FAR EAST STRUCTURAL STEELWORK ENGINEERING LTD (In Liquidation) v. BANK OF CHINA (HONG KONG) LTD

cacv 348/2004

in the high court of the

hong kong special administrative region

court of appeal

civil appeal no. 348 of 2004

(on appeal from HCCW NO. 354 of 2001)

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D E C I S I O N

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Hon Le Pichon JA:

1.  This is an application by the bank to vary the costs order nisi made by this court on 15 June 2006.  The bank seeks an order that either (1) there be no order as to costs in the appeal and below, or, (2) there be no order as to costs of the appeal.  The net effect of the order sought is that the company (the successful party both in this court and below) and which is in liquidation should be deprived of its costs whether both here and below or only of the appeal.

2.  Mr Lam who appeared for the bank relied on the third principle set out in In re Elgindata Ltd (No. 2) [1992] 1 WLR 1207 at 1214, namely, that the general rule (that costs should follow the event) does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings he may be deprived of the whole or a part of his costs.  It will be seen that it is not said that the company has raised issues “improperly or unreasonably”.  Rather, the submission was that the proposed order would be “appropriate to reflect the failure of the liquidators on the principal issue which they chose to raise.” (emphasis added)

3.  Having considered all the submissions made by the parties, I do not consider that the circumstances of the case require that the general rule should not apply.

4.  It is important to bear in mind the nature of the proceedings.  The company (acting by its liquidators) made an application under section 182 of the Companies Ordinance for a declaration against the bank (as successor corporation of Kincheng Banking Corporation) that certain debits made from the company’s account held with Kincheng between certain dates constituted a disposition of property within section 182 and for an order that the bank repay the amount to the company with interest.  The bank opposed the application before the judge below on the basis that the company had executed trust receipts as security for advances made to it by Kincheng and that the debits made by the bank were pursuant to the security created in the form of a trust over the goods which had been purchased with the funds advanced.  It was therefore the bank rather than the company that had raised the issue of the creation of a valid security which had taken up much of the court’s time here and below.  The matter was by no means straightforward and the bank itself had put forward a number of alternative arguments to support its case to which the company quite properly responded.

5.  So far as the costs below are concerned, I can see no basis for the application of the third principle in Elgindata.  It applies only where issues have been raised by the successful party which have caused a significant increase in the length or cost of the proceedings.  But the security issue (the consideration of which involved a number of arguments made by the bank including ones that were subsequently not pursued on appeal) had been raised not by the company but by the bank.  In those circumstances, it cannot be right to deprive the company of its costs below.

6.  Whilst, on appeal, the bank pursued and succeeded on the issue of the validity of the security (by a majority decision), the appeal was ultimately unsuccessful because the bank had failed to establish that the monies paid into the account represented the proceeds of sale of goods covered by the relevant letters of credit.  It is to be noted that the bank’s case on the security issue was put somewhat differently on appeal.  No new issue could be said to have been raised by the company on appeal in that context.  In those circumstances, there is no good reason to deprive the successful party of the costs of the appeal.

7.  For my part, I would dismiss the application to vary the costs order nisi.  I would also order that the costs of the application be to the company.

Hon Cheung JA:

8.  I agree with the decision of Le Pichon JA.  The only point I wish to make is that I disagree with Mr. Lam’s submission that the issue of whether the proceeds of sale had been deposited into the account was one raised by the court on its own initiative.  As pointed out in my judgment, the matter had been raised by Ms Chan both before Kwan J and this Court.  Furthermore the letter from the solicitors of the liquidators dated 20 May 2004 had clearly put this matter into issue.

Hon Yuen JA:

9.  In view of the majority decision on the appeal, I agree that the appropriate order should be that the bank should pay the company’s costs here and below.