PBM (HONG KONG) LTD v. TANG KAM LUN, ALLAN AND OTHERS

HCA 12138/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12138 OF 1997

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HCA 13316/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 13316 OF 1997

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(Consolidated pursuant to the Order of Registrar Chu dated 16 July 1999)

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REASONS  FOR  DECISION

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Introduction

1.  This is an application for review of taxation by a judge against the decision of Master de Souza dated 28 August 2006 (“the master’s decision”).  The master’s decision concerns costs which were taxed pursuant to the order made by Dep J Lam (now Lam J) on 27 September 2002 (“the Sep 2002 order”).

2.  After hearing the parties, I dismissed the application with costs.  The following are the reasons.

3.  This application was taken out by Chan Chun Chung Wyman (“Chan”) and Regent Trinity Investment Ltd. (“RTIL”).  Chan is one of the defendants in both actions while RTIL is a defendant in one of them.  Chan and RTIL are collectively called “the defendants” below for convenience.

4.  This application is directly related to para. 2 of the Sep 2002 order which reads:-

“In respect of the Plaintiff’s claim, Chau Sau Lai [is] to pay the Plaintiff only those costs, in relation to her part and [the defendants] [are] to pay the Plaintiff only those costs [in relation to] their [parts]”.

When read together with para. 1 of the Sep 2002 order, it is clear Lam J drew a distinction between the costs of the trial (which were covered by para. 1) and the other costs of the plaintiff’s claim.

5.  The reason for drawing such a distinction is made clear by the transcript of the hearing on 27 September 2002.  Counsel then acting for Chan and RTIL (and another defendant surnamed Ho (“Ho”)) raised the concern that his clients ought not bear the costs of a defendant in one of the actions, namely, Chau Sau Lai (“Chau”) (both as regards trial, and the earlier proceedings).

6.  After hearing submissions, Lam J decided that:-

(a)     the issues raised (and therefore the evidence adduced) at trial were intermingled and related to the liabilities of all defendants;

(b)    on the other hand, he did not know whether any of the costs incurred earlier (in particular as regards the interlocutory application(s)) were not related to Chan or RTIL.  The costs order should make clear that the defendants are not liable for costs with which they were not concerned.

The Issues in this Application

7.  Chan and RTIL raised three points in this application:-

(1)     para. 2 of the Sep 2002 order has not expressly stated that the costs reserved by some of the orders earlier made in interlocutory proceedings should also be recoverable.  Accordingly, the master erred in ruling that those costs could also be taxed and recovered by the plaintiff;

(2)     the costs incurred for engaging private investigators and accountants were not necessary or proper costs incurred by the plaintiff.  Accordingly, the master also erred in ruling to the contrary;

(3)     the taxing master erred in not “apportioning” the costs between the defendants and the other defendants.

These issues will be dealt with separately below.

(1)     Reserved Costs

8.  It cannot be (and was in fact not) disputed that Lam J intended the reserved costs to be covered by para. 2 of the Sep 2002; he said so expressly during the hearing on 13 March 2003.

9.  Two arguments are put forth by the defendants as regards this aspect.

10.  The first has its roots in a footnote in Hong Kong Civil Procedure 2007 (para. 62/3/6).  The heading of the footnote is “Meaning of ‘Costs’ and Related Phrases: Meaning of related phrases” and the footnote states:-

“‘Costs reserved’ means that the costs will be lost and will not be allowed on taxation unless the court makes a specific order dealing with them at the conclusion of the proceedings”(emphasis supplied).

There is no need to refer to the various court decisions in support of the above statement.  Suffice it to say, the plaintiff took no issue as regards the above statement.

11.  The defendants’ argument was that, despite Lam J’s express indication (which was made in the parties’ presence and without objection from counsel then acting for the defendants), before the taxing master could tax those costs, the Sep 2002 order must contain words such as:-

“Chan and RTIL shall pay to the plaintiff its costs of this action including the costs of the motion made to court on … ”;

or

“Chan and RTIL shall pay the plaintiff its costs of this action including the costs reserved by the order dated … ”;

or

“Chan and RTIL shall pay to the plaintiff its costs of this action including all reserved costs”.

12.  The defendants also argued that, even if Lam J had wanted to amend the Sep 2002 order on 13 March 2003 to include the reserved costs, he would have no power to do so.  This is because the “conclusion of the proceedings” already occurred on 27 September 2002.

13.  The last argument cannot be right because, as Lam J has made clear during the hearing on 13 March 2003, he always intended, by para. 2 of the Sep 2002 order, to include reserved costs as well.  In other words, those costs were already awarded by him by way of the Sep 2002 order.  Any amendment to the Sep 2002 order to that effect would be no more than to have that intention expressly stated in writing therein.

14.  In short, having regard to the factual circumstances involved (especially that set out in para. 8 and 13 above), I find the defendants’ arguments to be excessively technical and have no merit.  The court’s intention has been expressly made known to the parties concerned by 13 March 2003.  There could not (and cannot) be any valid misunderstanding as regards the plaintiff’s entitlement to the reserved costs since then.

