CRAFT BAMBOO HOLDINGS LTD v. RICHARD PAUL COLEMAN AND ANOTHER

HCA 2665/2017

[2024] HKCFI 3138

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2665 OF 2017

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R E A S O N S  F O R  D E C I S I O N

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Background

1.  This is the Plaintiff’s application for payment out of Court. 

2.  Pursuant to the Order of Master Kenneth KY Lam dated 14 December 2018,

(1)  The Plaintiff paid HK$400,000 into Court as security for the Defendants’ costs of defending the claim up to and including pre-trial review; and

(2)  The Defendant paid HK$400,000 into Court as security for the Plaintiff’s costs of defending the counterclaim up to and including the pre-trial review.

3.  After trial, on 6 June 2024, the Court entered judgment (“the Judgment”) for the Plaintiff on the claim for a sum of HK$19,723,449.80 (“judgment sum”) with costs on a nisi basis and dismissed the Defendants’ counterclaim. 

4.  On 21 June 2024, D1 obtained a bankruptcy order on his own application. 

5.  On 12 September 2024, the costs order nisi was varied, amongst others, to costs of the action from 21 August 2020, including all costs reserved and costs of the trial to be paid by the Defendants to the Plaintiff on indemnity basis, with certificates for 2 counsel, to be taxed if not agreed.  Taxation has not been carried out.

6.  As of today, neither of the Defendants have made any payment to the Plaintiff for the judgment sum or costs of this action.

Service on the Defendants

7.  The Defendants have been served through Howse Williams (“HW”), their solicitors still on the Court’s record.  Ms Lee of HW informs the Court at this hearing that they have no instructions to consent or not to consent to the application.  The retainer of the Defendants has been terminated.  There is an application for ceasing to act to be heard on 20 November 2024.

8.  Both Defendants have addresses outside Hong Kong.  D1 has wanted to act in person but never properly filed a Notice to Act in Person with the Court.  D2 never applied to be represented by its director.  However, Ms Lee informs the Court that notice of this hearing together with documents and submissions have been sent to the Defendants.

9.  Notice of the present application has been sent to the UK Official Receiver.  D1 is not subject to any bankruptcy order in Hong Kong.

10.  In Joint Official Liquidators of A Co v B & C [2014] 4 HKLRD 374, at §§10 and 18, Harris J held that if a formal letter of request to provide assistance is issued from a common law jurisdiction with similar substantive insolvency law, the Hong Kong courts may make an order of a type which is available to a provisional liquidator or liquidator under Hong Kong’s insolvency regime.

11.  There was no request from the UK courts for assistance by the Hong Kong courts.  The UK Official Receiver has not indicated its stance to the present application.

Payment out

12.  In relation to a bankrupt’s liability for costs of proceedings, the general principles have been stated by the Court of Final Appeal in Lo Shing Kin v Sy Chin Mong Stephen (2014) 17 HKCFAR 903, §§6-9.  If the appellant [or defendant’s] liability for costs in the aborted appeal was the result of any liability to which he became subject by reason of any obligation incurred before the date of the bankruptcy, the amount of such costs could be proved in bankruptcy.  Where court proceedings were started before the insolvency process began, a costs order made after commencement of the insolvency process is also regarded as an obligation which arose prior to the commencement of the insolvency process.  This is because, by becoming a party to legal proceedings (whether as plaintiff or defendant), a person is brought within a system governed by rules of court, which carry with them the potential for being rendered legally liable for costs, subject of course to the discretion of the court. 

13.  In Lo Shing Kin, the defendant provided a sum of HK$400,000 as security for costs of the appeal.  He was adjudicated bankrupt in the course of the appeal.  The appeal was dismissed with costs to the plaintiff.  The plaintiff and the trustee in bankruptcy disagreed on the disposition of the security money.  Tang PJ held that the plaintiff was a secured creditor to the extent of the costs payable to him in the appeal (including the HK$400,000 paid as security). Should the security be insufficient, the plaintiff will have to prove in the bankruptcy.

14.  Being successful in the claim and the counterclaim, the Plaintiff is plainly entitled, as a matter of principle, to payment out of HK$400,000 paid in by it and HK$400,000 paid in by the Defendants, together with accrued interests.  The fact that the Plaintiff’s costs have not yet been taxed is irrelevant.  The liability for costs have been incurred in proceedings commenced before commencement of the UK bankruptcy proceedings.  A 6-day trial with costs on indemnity basis would have incurred costs well exceeding HK$400,000.  The Plaintiff is a secured creditor to the extent of the HK$400,000 security provided by the Defendants and accrued interests thereon.

15.  Costs should follow the event and be on indemnity basis as well.  Mr Hu seeks summary assessment.  The costs statement was provided only at the hearing upon inquiry by the Court, instead of being lodged with the written submission of Mr Hu.  I would have ordered costs on indemnity basis at HK$80,000, but reduce it to HK$70,000 to reflect the solicitors’ failure to comply with PD 14.3, §8.  The difference in the 2 sums is not recoverable by the solicitors from the Plaintiff.

ORDER AND COSTS

16.  In the premises, I order as follows:

(1)  Payment out to the Plaintiff’s Solicitors, Messers. King & Company, of the security for costs of HK$400,000 paid in by the Plaintiff into Court pursuant to the Order of Master Kenneth K Y Lam dated 14^th December 2018 (“the Order”), together with accrued interests;

(2)  Payment out to the Plaintiff’s Solicitors, Messrs. King & Company, as part of the Plaintiff’s costs of this action, of the security for costs of HK$400,000 paid in by the 1^st and 2^nd Defendants into Court pursuant to the Order, together with accrued interests.

(3)  Costs of this application on indemnity basis to be paid by the Defendants to the Plaintiff, summarily assessed at HK$70,000.

17.  I thank Mr Hu and Ms Lee for their assistance.