CHEUNG SAI LUN v. LAU TAI CHIN FRANCIS

HCCW 677/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 677 OF 2004

______________________

______________________

____________________

D E C I S I O N

____________________

1. This is an application by the 1st Respondent, Mr Lau Tai Chin Francis(“Mr Lau”) to vary the costs order nisi that I made when giving judgment in this matter on 18 May 2007.  The matter before me involved a shareholders' dispute, with a petition being presented for the winding-up of UPI Technology Limited (“the Company”) by the Petitioner, Mr Cheung Sai-lun (“Mr Cheung”).  Mr Cheung's petition was based on three principal grounds.  These were: first, that there had been a loss of the substratum of the Company; second, that there had been a breakdown in the mutual trust and confidence between himself and the Mr Lau; and third, that there had been unfairly prejudicial conduct and mismanagement of the Company on the part of Mr Lau. 

2. In acceding to Mr Cheung’s petition and making a winding-up order in relation to the company, I found that the first two, but not the third, of those grounds was made out.  Today, Mr Ng, who appears for the Mr Lau, as he did at trial, has submitted that the fact that Mr Cheung raised an issue, namely that of unfairly prejudicial conduct and mismanagement, on which he has failed, is something that should be reflected in the costs order.  When I made the order nisi, I indicated that although Mr Cheung had failed on that ground, I thought that having regard to the fact that not much time was spent on the matter at trial, it was not necessary for this to be reflected in the costs order, and I made the usual costs order that costs should follow the event. 

3. Mr Ng submits, however, that in the circumstances of this case, it would be appropriate to reflect Mr Cheung’s failure on this part of his case in the costs order that is to be made, either by ordering Mr Cheung to pay the costs of this issue, or by depriving him of a part of his costs.  He says this for a number of reasons, but principally because (he suggests) Mr Cheung’s complaint of mismanagement and unfairly prejudicial conduct was one that was unreasonable or improper for him to make, having regard to the fact that all of the matters complained of as mismanagement or unfairly prejudicial conduct occurred after 5 December 2003 – the significance of that date being that it was on that date that Mr Cheung left the offices of the Company, taking with him a substantial quantity of the Company's accounting records and papers, and did not thereafter return.  Mr Cheung’s case was that he did this with the consent, or at least the knowledge, of Mr Lau, the 1st respondent, and did so with a view to minimising the impact of disputes that had arisen between them which had resulted in frequent quarrels taking place at the premises of the Company – something which was having a deleterious effect on the running of the Company and the morale of its staff.  In the event, I did not accept Mr Cheung’s version of events in relation to this matter for the reasons which I gave in paragraph 102 of my judgment. 

4. Mr Pun has argued that there were many other aspects of the proceedings in relation to which Mr Lau’s evidence and case was ultimately wholly rejected – and I have in mind, particularly, Mr Lau’s insistence that there was a concluded contract with Mr Cheung for the sale of the Company to him, which I rejected as being untruthful for the reasons which I explained in some detail in my judgment – and has suggested that this too is a matter that should be taken into account, in the overall scheme of things, when considering the appropriate order for costs.

5. Having heard the submissions of both parties today, I have come to the view that this is a case in which some adjustment to the usual costs order is justified by reason of the raising of a quite separate and distinct basis for winding-up of the company which has proven to be unsuccessful.  Although I dealt with this basis only briefly in paragraphs 114 and 115 of my judgment in order to avoid further lengthening what was already a fairly long judgment, it must be said that the conclusions that I reached on this ground were that the ground was not one that had much merit at all.  The complaints were, to a large extent, trivial, and so far as they concerned mismanagement, they were, I think it is fair to say, unjustified in the light of the fact that much of the difficulty that led to the allegations of mismanagement was caused by Mr Cheung himself having left the Company and taken away a substantial portion of the documents and having declined to co-operate with Mr Lau in continuing to run it after that point. 

