HO MAN KIT AND KONG SZE MAN SIMONE THE JOINT AND SEVERAL LIQUIDATORS OF AURAGEM CO LTD (in creditors’ voluntary liquidation) v. SURE LEAD LTD

HCMP 2019/2018 and
HCMP 2021/2018
(Heard Together)

[2020] HKCFI 464

HCMP 2019/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 2019 OF 2018

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MISCELLANEOUS PROCEEDINGS NO 2021 OF 2018

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DECISION ON COSTS

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1.  On 2 December 2019, this Court handed down its judgment (the “Judgment”). In the Judgment, this Court made a costs order nisi that there be no order as to costs.

2.  By summons dated 16 December 2019, the Defendant applies to vary the costs order nisi seeking an order that the Plaintiffs would have to pay 80% of the Defendant’s costs of each action.

3.  The Defendant’s application is made on the basis that the parties had spent a substantial amount of time and costs (approximately 80%) in dealing with the Plaintiffs’ claim under section 265D of the Companies (Winding Up and Miscellaneous Provisions) Ordinance, Cap.32 (the “Undervalue Claim”) which failed and which was in direct contradiction to the Plaintiffs’ claim under section 266 of the same ordinance (the “Preference Claim”).

4.  The Defendant relies on the proposition that although the normal rule is that the unsuccessful party should be ordered to pay the successful party’s costs, the court has a discretion to make a different order where it would be unjust to follow the normal rule. Where the successful party had fought a case on a number of distinct bases on which he had lost, including an improper allegation of fraud, it was appropriate to make an issue-based costs order. It is further submitted that it is no longer necessary to establish that a successful party has acted unreasonably or improperly in raising an issue in order for it to be deprived of its costs and ordered to pay the successful party’s costs of that particular issue. (See Hong Kong Civil Procedure 2020, Vol.1 at p.1267 at §62/5/7)

5.  In Travelers Casualty and Surety Company of Canada v Sun Life Assurance Co of Canada (UK) Ltd [2006] EWHC 2885 (Comm), the claimant insurers won but were unsuccessful on a number of issues dealt with during the substantial hearing. Justice Christopher Clarke at §17 said:

“With one exception I do not think that justice requires me to deprive the insurers of any part of their costs in relation to liability, or order them to pay those of Sun Life. The exception is in relation to the estoppel issue. That was a distinct issue on which the insurers lost. It involved two witnesses giving evidence about the disputed conversation over the course of two days, much of which would have been unnecessary and inadmissible if the question was one purely of construction.”

Exercise of Discretion

6.  I agree that the Undervalue Claim and the Preference Claim are two distinct issues. The Defendant is right that the Plaintiffs, as liquidators, could have carefully assessed the evidence and decided to pursue one claim rather than both claims.

7.  I do not seek to repeat my analysis and comments of the Undervalue Claim which are fully set out in the Judgment save to reiterate that it is improper to pursue a claim which carries with it an element of dishonesty and fraud by way of an originating summons without proper pleadings and cross-examination.

8.  The Plaintiffs lost one and won one. Hence, I formed the tentative view that there be no order as to costs. The Defendant submits that the Undervalue Claim was much more complicated and at least 80% of the Defendant’s costs related to the Undervalue Claim as can be seen from the content of the affirmations, submissions and the Judgment.

9.  I am of the view that the overriding consideration in any costs decision is fairness. I agree with the Defendant’s view that the court should adopt an issue based approach in assessing costs in the present proceedings as the Undervalue Claim and the Preference Claim are distinct and separate.

10.  Having considered the parties’ written submissions, I am of the view that a proper and fair costs order should be:

(1)  The Plaintiffs are to pay the Defendant the costs of and incidental to the Undervalue Claim, to be taxed on a party to party basis, if not agreed. 

(2)  The Defendant is to pay the Plaintiff the costs of and incidental to the Preference Claim, to be taxed on a party to party basis, if not agreed.

11.  As to the apportionment between the two claims, the Defendant submitted that 80:20 is appropriate. The Plaintiffs submitted that there are overlapping background facts which are pertinent to both claims. Doing the best I can and adopt a rough and ready approach, I am of the view that a proper apportionment is 70:30.

12.  According, I vary my costs order nisi in terms as set out in paragraph 10(1) and (2) above with an apportionment of 70:30 between the Undervalue Claim and the Preference Claim.