WADDINGTON LTD v. CHAN CHUN HOO THOMAS AND OTHERS

FACV No. 15 of 2007

IN THE COURT OF FINAL APPEAL OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION 

FINAL APPEAL NO. 15 OF 2007 (CIVIL)

(On appeal from CACV No. 220 of 2005)

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JUDGMENT ON COSTS

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Mr Justice Bokhary PJ and Mr Justice Chan PJ:

1.  This is the Court’s judgment on costs.  It is of course to be read together with the judgments given in the appeal itself.  The appeal, brought by Mr Chan and resisted by Waddington, was dismissed on 8 September 2008 after a three-day hearing on 30 June and 2 and 3 July 2008.  In consequence of its dismissal, the proceedings commenced by Waddington may continue (i) as a multiple derivative action on behalf of Profit Point but (ii) not as a derivative action on behalf of Playmates to recover damages for reflective loss.  The Court called for written submissions on which to deal with costs.  Such submissions have now been received and considered.

2.  According to Mr Chan, there are four sets of costs for this Court to deal with, being (i) the costs before Barma J, (ii) the costs in the Court of Appeal, (iii) the costs in this Court and (iv) the costs occasioned by the claims which cannot be pursued.  But according to Waddington, only the first three of those four sets of costs are for this Court to deal with.  The costs within the fourth set are, according to Waddington, to be dealt with, if necessary, by the High Court when consequential amendments are dealt with.

3.  Waddington asks this Court to award it its cost here and in the Court of Appeal and to make no order as to the costs before Barma J.

4.  Mr Chan asks this Court to award him his costs before Barma J, to make no order as to the costs here and in the Court of Appeal and to award him his costs occasioned by the inclusion in Waddington’s pleadings of claims which cannot be pursued.  He identifies these claims as (i) Waddington’s entire primary case based on a single derivative action, (ii) that part of Waddington’s case which was based on the Pretty Star transaction and the Bagnols transaction, (iii) that part of Waddington’s case which was based on the overall arrangement and (iv) that part of Waddington’s case which was pursued on behalf of Playmates and Playmates International.

Costs before Barma J

5.  Waddington’s original Statement of Claim advanced, by way of a single derivative action, claims for loss which was irrecoverable by reason of being merely reflective.  So Barma J was right to strike it out, and afford Waddington an opportunity to amend in order to advance, by way of a multiple derivative action, claims for recoverable loss.  Mr Chan is entitled to his costs before Barma J.

Costs in the Court of Appeal

6.  Mr Chan appealed to the Court of Appeal, contending that Barma J should not have afforded Waddington an opportunity to amend but should instead have dismissed the action.  Waddington cross-appealed, contending that Barma J should not have struck out the Statement of Claim.  The Court of Appeal dismissed Mr Chan’s appeal and allowed Waddington’s cross-appeal.  After the Court of Appeal gave judgment, Playmates International (which is a wholly-owned subsidiary of Playmates) and Profit Point (which is a wholly-owned sub-subsidiary of Playmates) were added as the 4th and 5th defendants so that the action could be continued as a multiple derivative action brought on behalf of Profit Point as an alternative to the single derivative action brought on behalf of Playmates.  Unlike the single derivative action which was for reflective and therefore irrecoverable loss, the multiple derivative action is for recoverable loss.

7.  Mr Justice Barma was right in holding that at common law a plaintiff in a derivative action is required to establish a prima facie case, and the Court of Appeal were wrong in holding to the contrary.  Furthermore the Court of Appeal did not deal with the question of reflective loss.  As a result of this Court’s decision, the proceedings commenced by Waddington can continue as a multiple derivative action on behalf of Profit Point.  But, also as a result of that decision, those proceedings cannot continue as a single derivative action on behalf of Playmates to recover damages for reflective loss. 

8.  Waddington was the substantial winner in the Court of Appeal, but enough went in Mr Chan’s favour to make it just that he should not have to pay Waddington all of its costs in that court.  All things considered, this Court is of the view that Waddington should have 75% of its costs in the Court of Appeal.

Costs in this Court

9.  In coming to this Court, Mr Chan did so on two points of law and with the objective of bringing the proceedings commenced by Waddington to an end.  To succeed in that objective, it was necessary for him to prove right on both points.  He proved right on one i.e. the no reflective loss point, but not on the other i.e. the no multiple derivative action point.  So he failed in his objective.  It is true that Mr Chan proved right in one of his points and that it is an important point of law.  There can be circumstances in which it would be appropriate to make an order as to costs that deprives the substantial winner of some of his costs for the reason that his arguments on one or more points have not prevailed.  But in the present circumstances Waddington’s victory was so substantial in practical terms that there is no reason why the costs in this Court should not follow the event.  They should be awarded to Waddington.

Other costs

10.  As for the costs which Mr Chan says were occasioned by the inclusion in Waddington’s pleadings of claims which cannot be pursued, they should be dealt with the High Court in due course when dealing with amendment to the pleadings.

Result

11.  Mr Chan is awarded his costs before Barma J.  Waddington is awarded its costs here and 75% of its costs in the Court of Appeal.