6. In those circumstances, it does seem to me that if that some significant time was spent on this issue, this fact should be reflected in the costs order.  The basis on which I made the an order nisi that I did all of the costs should be paid by Mr Lau to Mr Cheung was that the basis for making a winding-up order that I rejected was one which did not occupy a great deal of time at the trial.  Having heard Mr Ng's submissions, I think that this was perhaps to take too narrow a view of the matter in that, as stated in the Elgindata case, the amount of time spent at trial is not the sole factor to be considered.  It is also relevant to consider whether the costs or length of the proceedings generally have been significantly increased as a result of the allegations.  As Mr Ng points out, the allegations occupied some two out of eight or nine pages of the petition and covered a number of discrete allegations and complaints that required to be dealt with.  They were dealt with at some length in the evidence filed by both parties.  They were also identified in the list of issues filed on behalf of Mr Cheung before the trial.  Although Mr Poon, when he came into the case to conduct the trial, took the decision (which, if I may say so, was a sensible one in the circumstances) not to put too much weight on this particular basis for relief at the trial, it has to be said that it was altogether abandoned, and I am satisfied that it did increase the costs of the proceedings to some extent, at least, having regard to the fact that the parties had to deal with these matters in their affirmations and would have had to make disclosure of voluminous documentation relating to the particular issues that arose under this basis for granting relief. 

7. In those circumstances, it seems to me that, putting it in terms of the principles set out by Nourse LJ in Re Elgindata (No. 2) [1992] 1 WLR 1207, 1214A-C, there has been raised a discrete issue as to mismanagement and unfairly prejudicial conduct, on which Mr Cheung has been unsuccessful, and, although it may not have been wholly unreasonable for him to have raised the issue, it is an issue which he raised unsuccessfully in the proceedings, and was, moreover, one based on matters for which he was at least in part responsible, having left the Company’s offices and taken away much of its records.  In the circumstances, I think it is right that the costs order should take into account the Mr Cheung’s failure in relation to this issue. 

8. However, it seems to me that the appropriate way in which to deal with this would be to assess, on an approximate basis, the amount of costs of which Mr Cheung should be deprived, rather than making a separate costs order that he should be ordered to pay the costs associated with this issue.  The latter course would, I think, complicate and lengthen any possible taxation that may take place and would be likely to cause difficulties for the taxing master in trying to isolate particular items, or apportion the costs of particular steps that were taken (such as affidavits filed by the parties), as items or steps relating to this particular issue. 

9. In all of the circumstances, being in mind that this was one of the three issues raised (but not the primary issue that was raised) and bearing in mind the fact that, as I have said, relatively little time was spent at the trial on this matter with no more than a day, or possibly just over that, of a trial which lasted some 12 days, being spent on this matter, it seems to me that the appropriate deduction to be made would be in the order of about 10 per cent. 

10. I will therefore vary my costs order nisi and order that Mr Lau is to pay Mr Cheung 90 per cent of his costs of these proceedings, to be taxed on a party and party basis if not agreed. 

11. For completeness, I would just add that Mr Ng also submitted that an alternative costs order that might be appropriate in this case was that there should be no order as to costs, on the basis that Mr Cheung’s evidence was so unsatisfactory that this should be reflected in the costs order: see Baylis Baxter Limited v Sabath [1958] 1 WLR 529; Ho Shu Kwong v Chiang Chun Yuan [2003] 3 HKLRD 419.  In my view, this is not an appropriate case to adopt that approach.  Although I had difficulties in accepting aspects of both parties' evidence, I think it is fair to say that Mr Lau's evidence was far more unsatisfactory than that of Mr Cheung, particularly in relation to what I would regard as the critical area in this dispute, that is, the question of whether or not there was any agreement for the sale of the Company by Mr Cheung to Mr Lau.  I therefore do not think this is the sort of case in which the court would have been justified in making no order as to costs on the basis of the quality of the evidence that the parties gave when giving evidence as trial. 

(Submissions as to costs)

12. Although Mr Ng has had a limited measure of success in relation to the summons, I think it is fair to say that the degree of success that he has achieved is rather less than he was aiming for.  In the circumstances, I think the appropriate costs order in relation to today's hearing is that there should be no order as to costs as between the parties.