BIG ISLAND CONSTRUCTION (HK) LTD v. WU YI DEVELOPMENT CO LTD AND ANOTHER

HCA1957/2005, HCA714/2007
HCA886/2007 & HCA1364/2008

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1957 OF 2005

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BETWEEN

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DECISION ON COSTS

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Introduction

1.  This Decision should be read together with the judgment handed down on 28 July 2011.  By that judgment, I disposed of the four actions before the court as follows :

(1)  Dismissing BIC’s claim in HCA1957/2005 with an order nisi that costs are to be paid by BIC to WYD and WYC including all costs reserved with certificate for two counsel, to be taxed if not agreed;

(2)  Entering judgment for WYD against BIC in HCA714/2007 for HK$500,000 with interest with an order nisi that costs are to be paid by BIC to WYD including all costs reserved with certificate for two counsel, to be taxed if not agreed;

(3)  Dismissing BIC’s claim in HCA886/2007 with an order nisi that costs are to be paid by BIC to WYE including all costs reserved with certificated for two counsel, to be taxed if not agreed;

(4)  Dismissing FBC’s claim in HCA1364/2008 with an order nisi that costs are to be paid by FBC to Mr Lee including all costs reserved with certificate for two counsel, to be taxed if not agreed.

The parties now apply to vary all the costs orders nisi.

2.  The Wu Yi Parties seek orders that :

(1) the costs payable by BIC in HCA1957/2005, HCA714/2007 and HCA886/2007 to be taxed on an indemnity basis;

(2) Mr Lee to be personally liable for all costs payable by BIC in HCA1957/2005, HCA714/2007 and HCA886/2007;

(3) alternatively to (2), the costs payable by BIC in HCA1957/2005, HCA714/2007 and HCA886/2007 be set off against the costs payable by FBC in HCA1364/2008.

3.  BIC applies for an order that in HCA1957/2005 there be no order as to costs of the action; or alternatively, that the costs of the action be apportioned between the parties in such manner as the court thinks fit.  Mr Lee applies in HCA1364/2008 for an order that WYC shall pay him costs of the action including all costs reserved with certificate for two counsel, to be taxed if not agreed.

Costs of HCA1957/2005

4.  I first deal with the costs as between the parties in HCA1957/2005.

5.  The general rule is that costs should follow the event.  The court may, in the exercise of its discretion as to costs, depart from this general rule when exceptional circumstances exist.  The burden rests with the losing party to justify the departure : Mariner International Hotels Ltd v Atlas Ltd (No 2) (2007) 10 HKCFAR 246, per Bokhary PJ at para 18.  The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or cost of the proceedings, he may be deprived of the whole or part of his costs : Re Elgindata Ltd (No 2) [1992] 1 WLR 1207, per Nourse LJ at p 1214B, referred to in Wang Din Shin v Nina Kung, CACV67/2003, unreported, 19 April 2005, per Yuen JA at para 39.  The court may order a reduction in the award of costs to him, either by a separate assessment of costs attributable to that issue or, as is now preferred, making a percentage reduction in the award of costs : Seepersad v Persad [2004] UKPC 19, per Lord Carswell at para 24.  This is entirely a matter of discretion, which the court should exercise to achieve a just result having regard to the circumstances of the case : Hong Kong Kam Lan Koon Ltd v Realray Investment Ltd (No 4) [2005] 4 HKC 162, per Lam J at para 14.

6.  BIC’s claim against WYD and WYC is for non-payment of loans totalling HK$100,676,120 and HK$1,793,700 respectively or alternatively, for money had and received.  WYD and WYC admitted that they had received the sums in question.  They however alleged that the sums were not loans but were received in pursuance to a series of FEAs.

7.  In analyzing the evidence, I identified four major components in support of BIC’s primary claim based on the Loan Agreement. I rejected all of them, finding that Mr Lee had lied when he said Ms Lie, his cousin in Indonesia, was the source of the funds which enabled BIC to on-lend the same to the Wu Yi Parties; that he lied when he said he entered into the Loan Agreement with Mr ZH Xu; that Ms Li fabricated internal accounting documents of BIC; and that Mr Lee had fabricated the 1^st Demand Letter and the 3^rd Letter and certain entries in his diary for the purpose of litigation and made up the demand in the 2^nd Demand Letter.  I then rejected the alternative claim as a matter of law.

