CHOW SAU HEI v. HO KEUNG YUEN, SMART CREATOR INTERNATIONAL LIMITED

HCMP 716/2006

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 716 OF 2006

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DECISION ON COSTS

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1.  On 6 May 2013, I gave judgment dismissing the petitions in these proceedings (“the Judgment”). I also made an order nisi that the petitioner do pay the costs of the petitions, with a certificate for two counsel.

2.  The respondent now applies before me to vary that order nisi and seeks an order that the petitioner do pay such costs on an indemnity basis.

3.  In this Decision, I shall, where appropriate, adopt the same abbreviations and nomenclature as I had adopted in the Judgment.

The relevant principles

4.  Both Mr Chan Chi Hung, SC, who appears on behalf of the respondent, and Mr Harry Liu, who appears on behalf of the petitioner, have drawn my attention to the relevant authorities which lay down the principles relating to the circumstances under which orders for indemnity costs are to be made.  There is no dispute between them that such principles are as follows:

(1) It is undesirable to attempt to define the circumstances in which orders for indemnity costs are to be made. The discretion to award indemnity costs is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”. (Town Planning Board v Society for Protection of the Harbour Ltd (No.2) (2004) 7 HKCFAR 114 at §§16 & 17; Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570 at pp.575E-576F, per Godfrey JA; see also Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at pp.1334G-1335I, per Stock J)

(2) The successful party should show, in order to obtain an order for costs on an indemnity basis, that the case has some “special or unusual feature”.  (Town Planning Board v Society for Protection of the Harbour Ltd (No.2), op.cit. at §15; Overseas Trust Bank Ltd v Coopers & Lybrand (a firm) & Others [1991] 1 HKLR 177 at p.182J, per Godfrey J; Sung Foo Kee Ltd v Pak Lik Co (a firm), op.cit. at pp.575C-D, per Godfrey JA)

(3) The circumstances under which an order for costs on an indemnity basis could be made include situations where proceedings have been instituted or prosecuted in such circumstances as to constitute an “affront to the court” or to cause the court to feel “a proper sense of indignation”.

Discussion

5.  Mr Chan, SC argued that the following aspects of the petitioner’s conduct in these proceedings constitute special or unusual features which justify the exercise of my discretion in awarding indemnity costs against the petitioner:

(a) The petitioner gave evidence, and ran cases, which he knew to be untrue.

(b) The petitioner made grave accusations of cheating and misappropriation of the companies’ funds by the respondent, knowing such allegations to be untrue and unfounded.

(c) The petitioner made numerous allegations against the respondent which were “inconceivable”, “wholly unmeritorious” or unsupported by evidence.

(d) During the trial and in closing submissions, the petitioner sought to argue issues which were not pleaded and/ or not included in the Petitioner’s Opening Submissions.

(e) The petitioner had conducted the proceedings with an improper motive.

6.  Despite Mr Liu’s valiant and able submissions on behalf of the petitioner, I am persuaded by and accept the submissions of Mr Chan, SC that this is indeed an appropriate case in which an order for indemnity costs should be made against the petitioner.

7.  Dealing first with points (a) and (c), as summarised in the Skeleton Submissions of Mr Chan, SC, I have made numerous findings in the Judgment that the petitioner had given evidence and ran cases which he knew to be untrue and also that many of the petitioner’s complaints were based on speculation and were unsupported by evidence.  I also found that in some instances, the petitioner had made complaints knowing them to be unfounded and/or based on allegations of fact which were known to him to be untrue.  The distinct view I formed was that the petitioner was trying to make every possible accusation he could think of, irrespective of whether or not it was well founded and irrespective of whether or not he knew it to be untrue, in the hope that one or more of the accusations would be made out and could be relied upon as the basis upon which the petitioner could found his claim for relief.

8.  Whilst I did not find that all of the allegations made and/or maintained by the petitioner were made and/or maintained with knowledge that they were untrue, speculative, unsupported by evidence, unfounded and/or based on allegations of fact which were known to him to be untrue, I am of the view that the vast majority of the allegations of oppressive conduct and breaches of duty on the part of the respondent were allegations of this nature.  The approach adopted by the petitioner meant that much of the parties’ efforts and indeed, the court’s time, was spent and wasted on dealing with many wholly unmeritorious allegations.  Needless to say, such approach must also have meant that substantial costs were incurred by the respondent in meeting and dealing with these allegations.  I agree with Mr Chan, SC that such approach taken by the petitioner was indeed an affront to the court about which the court could very justifiably feel a proper sense of indignation.

