RE THE NEW CHINA HONG KONG HIGHWAY LTD

HCCW 550/2009

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 550 OF 2009

____________

_____________

_____________

D E C I S I O N

_____________

Application

1.  The Petitioners apply for the sum of HK$2,000,000 paid into court by the Petitioners on 18 September 2009 in compliance with the order of Deputy High Court Judge Toh made ex parte on 16 September 2009 (“order”) to fortify the undertaking given by the Petitioners therein to be forthwith paid out of court to the solicitors for the Petitioners.

Introduction

2.  The background to this matter is summarised in the early paragraphs of my judgment dated 23 February2010.

3.  On 29 September 2009 Kwan J.A. discharged the order. On 5 November 2009 the Petitioners’ solicitors wrote to the Respondents’ solicitors asking for their agreement to release of the money paid into court. The 1^st Respondent’s position was neutral. The 2^nd to 7^th Respondents objected and resist the present application.

4.  The 2^nd to 7^th Respondents argue that the money should remain in court and be available until after the taxation of the 2^nd to 7^th Respondents’ costs incurred as a result of the ex parte application. It follows that the 2^nd to 7^th Respondents contend that that the undertaking covers taxed costs incurred by the 2^nd to 7^th Respondents in contesting the order. This is the issue between the parties and the matter I have to determine.

The Undertaking

5.  The undertaking, which was contained in paragraph 1 of Schedule 2 to the order reads as follows:

“If the Court later finds that this Order has caused loss to any of the Respondents, and decides that any of the Respondents should be compensated for that loss, the Petitioners will comply with any Order the Court may make.”

6.  Except for the omission of reference to “or any other party” after “Respondents” this undertaking is in the form required by Practice Direction 11.2.

The argument

7.  The Petitioners argue that “loss” in the undertaking refers to damages caused by the impact of the order itself not the legal costs incurred in contesting the order. Mr. Samuel Chan who appeared for the Petitioners cited a number of authorities, which consider in different contexts whether or not legal costs are recoverable as damages.

(1)  Quartz Hill Consolidated Gold Mining Co v Eyre (1883) 11 QBD 674;

(2)  Berry v British Transport Commission [1962] 1 QB 306;

(3)  Wong Chun Loong Tony v Jademan (Holdings) Ltd [1991] 2 HKLR 580;

(4)  Fairview Park Property Management Ltd v Lee Yuen Yau [1988] 1 HKLR 290;

(5)  Ho Yuen Ki Winnie v Stanley Ho (HCA 2798/2002, DHCJ To, 1/9/2006);

(6)  Dynasty Line Ltd v Sukamto Sia (FAMV 38/2009, Ribeiro PJ, 26/11/2009)

Mr. Chan argued that these cases demonstrate that legal costs incurred in defending the order do not constitute damages.  In my view these authorities illustrate that a party claiming damage or loss arising from a civil wrong cannot include in his claim legal costs unless the costs are incurred as a natural consequence of the civil wrong.  The legal costs incurred as a consequence of a person having to commence legal proceedings to remedy a civil wrong are dealt with through the separate statutory process for the payment of costs.  In my view the relevance of these cases to the present issue is that they illustrate that when litigators use the term “loss” generally they will not be referring to legal costs.

8.  Neither party was able to find a Hong Kong authority nor text that considered whether or not the word “loss” in the standard undertaking as to damages included the legal costs of applying to have an injunction discharged. In my view it is unlikely that it was intended to include legal costs and it is likely that the large majority of litigators would assume that it did not do so.

9.  Mr. Leong took me to a decision of the Ontario Court of Appeal in James et al v Canadian Trust of the Church of Jesus Christ of the Latter Day Saints et al (1998) 165 D.L.R. (4^th) 226, which considered whether the following undertaking which was given by the plaintiffs when obtaining a mareva injunction extended to solicitor-and-client costs in an appropriate case. The undertaking was given pursuant to rule 40.03 of the Rules of the Civil Procedure, R.R.O 1990, Reg. 194. The undertaking is not quoted in the judgment, but the 2^nd to 7^th Respondents solicitors provided me after the hearing with a copy of the rule 40.03, which reads as follows:

“40.03  On a motion for an interlocutory injunction or mandatory order, the moving party shall, unless the court orders otherwise, undertake to abide by any order concerning damages that the court may make if it ultimately appears that the granting of the order has caused damage to the responding party for which the moving party ought to compensate the responding party.”

I shall assume that the undertaking that was given was in this form.

10.  As Mr. Leong accepted it is not entirely clear from the judgment why the Court of Appeal found it necessary to consider the scope of the undertaking. It appears that it was considered relevant to whether or not the motions judge had erred in granting costs to the appellants on a party and party basis rather than on a solicitor-and-client basis when dismissing the action against them: see in particular the issue at the top of page 232 of the judgment. The judgment of the court was delivered by Finlayson J.A., who after reviewing the relevant authorities reached the following conclusion in paragraph 29:

“29.  I am of the opinion that as rule 40.03 is but the codification of equitable practice, it is to be exercised within the bounds of discretion dictated by equitable principles.  Accordingly, in the appropriate case, costs may indeed be awarded under the rubric of damages.  This is such a case.  The appellants endured, for more than five years, the damage to their professional reputation that flows from the serious allegations made here.  In addition, they have borne the expense of defending against the action and the attendant motions.  Simply because they had no stake in the substantive issues that were the basis of the action is no reason to conclude that the interlocutory injunction caused them no damage.  The only issue that remains is the scale on which the costs should be ordered.”

