CHENG HENRY v. IMPERIAL SIERRA GROUP HOLDINGS LTD AND ANOTHER

DCCJ 5318/2019

[2020] HKDC 1027

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 5318 OF 2019

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DECISION ON COSTS

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1.  This is a decision on costs following a summons dated 5 August 2020 whereby the 1^st defendant applied to vary the costs order nisi in the decision I made on 29 July 2020 (“the Decision”) to the extent that it submits there should be no order as to costs following the Decision (“the Variation Summons”).

2.  The hearing for the Variation Summons was fixed before me on 10 September 2020.  However, by a letter dated 20 August 2020, with the consent of the plaintiff, the 1^st defendant applied to the court requesting the Variation Summons to be dealt with by way of paper disposal. The court acceded to the request and gave directions to lodge written submissions with the court.

3.  However, the 1^st defendant has not served on the plaintiff or lodged with court any skeleton argument for the hearing on 10 September 2020 in accordance with the Practice Direction 5.4. The 1^st defendant’s solicitors only lodged a one-page submission on 22 September 2020.

DISCUSSION

Legal principles on costs in interlocutory proceedings

4.  Mr YL Zhu, counsel for the plaintiff, has helpfully summarised the legal principles governing the court’s discretion on costs.  I can do no better than repeating his summary here which I agree as an accurate reflection of the legal principals involved.

5.  It is trite law that costs are in the court’s discretion, to be exercised judicially: see section 53(1) of the District Court Ordinance (Cap 336) and Order 62 rule 2(4) of the Rules of the District Court (Cap 336H).

6.  Following the Civil Justice Reform, costs of interlocutory proceedings are dealt with in Order 62 rule 3(2A), which states:-

“If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.”

7.  The relevant legal principles have been succinctly summarised by To J in Melvin Waxman v Li Fei Yu (unrep, HCA 1972/2012, 11 September 2013), at §§19-20:-

“19.   Summing up on the post-CJR position, I think the court has much wider discretion as to costs in interlocutory proceedings. Unlike other proceedings, the general rule of costs following the events do not apply. The court is entitled to take into account all the circumstances of the case, including those set out in rule 5, to make such order as it thinks fit. In the exercise of its discretion, the court may take the issue-based approach or may take into account merit of the parties’ case or the possible outcome of the action. The circumstances of interlocutory proceedings are so numerous that it is impossible to make any general rule. Costs to follow the event and costs be to the successful party’s costs in the cause are obvious options.

20.  As for the onus of proof, I think it is the same post-CJR as it was pre-CJR.  It must be the successful party’s burden to satisfy the court as to the type of costs order it is entitled.  To begin with, the successful party is assisted by the general rule of costs to follow the event.  By the mere fact of being successful, the successful party has discharged the evidential burden of showing it is entitled to costs.  Thus, effectively, the evidential burden is on the unsuccessful party to adduce sufficient evidence or argument that some other or lesser order is appropriate, such as no order as to costs, costs be to the successful party’s costs in the cause or costs to the unsuccessful party.  In the absence of evidence or convincing argument to the contrary, the successful party would also have discharged the legal burden.  Costs to follow the event would be the appropriate order to make.  If the unsuccessful party is able to discharge that evidential burden, it will be the legal burden of the successful party to show that he is entitled to the costs order which he seeks.  In reality, having heard the interlocutory application, it would be quite obvious to the court what costs order would best serve the justice between the parties without relying on the burden of proof.”

8.  This is endorsed by Lisa Wong J in Daimler AG v Leiduck (re expert evidence) (No 3) [2018] 1 HKLRD 1188, at §7.  See also Hong Kong Civil Procedure 2020, Vol 1, §62/3/3B at 1279.

9.  Order 62 rule 5(1) sets out matters that the court shall take into account when exercising its discretion on costs.

10.  Further, Order 62 rule 5(2) sets out matters that the court shall consider with regards to “the conduct of the parties”.

Costs order in Hadkinson application

11.  Again, Mr Zhu has helpfully summarised some case law on how the court will exercise its discretion on costs when a Hadkinson application is being dismissed.  I agree that although each case turns on its own facts, the following cases provide useful guidelines on how the court would exercise its discretion on the issue of the costs when such an application is being dismissed.

12.  In China Construction Reality Ltd v Lucky Dragon Ltd and others (unrep, HCA 1237/2012, 14 July 2014), the 4^th defendant was in breach of an injunction order of the court. The plaintiff applied for a Hadkinson order that the 4^th defendant be debarred from being heard in court.  The application was dismissed by Registrar KW Lung, but the learned Registrar decided that there should be no order as to costs in respect of the Hadkinson application.  The learned Registrar gave his reasons as follows, at §12:-

“In the assessment of the costs for the Hadkinson Order application, it is not disputed that the 4^th defendant was in breach of the Injunction Order of the Court and up to date, it has not purged the breach. It is analogous to the situation where in an application for striking out of the plaintiff’s claim for inordinate and inexcusable delay on an application by the defendant and the Court, having found that the plaintiff was guilty of inordinate delay, however, refused to exercise its power to strike out the plaintiff’s claim. In the circumstances. although the defendant had lost its application, the Court might disallow the plaintiff's costs and ordered that each party should pay its own costs.”

