CHINA RAILWAY INVESTMENTS GROUP (HONG KONG) LTD v. ETERNITY PROFIT INVESTMENTS LTD AND ANOTHER

HCA 701/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 701 OF 2013

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BETWEEN

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R U L I N G   O N   C O S T S

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Introduction

1.  Before the court was an application by D2 made on 30 July 2013 to strike out the statement of claim (“Striking Out Summons”).

2.  The Striking Out Summons was eventually fixed before this court for a hearing for argument on 20 May 2014 (“Hearing”).

3.  7 days prior to the Hearing, on 13 Mary 2014, P amended the statement of claim, pursuant to Order 20 Rule 3.

4.  At the Hearing, the parties agreed to no order being made in relation to the striking out part in the Striking Out Summons and the only matter to be determined by this court was in relation to costs.

5.  P did not oppose to pay all costs thrown away to D2 with certificate for 2 counsel, such costs to be assessed summarily and paid forthwith.

6.  The only issue was the basis on which such costs should be assessed, whether on party and party basis, or on indemnity basis.

Brief Background

7.  P, a company incorporated in Hong Kong, is a 100% subsidiary of Guangdong China Railway Television Media Limited, a company incorporated in the PRC.

8.  D1 is a company incorporated in Bermuda, and was a 100% subsidiary of a company called Dragon Billion Limited (“Dragon”) incorporated in Hong Kong, until 26 November 2008.

9.  Dragon is a 100% subsidiary of D2, which is a company incorporated in Bermuda and its shares are listed on the GEM of the Stock Exchange of Hong Kong. 

10.  P and D1 set up a company Onway Logistics Limited (“Onway”), with P holding 38.75% and D1 holding the balance of 61.25% for the purpose of entering into a joint venture.

11.  A joint venture company was  then  incorporated in PRC  (“Joint Venture Company”), 16 % of which is owned by P, 80 % by Onway, and the balance owned by another PRC transportation consulting company.

12.  P’s claims against the defendants, as pleaded in the original Chinese statement of claim, were based mainly on breaches of (i) an alleged oral agreement in relation to the cooperation in the proposed business of the Joint Venture Agreement (“Oral Agreement”); and (ii) various written agreements and Joint Venture Agreements as pleaded (“Written Agreements”).

13.  The Oral Agreement was allegedly entered into by P’s representative and the de facto controllers of D1 and D2 in mid November 2006.

D2’s Grounds for the Striking Out Summons

14.  As submitted by D2’s Senior Counsel, Mr Anderson Chow and as can be seen from the original statement of claim, D2 was not a party to any of the pleaded Written Agreements and thus the causes of action as pleaded about the breaches of the Written Agreements against D2 were unsustainable.

15.  Further, although P had also alleged that various properties or assets belonging to Onway and the Joint Venture Company were taken away or misappropriated by, among others, D2 and its agents, but if P’s claims against D2 based on the Written Agreements were unsustainable, then P, being a shareholder of Onway and an indirect shareholder of the Joint Venture Company would have no claim for any loss or damage suffered by Onway and/or the Joint Venture Company because of the “reflective loss” principle. 

16.  This would leave only the cause of action against D2 based on the alleged breach of the Oral Agreement.

17.  Mr Chow SC submitted that there was no proper basis that the alleged Oral Agreement was made on behalf of D2, as it was only on 12 March 2007 that Dragon entered into an agreement for the acquisition of D1. Thus, the cause of action based on any breach of the Oral Agreement was also unsustainable.

18.  It was based on the above grounds that D2 sought an order that the entirety of the statement of claim as against D2 should be struck out, or alternatively all claims for breaches of the written agreements should be struck out as against D2.

D2’s Case for Indemnity Costs

19.  In P’s amended statement of claim, it had completely deleted the original statement of claim, and replaced it by a new document in English. 

20.  The Striking Out Summons was taken out almost 10 months before the Hearing.

21.  After a call over hearing of the Striking Out Summons before Master K Lo on 6 September 2013, D2’s solicitors wrote to P’s former solicitors on 21 November 2013 asking P to discontinue the action against D2, failing which D2 would proceed to fix a hearing for argument.

22.  Apart from giving a holding reply on 27 November 2013 that they would be taking instructions, no substantive reply was given by P’s then solicitors.

23.  Eventually, on 16 and 17 December 2013, D2’s solicitors wrote to P’s then solicitors in relation to the fixing of the hearing date in consultation with Counsel’s diaries, and it was on 23 December 2013 that the parties fixed the date of the Hearing.