15.  The second argument is that Lam J’s said indication was made:-

“[when] he heard no argument thus acting inconsistently with the right to be heard at common law and under the HKBOR”.

16.  This argument also has no merit and is factually incorrect.  The defendants were represented by counsel at the hearing on 13 March 2003.  No objection was raised when Lam J indicated that the Sep 2002 order was intended to also cover reserved costs.  Counsel then said:-

“Then it would be my submission … ”

and in gist he proceeded to address the court regarding who should be entitled to the costs of the application before Findlay J (made on 3 December 1997).

17.  By reason of the above matters, this part of the application should be, and was, dismissed.

18.  In order to prevent further time or costs (of the parties and the court) from being wasted on such kind of argument, and as a matter of prudence, I will exercise the power conferred by RHC Ord. 22 r. 11(1) and the court’s inherent jurisdiction to grant leave for the Sep 2002 order to be amended to include an express reference to “any costs previously reserved in applications concerning Chau, Chan and/or RTIL (as the case may be)”.

(2)     Costs of Private Investigators and Accountants

19.  This part of the application was premised largely on the different approach adopted by the Court of Final Appeal when dealing with the appeal brought by the defendants (compared to that adopted by the lower courts).

20.  It was said that the Court of Final Appeal viewed the plaintiff’s claim as proprietary in nature, which resulted in a restitutionary claim.  The Court of Final Appeal also said that the lower courts approached the plaintiff’s claim on the basis that the defendants have wrongfully assisted a breach of trust, which was an approach based on the defendants’ wrong-doings, and which grounded a compensationary claim.

21.  The defendants contended that there was no need for the plaintiff to engage private investigators or accountants to establish the claim set out in the Court of Final Appeal’s judgment.  The related items of costs were therefore not necessary or proper costs to which the plaintiff is entitled to be reimbursed.

22.  This aspect of the application needs to be based on an argument that the Court of Final Appeal’s judgment should somehow have an impact on how the Sep 2002 order is to be understood for the purpose of taxing costs.

23.  For the reasons set out below, I do not find this argument to be valid or justified.

24.  The proper starting point is to look at the Sep 2002 order assuming there had been no appeal.  The costs order was made by Lam J at the end of a trial over which he presided.  Therefore, whether an item of costs is necessary or proper is to be judged in that context.

25.  The subsequent appeals should not affect the meaning of the Sep 2002 order for the simple reason that it has not been made a subject-matter in any of them.  The appellant courts have never been asked to consider the Sep 2002 order.  In fact, it was not in any way commented upon in the judgments of the court of appeal or the Court of Final Appeal.

26.  In view of the above, it is strictly unnecessary to examine the defendants’ other arguments relating the difference in approach.  I shall do so for completeness.

27.  It is true that the Court of Final Appeal’s judgment decided that the properties the subject-matter of the litigation were impressed with constructive trust, and that the burden therefore fell on the defendants to prove that they were the bona fide purchasers for value of such properties without notice.  If the defendants failed to do so (as the trial judge found), in law they failed to establish the defence.  It was therefore unnecessary for the trial judge to find that the transaction involving the defendants was a sham.

28.  But the different approach was adopted by the Court of Final Appeal in the following context:-

(a)     two issues were raised in the appellants’ written case.  The first was whether the trial judge erred in reversing the burden of proof.  The second was what should amount to the requisite knowledge for establishing a wrongful assistance of breach of trust.  Neither has anything to do with costs in the courts below;

(b)    the defendants’ fair and correct admission (which was only made before the Court of Final Appeal, but not earlier) that the properties the subject-matter of the claim were impressed with constructive trust in the plaintiff’s favour;

(c)     apart from the said admission, the appeal proceeded on the basis the facts found by the trial judge were correct.

29.  It was in the above circumstances that the Court of Final Appeal was able to determine the appeal in a 9-page written reasons for judgment (compared to the appellants’ written case which contains about 18 pages, and a supplemental case which contains another 8 pages).

30.  Unlike the Court of Final Appeal, when the lower courts dealt with the plaintiff’s claim, the defendants denied (among other things) the misappropriation of the plaintiff’s properties by the other defendants.  They also denied the plaintiff’s claim of a constructive trust, and asserted that the relevant transaction involving them was in any event at arms-length.  As a result, Lam J’s judgment, which runs up to about 55 pages, has to examine in detail the issues relating to credibility, disputed facts (regarding not only the defendants but also the other defendants) and points of law.  Similarly, the court of appeal’s judgment (totalling about 12 pages) spent about 5 pages on the appeal against Lam J’s findings of fact.

31.  Besides the above, the defendants put forth an alternative argument.  They said, even without regard to the approach adopted by the Court of Final Appeal, the costs for engaging the private investigators and the accountants ought not be recoverable.  This is because nothing useful to the plaintiff’s claim has been obtained.