9.  In this regard, I am unable to accept Mr Liu’s submission that the petitioner’s conduct can or should be excused by reason of the late disclosure of the documents disclosed in the Respondents’ Further Supplemental List of Documents dated 24 November 2011.  The documents so disclosed merely provided further concrete documentary evidence relating primarily to one narrow aspect of the contentions which had been made and of the explanations which had been provided by the respondent in his affirmations filed since 2006.  In particular, the bulk of the documents so disclosed related to payments for government rates and rent, business registration fees, profits tax, utilities and other miscellaneous expenses which the respondent had all along explained had been made by him on behalf of the Companies and for which he had been reimbursed from the accounts of the Companies.  As Mr Chan, SC submitted, even without being shown these documents, the petitioner must have been well aware that they had in fact been paid by the respondent because these were expenses which had clearly been incurred and paid but the petitioner was well aware that it was not him who had paid them.  Moreover, I had found, in the Judgment, that the petitioner had all along been provided with summaries of the Companies’ income and expenditure and pertinent supporting documents.

10.  Nor do I accept Mr Liu’s submissions that the making and maintenance by the petitioner of allegations and complaints which he knew to be untrue, unfounded, speculative and/or unsupported by evidence should simply be considered to be “misguided in hindsight”.  On the contrary, it appears clear to me that the making and maintenance by the petitioner of such allegations and complaints was deliberate and considered.

11.  Another aspect of the petitioner’s conduct in these proceedings about which this court felt a proper sense of indignation was the manner in which the petitioner invoked the provisions of section 15 of the Stamp Duty Ordinance in order to strike out from the trial bundles the deed of trust referred to and discussed in paragraphs 15 to 17 of the Judgment and, having successfully done so, to make the very serious accusation (which he knew to be untrue) that the respondent and his wife had attempted to cheat the petitioner by siphoning three of the Lee King Shops to Fintasy.  This is covered by point (c) of Mr Chan, SC’s five points.

12.  It is well accepted and established that serious allegations of fraud should not be lightly made or made without proper foundation or evidence.  A fortiori, such allegations should not be made with knowledge that they are untrue.

13.  As I have already adverted to in the Judgment, the deed of trust which the petitioner had successfully applied to strike out from the trial bundle had in fact been produced by him in order to show that the respondent’s recollection about the nature of that document was erroneous.  The petitioner was therefore well aware of the nature and contents of this document and that in the light thereof, it could not possibly be true that the respondent and his wife had attempted to cheat the petitioner by siphoning off three of the Lee King Shops to Fintasy.  Yet, having successfully had the deed of trust struck out, this was precisely the very grave allegation which the petitioner made against the respondent and his wife (having, as Mr Chan, SC submitted, ensured that they would be deprived of a vital piece of evidence to rebut this false accusation).

14.  In response to the submissions of Mr Chan, SC on this point, Mr Liu drew my attention to the judgment of the Honourable Mr Justice Hartmann (as he then was) in Town Bright Industries Ltd v Bermuda Trust (Hong Kong) Ltd [1998] 2 HKC 445 at 457-458 and an article, Professional Conduct and Stamp Objections, written by Professor P G Willoughby, (1981) 11 HKLJ 361, to try to justify the petitioner’s application to have the deed of trust struck out.  He also argued, relying on Burgess v Stafford Hotel Ltd [1990] 1 WLR 1215 and Raja v Rubin [2000] Ch 274, that it would be harsh to condemn the petitioner for exercising rights that the Legislature had thought right to give litigants in his position.

15.  I am of the view that these submissions made by Mr Liu are no answer to the points made by Mr Chan, SC.  What was objectionable about this aspect of the petitioner’s conduct of the proceedings was not so much that he had invoked the provisions of the Stamp Duty Ordinance to have the deed of trust struck out from the trial bundles per se but that he had sought to make a grave allegation of fraud against the respondent and his wife, well knowing such allegation to be untrue and unfounded, having cynically applied to strike out the deed of trust to deprive the respondent and his wife of a vital piece of evidence to meet this false allegation.

