KOMAL PATEL AND OTHERS v. CHRIS AU AND OTHERS

HCA 183/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 183 OF 2014

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(BY COUNTERCLAIM)

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D E C I S I O N   O N   C O S T S

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1.  This is my decision regarding costs following delivery of my judgment on 11 July 2014. I note that there has been a change of legal representation for the 2^nd and 3^rd defendants. As at 30 July 2014, Smyth & Co replaced Herbert Smith Freehills as solicitors for them. Smyth & Co rely on the written submissions as to costs filed by Herbert Smith Freehills.

2.  The judgment I delivered addressed various applications arising from injunction orders I granted on 29 January and 26 March 2014. They were the discharge application and the related re-grant application; the summary judgment application; and the further injunctive relief application. The outcome was that the injunction order of 29 January was discharged but re-granted in narrower terms to those of the original order except that it does not now apply to the 1^st and 2^nd defendants other than to their interests in the shares of the 3^rd defendant, the second injunction order of 26 March was continued until further order or trial, and the applications for summary judgment and further injunctive relief were refused.

3.  Mr John Scott, SC, in his written submissions on behalf of the plaintiffs, essentially raised three matters on the question of costs. The first is that the decisions are a vindication of the plaintiffs’ case and the stance they have taken in these proceedings. Mr Scott noted that the overall outcome was that the freezing order was kept in place in relation to the 3^rd defendant’s shares and the funds in its bank account. The second is that the conduct of the defendants prior to and during the proceedings had lead to the litigation and the interlocutory proceedings. Mr Scott listed a number of matters concerning the 1^st and 2^nd defendants’ conduct with respect to the Kudeta business and the current proceedings. He argued that the plaintiffs were driven by the defendants’ conduct, particularly the risk of them dissipating assets, to commence proceedings in Hong Kong. He relied on the findings that the 1^st defendant was a person of low commercial morality and that the 2^nd defendant was his alter ego. He pointed to the criticisms levelled against the defendants in the conduct of the litigation that unnecessarily increased the costs and length of the hearing. The third is that the plaintiffs submitted a written offer to the defendants to resolve the various issues between them, but it was ignored. Mr Scott submitted that the appropriate order should be costs in the cause in respect of the hearing and of the applications.

4.  The defendants in their written submissions argued that they had been largely successful in the applications that they had made and with the arguments that they had advanced and therefore they should be awarded costs for their success. They go as far as to seek costs on an indemnity basis, but I see no justification for it. The defendants argued that they were entitled to their costs on the discharge and re-grant applications. They rely on Excel Courage Ltd v Wong Sin Lai [2014] HCA 263 where the Court of Appeal did not disturb the judge’s order of costs against the plaintiff as a sanction imposed on him for his non-disclosure. To be precise, that decision was made in the context of the particular facts and circumstances of that case and the court was not stating as a matter of principle that in every instance where an injunction order is discharged due to non-disclosure, the plaintiff should be sanctioned by a costs order. It will quite obviously depend on the specific facts and circumstances of the case as to what the appropriate costs order should be. I will address in more detail later the facts and circumstances of this case in relation to the discharge and re-grant applications. This also will be relevant in relation to the defendants’ argument for costs of the summary judgment application and the further injunctive relief application which were refused. The defendants rely on Fook Tai Jewellery Group Ltd v Chan Kuen [2011] HKCFI 561 where it was held that usually the unsuccessful party seeking an injunction should pay the costs of the successful party. In this context, it needs to be borne in mind that protective measures were imposed on the defendants by the terms of the re-granted injunction and the continued second injunction but I will say more about this later in my decision. It is also argued by the defendants that the plaintiffs sought a mandatory injunction which was unsuccessful, and they are therefore entitled to their costs.

5.  When the injunction was granted on 29 January 2014, the plaintiffs’ prime concern was to secure the funds of nearly SGD 12 million that were expected to be transferred into a Hong Kong bank account of the 3^rd defendant which they feared would be dissipated.  The plaintiffs alleged that the 1^st defendant, with the aid of the 2^nd defendant, had misappropriated and misapplied funds derived from their joint venture in a restaurant and bar in Singapore (the Kudeta business).  The 1^st defendant alleged that the funds were due to him pursuant to an agreement to buy out his 35.5% interest in the venture.  On 26 March 2014, I granted a second injunction order which extended the restrictions on 1^st and 2^nd defendants in dealing with the shares of the 3^rd defendant and in representing the interests of the plaintiffs generally and in relation to the L Capital acquisition, which involved the purchase of 51% interest in the Kudeta business for a substantial sum. The terms and scope of the second injunction order were not disturbed and remained in force.

6.  In discharging the original injunction order, I found that there had been material non-disclosure by the plaintiffs, by misrepresenting the amount of the alleged unpaid dividends due to the plaintiffs which I concluded was due to a misreading of an accountant’s report and not deliberate, and by not disclosing the 1^st defendant’s likely claim that he had a beneficial interest of 35.5% in the Kudeta business. The latter matter is the subject of dispute between the parties. The plaintiffs claim that the 1^st defendant held a third interest in the 3^rd defendant which in turn held a 72.5% interest in the Kudeta business.  

7.  The basis of my decision to re-grant the injunction in narrower terms was primarily influenced by the freezing of the substantial funds in the 3^rd defendant’s bank account together with the restrictions on the 1^st and 2^nd defendants not to dispose of or deal with the shares in the 3^rd defendant and the continuance of the second injunction order.  I did not see the necessity to continue with the injunction order against the 1^st and 2^nd defendants because funds that were both adequate for and relevant to the claim had been frozen against the 3^rd defendant, and appropriate restrictions were in place to protect the interests of the plaintiffs in the 3^rd defendant as contained in the re-grant injunction order and the second injunction order. The decision to refuse the plaintiffs’ application for summary judgment was based on my conclusion that the 1^st defendant was able to show that he had an arguable case that he held 35.5% interest in the Kudeta business, but this is a matter that will be ultimately decided at trial. The decision not to grant the further injunctive relief sought by the plaintiffs was based on my conclusion that the protective measures in place appropriately dealt with the concerns of the plaintiffs and the interests to be protected.

8.  I have given this brief outline as it discloses the correlation between the interlocutory decisions and the actual arrangement and circumstances between the parties in the operation of the Kudeta business. Hence, these decisions are intricately tied to what was the actual arrangement and circumstances in the operation of the business which are matters that will be ultimately determined at trial. Whoever is right will have a direct bearing on the question of costs.

9.  The determination of costs will primarily depend on whether the plaintiffs were justified in making the unsuccessful applications by a vindication of their claim at trial. Success or failure has many forms and can be a matter of fact and degree, and time and place.

10.   In considering the question of interlocutory costs, an important factor is whether the claimant has succeeded on the merits of his claim and if he does then ordinarily the court will award the costs in his favour. The making of an order of “costs in the cause” is founded on this principle, and normally the costs of the interlocutory proceedings will be awarded to the winner of the claim. The order is subject to the final discretion of the trial judge and in that sense abides by the final outcome of the proceedings and corresponds with the final order for costs. Obviously there will be cases when a decision and an award as to interlocutory costs can be made at the time of the interlocutory matter but generally speaking the issue will ultimately depend on the determination of the merits of the claim. This is such a case, and I have decided that the most appropriate order as to costs for the hearing and the applications should be that costs be in the cause.