32.  It is trite that on the taxation of costs, the indemnity principle is to be applied on an item by item basis rather than on a global basis: Hong Kong Civil Procedure 2007, para. 62/App/3.  Only such costs as are necessary or proper for the attainment of justice or for enforcing or defending the rights of the receiving party will be allowed on a taxation on party-and-party basis: RHC Ord. 62 r. 28(2) and Hong Kong Civil Procedure 2007, para. 62/App/6.

33.  I pause to note that the defendants did not ask me to act as if I were a taxing master (albeit I have the power to do so: Ord. 62 r. 35(4)).  What they sought was a direction to be given to the taxing master to allow only those costs which were necessary or proper to have been incurred by the plaintiff (Ord. 62 r. 35(6)).  They also asked me to in effect rule that all of the costs relating to the engagement of private investigators and accountants were to be disallowed.

34.  For the reasons given below, I declined to do so.

35.  Assuming the correct principle (see para. 32 above) has been applied by the taxing master, whether an item of costs should be allowed is essentially a taxation exercise.

36.  The parties confirmed during the hearing of this application that the taxing master has not adopted what can be called a “broad-brush” approach and “ruled” that the disputed costs were recoverable by the plaintiff without further examination.  During the taxation hearing which lasted 12 days (compared to a trial which lasted 6 days), his decision on the disputed costs was only made after he examined each of the disputed items of work, such as the investigators’ reports and so on.

37.  That the taxing master has applied the correct principle can be shown by the following passages in his reasons for decision dated 28 August 2006 (on the master’s own review of taxation):-

“At trial, the Plaintiff was put to strict proof as the defence was one of denial and non-admission.  Under such circumstances, it was imperative for the Plaintiff to adduce evidence of the fraud practised over a period of time … , of the tracing of the stolen monies including the involvement of accomplices and of the relationship and financial transactions … [involving the defendants].  To do so, it had to bring in accountants and investigators.  This was a necessary, costly and time consuming forensic exercise.

…

… How then can it be said that these disbursement costs were unnecessary or improper for the enforcement of the Plaintiff’s rights or for the attainment of justice?

I find no merits in the arguments … The items complained of as taxed and allowed were neither excessive nor unreasonable in quantum … ” (emphasis supplied) (para. 17 to 19).

38.  A taxing master has a discretion in the allowance of the amount of costs on taxation and the court will not lightly interfere with the exercise of that discretion: Hong Kong Civil Procedure 2007, para. 62/21/6 and 62/App/24.

39.  The taxing master not having erred on a point of law, and it not having been suggested that the quantum of the individual items allowed should be revised or disallowed by me item by item, there is no room for intervention.

40.  This part of the application should be, and was, dismissed as well.

(c)     “Apportionment” of Costs

41.  The defendants preferred to use “apportionment” of costs in their skeleton submission.  It is far more common to see instead words like the “allowance” or “disallowance” of costs (rather than “apportionment”) in the context of taxation of costs.  An example of the use of these words can be found in Ord. 62 r. 33(1).  Their complaint was in truth directed against the taxing master’s refusal to disallow some of the items of costs. 

42.  The defendants’ complaint here again arose out of para. 2 of the Sep 2002 order.  For ease of reference, the relevant part is repeated:-

“… [the defendants] [are] to pay the Plaintiff only those costs [in relation to] their [parts]”.

43.  They complained that the taxing master allowed in full some of the items of costs when these items were also related to other defendants (for example, Ho). 

44.  By way of examples, the defendants referred to:-

(1)     an order dated 21 November 1997 which covered all 4 defendants;

(2)     an affirmation of Ho dated 20 November 1997.

45.  In brief, what has been said in para. 32 to 36 and 38 to 39 above is equally applicable to this aspect of the application.

46.  The following passages in the taxing master’s reasons for decision dated 28 August 2006 also show that he applied the correct principle:-

“… the necessary and proper steps taken to freeze the proceeds of the massive fraud, to investigate and trace the stolen trust funds and to examine the close nexus and financial dealings … [involving the defendants] were the only recourse open to the Plaintiff.  All these things had to be done for its claims to be prosecuted comprehensively, diligently and above all, successfully to judgment …

The taxed bill of costs contains no items that can be said to be wholly extraneous or non-essential to the exercise undertaken by the Plaintiff to obtain redress … ” (emphasis supplied) (para. 23 and 24).

47.  The order referred to in para. 44(1) above was an order giving directions for hearing the application by Chan and Ho (the 4^th defendant in HCA 12138/1997) to discharge the interlocutory injunction.  At that stage, both Chan and Ho were represented by the same legal advisers.

48.  The affirmation referred to in para. 44(2) above was an affirmation of Ho filed in HCA 12138/1997 in connection with the said application by him and Chan to discharge the interlocutory injunction (both were represented by the same legal advisers).  The contents of that affirmation partly overlap (and support) the affirmation of Chan (also dated 21 November 1997).

49.  There is no merit in this part of the application either.  Accordingly, it was also dismissed.