24.  P changed solicitors on 30 April 2014.

25.  On 2 May 2014, P’s new solicitors first wrote to inform D2’s solicitors that P was intending to amend its statement of claim, and eventually it was on 13 May 2014 that P’s solicitors served on D2’s solicitors the amended statement of claim, and in the accompanying letter, D2’s solicitors asked P’s solicitors to withdraw the Striking Out Summons.

26.  Although D2’s Counsel’s first skeleton submissions was dated 14 May 2014, it appeared that they were prepared prior to the service of the amended statement of claim, which resulted in D2’s Counsel having to lodge their amended skeleton submissions.

27.  Mr Chow  SC referred the court to DHCJ M Ng’s decision in  Rightbest International Limited v DBS Bank (Hong Kong) Limited, HCA 1099 of 2011, dated 29 August 2013.  In Rightbest, the plaintiff’s claims against the bank was for mis-selling four types of investments, and the bank applied to strike out certain parts of the statement of claim as having disclosed no reasonable cause of action and were unsustainable.

28.  About a week before the hearing before DHCJ Ng, the plaintiff changed solicitors and 3 days before the hearing, a Saturday after 1 pm the plaintiff’s solicitors sent through to the other side copy of a summons for leave to amend the statement of claim, and the summons was only filed on the Monday before the Tuesday hearing with an application for abridgement of time for service.

29.  A number of new allegations had been added, including an entirely new allegation of dishonesty were added in the draft amended statement of claim and there were new factual allegations in respect of which, the bank’s legal team would need time to take proper instructions and to give careful consideration to the consequent legal and forensic implications.

30.  DHCJ Ng did not consider it appropriate to deal with the strike out summons and the amendment summons separately and adjourned both summonses.  Senior Counsel for the bank asked for costs thrown away by the adjournment on indemnity basis to be taxed and paid forthwith.  The plaintiff’s Senior Counsel made no submissions on the scale of costs but only asked for such costs to be reserved.  DHCJ Ng in the end made the order as sought by the bank’s side.

Discussion

31.  The usual order of costs is one on a party to party basis, although the court has the discretion to award cost on indemnity basis.  There must be some facts in the case that justify costs on indemnity basis, and in general the following principles apply in considering whether to award indemnity costs[1]:

(i) Costs on indemnity basis may be ordered where the proceedings are scandalous or vexatious, or have been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner (“Established Grounds”);

(ii) Costs on indemnity may be ordered where any proceedings have been instituted or prosecuted in such circumstances as to constitute an affront to the court; and

(iii) The circumstances in which an indemnity award might properly be made are not restricted to the above circumstances or Established Grounds. Further, the discretion to award indemnity costs is not to be fettered beyond the requirement that it must be “appropriate”.

32.  There was no sufficient evidence that the Established Grounds existed in the present proceedings.

33.  The only basis relied on by D2 for seeking indemnity costs was the late filing of the amended statement of claim. P’s Counsel, Mr Alexander Wong submitted that P might well have opposed the striking out by offering to amend the existing pleadings at the Hearing, and had that been the course taken by P, which meant conceding to the striking out, and even if the amendment was to be made after the Hearing, the usual costs order would be one on a party to party basis.

34.  So far as I can see, the cause of action against D2 in the amended statement of claim is still mainly based on the alleged breach of the Oral Agreement.

35.  Mr Wong had distinguished Rightbest from the present case. In that case, the court was unable to dispose of the strike out summons which had to be adjourned and dealt with on another occasion together with the amendment summons, and it was clear that the costs of the hearing had been wasted as nothing was achieved.  Further, the indemnity costs order was limited to the hearing, and costs of the striking out was generally reserved.

36.  I also note that in Rightbest, there was in fact no submissions made by the plaintiff’s Senior Counsel on the scale of costs being on indemnity basis[2].

37.  Mr Wong had submitted that in the present case the amended statement of claim was filed 7 days prior to the Hearing, and it was not “last minute” as in the Rightbest case.

38.  Much of the court time had also saved due to parties’ agreement on most of the matters.

39.  Having considered the circumstances of this case, I find no sufficient grounds justifying costs to be awarded on indemnity basis, and the scale of costs should thus be on party and party basis and this will be the basis upon which I shall summarily assess D2’s skeleton bill of costs.