8.  My findings lead me to conclude that BIC had not only invented the claim based on the Loan Agreement but had also gone to the extent of fabricating evidence in pursuing it.  This kind of litigation conduct is most reprehensible indeed.

9.  But the conduct of the Wu Yi Parties is equally bad.  It had also made up the incredible defence based on the FEAs.  And at trial, considerable time had been spent on the evidence concerning the FEAs.

10.  In the end, I said at para 164 of the judgment :

“My distinct impression is that both Mr Lee and Ms Li and the Wu Yi witnesses had not told me the whole truth about what had actually happened about the Sums that WYD and WYC had received from BIC and the sums that the Wu Yi side had remitted to various recipients in the Mainland. Something more than meets the eyes is there, which they have chosen, for reasons best know to them, to conceal it from the court.”

11.  Having regard to the parties’ conduct and the way they had pursued the claims and defence, as I am required to do so under Order 62, rule 5(2) of the Rules of the High Court, and in order to achieve a just result overall, there should be no order as to costs as between the parties.  The costs order nisi is varied accordingly.

12.  The Wu Yi Parties’ application for indemnity costs against BIC has now become academic.  It is therefore refused.

Indemnity costs

13.  I next consider the Wu Yi Parties’ application for indemnity costs in HCA714/2007 and HCA886/2007.

14.  The principles on indemnity costs are well established. They have been authoritatively re-stated by the Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114.  In brief, the court’s discretion to award indemnity costs is unfettered and uncircumscribed.  It is therefore undesirable to attempt to define the circumstances in which such order will be made save and except that the exercise of the discretion must be appropriate in the circumstances of the case.  Thus, while indemnity costs have consistently been awarded when cases are brought with an ulterior motive, or for an improper purpose, or where there is some deception or underhand conduct on the part of the losing party as to constitute an affront to the court, the discretion is not limited to those situations.  The burden rests with the successful party to show that the case has some special or unusual features for such an order to be made.  Such features must be connected with the case, which may be extended to any matter relating to the litigation and the parties’ conduct in it and also to the circumstances leading to the litigation but no further.

15.  In HCA714/2007, WYD sued BIC for three loans totaling HK$500,000.  Its claim was well supported by contemporaneous documents.  To counter the undisputable documentary evidence, Mr Lee made up the incredible and convoluting defence that the sums were in fact contributions made by WYC, through WYD, to FBC pursuant to the Oral Agreements and Subsequent Oral Agreements he made with Mr BH Chen and Nr ZH Xu, which were then upon the requests of Mr LM Huang, dressed up as loans by WYD to BIC.

16.  In my view, BIC knew full well that it had no defence to the claim but resorted to inventing the dressing up defence to avoid liability. Such litigation conduct is an affront to the court.  Indemnity costs are in order.

17.  In HCA886/2007, BIC claimed WYE for repayment of a loan of HK$210,000.  The issue is whether the sum was a loan or a payment to WYE pursuant to the fund transfer agreement relied on by WYE.  Having considered how the action was conducted again, I do not think there are any special or exceptional features which justify an order for indemnity costs.  WYE’s application is refused.

Mr Lee’s personal liability

18.  I now come to the Wu Yi Parties’ application for costs against Mr Lee personally for the 3 actions of which he is not a party. It can be disposed of shortly.

19.  Section 52A(2) of the High Court Ordinance, Cap 4 empowers the court to award costs against a person who is not a party to the relevant proceedings if it is satisfied that it is in the interest of justice to do so.  Under Order 62, rule 6A(1) of the Rules of the High Court :

“ Where the Court is considering whether to exercise its power under section 52A or 52B of the Ordinance to make a costs order in favour of or against a person who is not a party to the relevant proceedings –

(a) that person must be joined as a party to the proceedings for the purposes of costs only; and

(b) that person must be given a reasonable opportunity to attend a hearing at which the Court shall consider the matter further.”