11.  It appears from the judgment that the Court was influenced in reaching this conclusion by the following considerations. First, that in the Court’s view the meaning of the undertaking was to be not assessed by strict construction of the language used rather it should be given an interpretation that gives effect to the rule which requires it to be given: see paragraph 27.

“27.  Second, the B.C. Court of Appeal clearly determined the availability of costs on its reading of the bond as a contract between the two parties.  Had the parties wished to include costs in the bond, they were free to do so.  Such an approach of strict construction may have been correct on those facts, but it is not an appropriate way of interpreting undertakings.  It has been repeatedly held that undertakings do not create a relationship between two parties and are not contractual in nature; see Digital Equipment Corp. v Darkcrest Ltd., [1984] Ch. 512; John F. Renshaw (Canada) Inc. v Captiva Investments Ltd. (1989), 70 O.R. (2d) 458 (H.C.J.).  In our case, what is required is an interpretation of the word “damages” that gives effect to rule 40.03, rather than an approach based in the law of contract.”

Secondly, that undertakings are equitable in origin.  The Court’s reasoning is contained in paragraph 28 in which Finlayson J.A. is giving the Court’s 3^rd reason for concluding that in an earlier decision, Israel Discount Bank of Canada v Genova (1992), 13 C.P.C. (3D) 112 (Ont. Ct. (Gen. Div.)), the court had been wrong in suggesting that damages following the grant of interlocutory relief cannot include a defendant’s costs relying of the court’s interpretation of the British Columbia Court of Appeal’s decision in Deisler v U.S. Fidelity Co., [1917] 3 W.W.R, 214, 36 D.L.R. 29 (B.C.C.A), which considered whether or not a bond to secure the damages that might be recovered in an action included the costs of the action.  The Court of Appeal concluded that it did not.

“28.  Third, the approach that Dunnet J. takes as being suggested by Deisler is incompatible with the equitable origin of undertakings, and unduly limits the discretion that is found both in equity as well as in rule 40.03.  In my opinion, this discretion is wide enough, in the appropriate circumstances, to include an award of costs.  As Spry writes in Equitable Remedies, 5^th ed. (Toronto: Carswell, 1997) at p. 487:

‘… the power of the court … to require an undertaking of any kind from the plaintiff or to impose any condition before granting an interlocutory injunction is very wide, and it is not limited to particular classes of undertakings or conditions … it may be exercised, not only wherever the balance of justice at that time would otherwise be found to incline against the grant of relief, but also if the giving of an undertaking or the imposing of a condition of the kind in question is desirable in order to enable the court more easily to achieve justice between the parties … hence what are the precise conditions or undertakings that are appropriate in any particular case depends on the circumstances in question and, especially, on prospective hardship or prejudice to the parties and such other discretionary considerations as arise.’”

12.  The undertaking that a plaintiff is required in order to obtain an injunction in this jurisdiction arises from Practice Direction 11.2 rather than a specific rule, but in my view nothing turns on this distinction. In my opinion the starting point is to determine what the Petitioners must reasonably have understood themselves to be undertaking in paragraph 1 to schedule 2 of the order. In other words if the question had been asked during the hearing before Deputy High Court Judge Toh whether or not paragraph 1 extended to legal costs of discharging the order is it likely that the Petitioners’ counsel and the Judge would have agreed that it did? If the answer to the question is no it does not seem to me that the fact that an undertaking has its origin in the exercise by the court of its equitable jurisdiction is any justification for interpreting the undertaking as meaning something which at the time it was not understood to mean. Any other conclusion produces the result that the Petitioners are being treated as giving an undertaking that as a matter of fact they did not give. Whilst I accept that as illustrated by the extract from Equitable Remedies appearing in the above quote the court has a wide power to order what it considers are appropriate undertakings in each case, and I accept that the court could require an undertaking that expressly covered the legal costs of applying to set aside an injunction, I do not consider that this provides any foundation for interpreting an undertaking as meaning something that it is unlikely to have been understood to mean by either the party giving it or the court to which it was given.

13.  It follows from what I have said in paragraph 9 that in my view the undertaking cannot fairly be read as extending to cover the legal costs of the application to set-aside the order. I do not agree with the Ontario Court of Appeal’s reasoning to the extent that it suggests that notwithstanding my view of what the undertaking must have been intended to mean when it was given it is open to the court now to give it a wider interpretation. It follows that I also do not think as suggested by the 2^nd to 7^th Respondents that the criticisms of the application for the order made by Kwan J.A. when setting aside the order provide any basis for interpreting the undertaking as extending to legal costs.

Conclusion

14.  I, therefore, order that the sum of HK$2,000,000 paid into court by the Petitioners on 18 September 2009 in compliance with the order of Deputy High Court Judge Toh made ex parte on 16 September 2009 to fortify the undertaking given by the Petitioners therein be forthwith paid out of court to the solicitors for the Petitioners. I also make an order nisi that the costs of and occasioned by the application in paragraph 2 of the Petitioners summons dated 16 December 2009 be paid by the 2^nd to 7^th Respondents forthwith. The costs order will become absolute within 14 days of handing down of this judgment unless the court receives written notification from either party that it wishes to challenge the order.