13.  On appeal from the learned Registrar's decision China Construction Realty Ltd, supra, Louis Chan J ruled in favour of the 4^th defendant (the successful party) and ordered that the plaintiff do pay the 4^th defendant's costs for the Hadkinson application.  The learned Judge observed, at §§94-96:-

“94.   Mr Yan submitted that an application to strike out for delay is to remedy the prejudice to the defendant because of the impossibility of a fair trial as may be occasioned by inordinate delay. Hence, even if the application should fail, the court may still deprive the successful respondent of its cost because of its delay.

95.  However, the Hadkinson principle does not exist simply to punish a contemnor and punishment is for contempt proceedings. Therefore, the Registrar should not have penalised the 4^th defendant on costs for the Hadkinson issue because of the 4^th defendant's breaches of the injunction. It is open to the plaintiff to launch contempt proceedings to punish the 4^th defendant for those breaches. Hence, Mr Yan submitted that the Registrar should have ordered costs in favour of the 4^th defendant as costs in this instance should follow the event. I agree with Mr Yan’s reasoning. I agree that the Registrar has erred in law in this instance by drawing the said analogy and made no order as to costs.

96.  I therefore allow the 4^th defendant's appeal and order that the costs before the Registrar for the Hadkinson issue be to the 4^th defendant to be taxed and paid forthwith.  I also make a costs order nisi that the 4^th defendant should have the costs of this appeal to be taxed and paid forthwith with certificate for two counsel.”

14.  In TYM v WSP (unrep, FCMP 309/2014, 19 December 2016) , the applicants applied to vary the costs order nisi that they pay the 1^st respondent’s costs as their Hadkinson application against the 1^st respondent was dismissed.  In dismissing the application to vary the costs order nisi, Deputy District Judge KK Pang (as he then was) made the following observations:-

“9. The Applicants accept that they are the losing party and that prima facie costs should follow the event. However, the Applicants proceed to suggest that the 1^st Respondent should be deprived of her costs in the Hadkinson Application even though the 1^st Respondent was successful in resisting the Hadkinson Application. The Applicants’ contention is that the 1^st Respondent has brought the litigation on herself because she has breached the Consent Order. I accept that the 1^st Respondent’s submission cannot be right, and that were they right, it would mean that in each and every contempt application (brought on the strength of a breach of an order), the applicant would always be shielded from any adverse costs order even if, ultimately, the application is ruled as unmeritorious. Such a proposition would have the effect of encouraging a court order), which goes against the spirit of CJR. This is particularly so in the present case where the Applicants have failed to even establish contempt on the 1^st Respondent’s part.

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11.  In my view, the Hadkinson Application should never have been brought at all.

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13.  In my view, it is unreasonable for the Applicants to pursue the Hadkinson Application and there is therefore no basis to deprive the 1^st Respondent of costs.  The Applicants’ application by the Summons dated 2 November 2016 for varying the Costs Order Nisi must fail.”

The court’s finding on costs

15.  In exercising my discretion on costs in this matter, I reminded myself that the 1^st defendant’s Hadkinson application was dismissed because I found there was no impediment to the course of justice and there were, in the circumstances of this particular case, other effective means of compliance with the court order.  In the Decision, I had specifically made the finding that the Hadkinson application made by the 1^st defendant’s “was a rather unnecessary and aggressive move to make”.  I further found that “it certainly could not be considered as the last resort for D1 to secure the judgment debt.”: (see §29 of the Decision).  In addition, I found that the defendant, having secured a charging order against the plaintiff’s property, the Hadkinson application would be “superfluous” and cannot be regarded as the “last resort”: (see §36 of the Decision).  I also made the comment in the Decision that the application was “totally disproportionate” and “like using a sledgehammer to crack a nut” (see §37).

16.  In my judgment, the defendant’s Hadkinson application was totally devoid of any merits.  It should never had been taken out in the first place.  When taken out, it should never have been pursued.  Therefore, the plaintiff being the successful party in that application, should be awarded the costs as they are normally entitled to as a successful party.

17.  I further agree with Mr Zhu that even the plaintiff was found to have failed to comply with the court order, the correct forum for penalisation of their non-compliance is by way of contempt proceedings rather than a Hadkinson application. 

18.  Lastly, I also agree with Mr Zhu that the non-compliance with court order should not be a basis for rejecting his entitlement to costs on a Hadkinson application which was made, as I found in the Decision, totally without any merits and was an unnecessary aggressive move which should have never been brought in the first place.

19.  I further find the 1^st defendant’s one page skeleton submissions lodged with the court on 22 September 2020 by its solicitors on the costs issue totally unhelpful; lack of any substance and therefore should be disregarded.

CONCLUSION

20.  In the aforestated premises, I therefore would dismiss the 1^st defendant’s Variation Summons with costs to the plaintiff with certificate for counsel.  Such costs will be summarily assessed by me on paper.  In this regard, I hereby direct that the plaintiff do lodge an updated statement of costs with this court within 7 days from the handing down of this decision and the 1^st defendant do lodge their list of objection, if any, within 7 days thereafter.  The parties will be informed of the assessed amount in due course.