20.  Mr Lee has not been joined as a party to either of HCA1957/2005, HCA714/2007 or HCA886/2007 pursuant to Order 62, rule 6A(1). Mr Ho, SC for the Wu Yi Parties, submitted that joining him is a technical requirement and if the court is minded to make a non-party costs order against him, the Wu Yi Parties would ask for an ancillary order of joinder.

21.  In my view, the joinder requirement is more than technical.  Although the application for ascertaining whether a non-party should be made liable to pay the costs personally takes a summary procedure, the court needs to look into all the relevant circumstances to see if such an order should be made.  Nature justice demands that the non-party be joined and properly heard pursuant to the rules before an order can be made against him. As a matter of procedural fairness, it is wrong to treat the joinder as something ancillary to the application for costs against the non-party personally. The failure to join Mr Lee properly under Order 62, rule 6A is fatal.

22.  In any event, the application must fail on substance.  Of particular importance to the present case are the questions whether Mr Lee had procured the claims or defence in the three actions, if he was in control of the actions; if he had funded the actions; and if he was to be regarded as the real party interested in the outcome of the actions.  The court cannot determine Mr Lee’s personal liability on costs without any investigation into these matters.  And Mr Lee has never been offered an opportunity to answer these questions.  It is wrong simply to invite the court, as the Wu Yi Parties did, to make a determination on those crucial questions based on submissions alone.

23.  I refuse the Wu Yi Parties’ application.

Setting off

24.  I next turn to the Wu Yi Parties’ application for setting off the costs payable by FBC in HCA1364/2008 against the costs payable by BIC to the Wu Yi Parties in the other three actions.

25.  Mr Ho first argued that if the basis for making a third party costs order against Mr Lee is made out, this would form a sufficient basis for ordering the set off.  Now that I have refused to make such an order, this argument must fail.

26.  Mr Ho then submitted that the court should in any event order the set off on the basis that there is a close connection between the three actions and HCA1364/2008.  With respect, I disagree.

27.  As rightly submitted by Mr Yu, SC for the Big Island Parties, the parties to HCA1364/2008 are FBC and Mr Lee.  They are not parties to any of the three actions.  The claim by FBC in HCA1364/2008 is entirely unrelated to the claims in the other three actions.  There are no overlapping interests or issues at all.  The mere fact that some of the witnesses are common to all the four actions does not constitute a connection, let alone a close connection, between the four actions.

28.  The Wu Yi Parties’ application is refused.

Costs in HCA1364/2008

29.  Finally, I come to Mr Lee’s application for an order that WYC shall pay him costs in HCA1364/2008.

30.  The parties had previously agreed that should FBC’s claim fail, WYC would not oppose any application by Mr Lee for an order that WYC shall pay him costs in the action on a party and party basis : see the preamble to the consent order dated 8 May 2009.

31.  I can see no reason why that agreement should not apply.  I therefore allow Mr Lee’s application.

Depositions

32.  In the course of the trial, I had decided various interlocutory applications.  The parties agreed that the costs should follow the event of the applications.  Subject to that, I will order as follows :

(1)  The costs order nisi in HCA1957/2005 is varied to the extent that there shall be no order as to costs and is made absolute on the basis.

(2)  The costs order nisi in HCA714/2007 is varied to the extent that the costs payable by BIC shall be taxed on an indemnity basis, if not agreed and is made absolute as varied.

(3)  The costs order nisi in HCA886/2007 is made absolute.

(4)  The costs order nisi in HCA1364/2008 is varied to the extent that WYC shall pay Mr Lee the costs of action with certificate for two counsel, to be taxed on a party and party basis if not agreed and is made absolute as varied.

33.  For the costs of the applications for variations including the hearing on 2 April 2012, looking the matter in the round and overall result, I think there should be no order as to costs.  I will make an order nisi to that effect, to be made absolute after 14 days of the handing down of this decision.