CY FOUNDATION GROUP LTD v. CHENG CHEE TOCK THEODORE AND OTHERS

HCMP 680/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 680 OF 2011

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DECISION ON COSTS

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1. On 9 December 2011, I handed down judgment dismissing the Plaintiff’s application by summons dated 14 April 2011 seeking an interlocutory injunction against the 1^st and 2^nd Defendants to restrain them from dealing with or disposing of a sum of HK$9,306,500 paid by the Plaintiff to the 2^nd Defendant on 15 February 2011 (“the Injunction Application”). The Injunction Application was resisted by the 1^st, 2^nd, 3^rd and 5^th Defendants (whom I shall refer to in this Decision as “the Defendants”). I also made a costs order nisi requiring the Plaintiff to pay the Defendants’ costs of the Injunction Application, to be taxed on the party and party basis if not agreed.

2. In the Injunction Application, the Plaintiff claimed that the payment to the 2^nd Defendant was a misapplication of its funds, and that it was entitled to the injunction on the basis that it had a proprietary claim in respect of those funds, which it could trace into the hands of the 2^nd Defendant.

3. The Injunction Application was dismissed on the basis that as the funds had been paid into an overdrawn bank account of the 2^nd Defendant, there could no longer be any proprietary rights of the Plaintiff capable of protection, and there was therefore no good arguable case for the granting of an injunction.  I accepted, however, that but for this point, the Plaintiff would have succeeded.

4. The fact that the funds had been paid into an overdrawn account was disclosed in bank statements of the 2^nd Defendant which were exhibited to her evidence in opposition to the Injunction Application, filed on 27 April 2011, just before the hearing of the Injunction Application on 29 April 2011.  It was not, however, a fact to which any particular prominence was given, either in the 2^nd Defendant’s affirmation, or the skeleton arguments lodged on her behalf.  The point as to the ability to trace into an overdrawn account was in fact a point which I raised with counsel during the course of argument, and was eventually dealt with by two rounds of written submissions from each side.

5. By summons dated 22 December 2011, the Plaintiff seeks a variation of the costs order nisi.  It proposes that in place of that order, a costs order should be made by which the costs of the Injunction Application up to and including 27 April 2011 should be the Plaintiff’s costs in the cause, while the costs of the Injunction Application as from 28 April 2011 should be paid by the Plaintiff to the Defendants, to be taxed on the party and party basis if not agreed.

6. The parties agreed that the application to vary the costs order nisi should be dealt with on paper, and written submissions were duly filed by the Plaintiff on 26 January 2012, by the Defendant on 6 February 2012, and by the Plaintiff in reply on 21 February 2012.

7. Mr Lam, for the Plaintiff, submits that in the circumstances of this case, costs should not simply follow the event, but should be dealt with as proposed by the Plaintiff, because:-

(1)  The fact that the 2^nd Defendant’s bank account into which the funds were paid was overdrawn was not something of which the Plaintiff could have been aware when the Injunction Application was issued, and there was no reason for the Plaintiff to have believed that this might be the case.

(2)  That fact was disclosed for the first time in one of the exhibits to the 2^nd Defendant’s affirmation of 27 April 2011.

(3)  The point as to the account being overdrawn was not taken by the Defendants, but was raised by the court.

(4)  It would be unfair for the Plaintiff to have to bear the whole of the Defendants’ costs, since these included the costs of the unsuccessful arguments raised by them.

(5)  The court has a wide discretion as to costs, and can make different costs orders in respect of different issues, although it was acknowledged that there did not seem to be a uniform practice as to this.

8. Mr Lam suggested that, as alternatives, the court could make an order that costs of the entire Injunction Application should be in the cause, or should be the Defendant’s costs in the cause.

9. The Defendants resist any suggestion that the costs order nisi should be varied.  They submit that:-

(1)  The Plaintiff cannot seek to rely on the suggestion that it could not have known that the funds had been paid into an overdrawn account, when they made no inquiries about the payment and how it had been applied, or written a pre‑action letter before issuing their Originating Summons and making the Injunction Application.

(2)  It was not suggested that the application was made as a matter of urgency, so as to justify proceeding without sending a pre‑letter action or making inquiries.

(3)  The Defendants had offered to undertake not to dispose of the funds before filing their evidence.