16.  Another point made by Mr Chan, SC under this head of complaint about the petitioner’s conduct is that the petitioner had made grave allegations of misappropriation of certain funds belonging to Turbo Cheer when the two amounts alleged to have been misappropriated had come from the savings account of Turbo Cheer which was operable only by the joint signatures of the petitioner and the respondent.  I therefore found, in the Judgment, that these amounts had clearly not been misappropriated by the respondent without the prior consent or knowledge of the petitioner and I recorded my surprise that the petitioner had made and/or maintained this complaint.

17.  The only answer which Mr Liu has put forward in answer to the submissions of Mr Chan, SC in this regard is that these “misguided” allegations of misappropriation concerned only two withdrawals of $17,195 and $112,700.  Whilst it is true that the allegations concerned only two withdrawals, it remains the case that such a serious allegation should not have been made without good foundation.  It is therefore yet another matter which I am entitled to take into account, and which I have taken into account, in agreeing with Mr Chan, SC that the petitioner’s conduct of the proceedings constituted an affront to the court about which the court could, and did, feel a proper sense of indignation.

18.  Turning to points (d) and (e) of Mr Chan, SC’s five points, whilst it is true that during the trial and in closing submissions, the petitioner’s counsel had skilfully sought to argue issues that were not pleaded not included in the Opening Submissions and whilst I have found, in the Judgment, that there was much force in the arguments made on behalf of the respondent that the petitioner’s unfounded complaints appear to have been motivated by a desire to acquire for himself alone what Mr Chan, SC called the “golden geese” comprising the properties acquired and held by the Companies which had substantially increased in value, but at a substantially discounted price, had these been the only points relied upon by the respondent in seeking indemnity costs against the petitioner, I would not have ordered such costs against him.

19.  However, I am persuaded by Mr Chan, SC that this is indeed an appropriate case in which the petitioner should be ordered to pay costs on an indemnity basis by reason of the matters relied upon under Mr Chan, SC’s points (a), (b) and (c).  In so doing, I also take into account the arguments under his points (d) and (e).

20.  Mr Liu argued that I should not order indemnity costs against the petitioner by reason of the respondent’s own misconduct in the conduct of these proceedings.  He submitted that the respondent’s misconduct was three-fold:

(a) Mr Liu submitted that the court is entitled to take into account the respondent’s piecemeal approach to discovery.

(b) Mr Liu further contended that the respondent had advanced miscellaneous new theories only during the course of the trial.

(c) Finally, Mr Liu submitted that the respondent’s piecemeal discovery rendered the buyout mechanism under the Orders of Madam Justice Kwan dated 26 April 2007 unworkable.  He submitted that from the history of the discovery, it would be legitimate for the court to infer that the respondent had not disclosed all relevant documents to the accountants.

21.  I do not accept that any of the alleged misconduct of the respondent relied upon by Mr Liu, even if established, would provide any justification for the petitioner’s conduct in these proceedings which I have found to constitute an affront to the court and about which the court could, and did, feel a proper sense of indignation.

22.  In particular, I do not accept that it would be proper for any party to make and/or maintain a litany of allegations (in particular allegations of fraud and/or theft) against his opponent which he knows to be untrue, speculative, unsupported by evidence, unfounded and/or based on allegations of fact which are known to him to be untrue because his opponent provides discovery which may be unsatisfactory.

23.  As regards Mr Liu’s argument that the respondent had advanced various new theories during the trial, these so-called new theories were in fact matters of evidence which emerged in the course of the cross-examination of the respondent.  Indeed, I had, in the Judgment, accepted these aspects of the respondent’s evidence.   In respect of at least one of these matters, I have, in paragraphs 56 to 57 of the Judgment, already explained how the respondent had not had the opportunity of dealing with the point until he gave testimony during the trial because it had arisen from a change in the petitioner’s case which had emerged in the petitioner’s affirmation evidence in reply.  I do not therefore agree with Mr Liu that the matters he relied upon should affect my decision to award indemnity costs against the petitioner.

Conclusion

24.  To conclude, I am of the view, having considered the petitioner’s and the respondent’s respective conduct in these proceedings and the submissions of Mr Chan, SC and Mr Liu, that this is an appropriate case in which to order that the petitioner do pay the costs of the petitions on an indemnity basis and I so order.  I also make an order nisi that the petitioner do pay the costs of this application.