Summary Assessment  

40.  D2 submitted a draft skeleton bill of costs on 20 May 2014 for a total of HK$1,112,667.

41.  P filed its statement of objections on 3 June 2014, counter-proposing a total of HK$342,000.

42.  There was no objection by P to the Fee Earners’ rates of charges.

43.  Regarding Section B on “Manual Work”, there was no objection on time spent and only to the hourly rate of the litigation clerk. I accept P’s suggestion, and the amount for this section is assessed to be HK$3,865.

44.  So far as Section C on “Communications” was concerned, the amount of hours claimed on attendances on client under Subsection C1 by LKH the partner, namely 16.3 hours seemed to be on the high side for the Striking Out Summons, and I accept P’s suggested 8 hours for LKH which amount to HK$32,000 and HK$5,590 for LHMH/LJJJ.  For time for attendance on other side under Subsection C2, I accept P’s proposed time and amounts, of a total of HK$4,650.  For time for attendance on Counsel under Subsection C3, there seemed to be only one conference.  I allow 2 hours for LKH, and 2 hours for LHMH/LJJJ, of a total of HK$10,600.  Thus, the total amount assessed for the entire Section C is HK$52,840.

45.  Section D is on “Professional Work”.  Subsection D1 is on preparation of documents.  The drafting of the Striking Out Summons and the supporting affirmation appeared to have been prepared by D2’s Junior Counsel Mr Jonathan Kwan.  D2’s supporting affirmation was only about 7 pages long and the reply affirmation only about 3 pages.  It was not clear as to what documents were prepared by LKH or LHMH/LJJJ, but the time spent could not be that high.  I allow 1 hour for LKH, and 2 hours for LHMH/LJJ, totaling HK$6,600 for subsection D1.

46.  As for Subsection D2 on “perusal of documents”, the documents included the writ, statement of claim, advice on merit from counsel, draft affirmation of both parties and exhibits, and also “340 pages of Chinese documents” referred by D2.  There were no exhibits from P in its affirmation.  There were 15 exhibits produced in D2’s affirmations, totaling about 140 pages including 7 Written Agreements and one company’s articles of association.  All in all, I could see only about 67 pages of Chinese documents.  The 340 pages of Chinese documents had not all been produced as evidence in the Striking Out Summons.  I thus accept P’s proposed figures for Subsection D2,  including 2 hours only for perusing Chinese documents, namely 5 hours for LKH in total, and 2 hours for LHMH/LJJJ, making a total of  HK$22,600for Subsection D2.

47.  The call over hearing should not have lasted long.  I am not sure why the Hearing was fixed for 1 day as the matter was not complex.  In any event, with the filing of the amended statement of claim, most matters were agreed shortly before the Hearing, the actual time of the Hearing was only 30 minutes.

48.  For Subsection D3 on preparation for hearing, LKH instructed 2 junior counsel and one senior counsel, and further LKH should know in advance there would be no substantive argument on the question of striking out, and only on costs.  I thus accept there needed to be only half hour preparation by LKH and allow HK$2,000 as suggested by P.  As for Subsection D4, the time for attending the Hearing including the call-over should not be more than 1 hour, and it seemed that the attendances were by LHMH/LJJJ, and thus the time allowed would be HK$1,300.

49.  The total for Section D is HK$32,500.

50.  As for Section E, on “Counsel Fees”, although the Hearing was originally fixed for 1 day, the Striking Out Summons was a simple one and did not involve any complexity.  There were 2 junior counsel assisting Mr Chow SC.  The first skeleton submissions consisted of 9 pages and 5 authorities.  Having considered the matter, HK$250,000 would be necessary or proper for Brief for Senior Counsel.  For Junior Counsel, a total of HK$200,000 would be necessary or proper which would be inclusive of Brief fee and fee for drafting of affirmations, advice on merit, conference and perusal of documents. 

51.  Then there were disbursements claimed under section F of another HK$58,492, being for the translation fee of the 340 pages of Chinese documents and certification fees. As these 340 pages of documents were not actually all exhibited and further for those Chinese documents exhibited, there were no translations.  These disbursements are not allowed.

52.  Thus, the total amount summarily assessed is HK$535,340.

Section C HK$ 52,840

Section D HK$ 32,500

Section E HK$ 450,000

[1] As seen in para 62/App/12, pg 1186, Hong Kong Civil Procedure 2014, Vol 1

[2] Para 26, at pg 10