(4)  The Plaintiff could and should have considered this point once the fact of payment into an overdrawn account was disclosed in the documents exhibited to the Defendants’ evidence.

(5)  From the foregoing matters, and from the Plaintiff’s pressing on with the application even after the point regarding payment into an overdrawn account, it was evident that the Plaintiff would have insisted on pursuing the application anyway.

(6)  There was no justification for depriving the Defendants of the costs of preparing their evidence (which was what was, in effect, sought by the proposed variation to the costs order), when that evidence was what led to their succeeding on the application.

(7)  The parties had already made some submissions as to costs in their written submissions for the Injunction Application, and the Plaintiff should not be afforded a second bite at the cherry.

10. I am of the view that the costs order nisi should not be varied.

11. First, I do not think that the underlying premise of Mr Lam’s submission, that because the Plaintiff could not have known that the funds had been paid into an overdrawn account, it should have the costs (or not be at risk of having to pay the costs) prior to the point when this fact emerged in the Defendants’ evidence, is sound in principle.  It will not infrequently be the case that a plaintiff will commence proceedings without being aware of all of the points that may be open to a defendant in answer to the claim.  But that is a risk that a plaintiff runs.  If it turns out that the defendant has, as in this case, a good answer to the claim or application, the plaintiff will lose, and having brought the proceedings, cannot complain if the normal rule that costs follow the event is applied.

12. Second, although I do not think that the Defendants’ proposal not to dispose of the funds was of much value, having regard to the fact that they had already been disposed of by being paid into an overdrawn account, it does seem to me that, in the light of the Plaintiff’s continued efforts to obtain the injunction that they were seeking, it is unlikely that the Plaintiff would have adopted any different course had they been aware of that fact at an earlier stage.

13. Third, although it is fair to say that neither party seemed to have picked up on the significance of the funds having been paid into an overdrawn account, it does not seem to me that this provides a justification for depriving the Defendants of their costs, when it was (as Mr Litton pointed out) their evidence which brought this point to the court’s attention.  It does not, in my view, justify splitting the costs of the proceedings into two parts, and treating those two parts differently.  I also do not think that it would justify a potential award of costs in favour of the Plaintiff for the preparation and early stages of an application which was, in the event, unsuccessful, as would be the effect of the costs order proposed by the Plaintiff.

14. As to the suggestion that it would be unfair to allow the Defendants to recover all of their costs, even in respect of the unsuccessful part of their submissions, I am of the view that looked at in the round, there is no real unfairness in this.  The courts’ approach to the disallowance of part of a successful party’s costs (or ordering a successful party to bear part of the costs of an application) is to do so where there are special circumstances, usually involving a situation in which a substantial amount of time or cost has been incurred in dealing with an issue on which the ultimately successful party has failed, or where such an issue was raised unreasonably or improperly.  But in this case, there was a single application, which was dealt with by the parties in a fairly short space of time (just over two weeks from issue of the Originating Summons until the hearing of the application, followed by some further written submissions), with a hearing that lasted just about two hours.  The Defendants would have had to have filed evidence in any event.  In these circumstances, I do not think that there is a great deal to be said for trying to hive off particular aspects of the submissions or arguments for different treatment insofar as costs are concerned.

15. Finally, I do not think that either of Mr Lam’s suggested alternatives (that costs should be in the cause or the Defendants’ costs in cause) are appropriate – the former would mean that there would be a possibility of the Plaintiff ultimately recouping the whole of the costs of its failed Injunction Application, while the latter would mean that the Defendants would recover nothing if they were to lose the proceedings at the end of the day.  The Injunction Application was a self‑contained application, which was argued and disposed of on its merits.  There is no reason to tie the recoverability of the costs incurred in relation to it to the outcome of the proceedings as a whole.

16. I therefore do not think that any of the proposed costs orders which the Plaintiff seeks to have substituted for the costs order nisi are appropriate, and the application for variation of the costs order nisi is accordingly dismissed.

17. Although I have dismissed the Plaintiff’s application, I am not persuaded by Mr Litton’s suggestion that the application was such as to justify the making of a costs order in the Defendants’ favour on an enhanced basis.  I shall therefore order that the costs of this application are to be paid by the Plaintiff to the Defendants, to be taxed on the party and party basis if not agreed.