for the Summons.

15.  I thank counsel for their assistance.