LAU WING YAN AND OTHERS v. CHU KONG AND OTHERS

HCA 2562/2014

[2021] HKCFI 1184

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2562 OF 2014

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D E C I S I O N

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Introduction

1.  Today is the seventh day of the trial of the present action.  Mr Douglas Lam, SC, appearing with Mr Martin Kok, opened the plaintiffs’ case on day one.  Due to some unforeseen circumstance, the plaintiffs called their first witness, Mr Yan Donghai, on day three.  Ms Sun Min, the 2^nd plaintiff, was called on day four.  She was under cross-examination for just over three days. Immediately after she completed her evidence this morning, Mr Lam, having had an opportunity to confirm instructions from all the plaintiffs, applied to the court for leave to discontinue the action entirely with costs to the defendants. And the plaintiffs also accepted that the injunction granted to them on 17 December 2014, as subsequently continued, should be discharged.  In the course of his subsequent submissions, Mr Lam accepted that the injunction would be discharged on the ground of material non-disclosure and the plaintiffs should pay costs of the discharge summons on an indemnity basis.

2.  The only remaining issue is the basis of taxation which should apply to the costs of the action. The 1^st defendant, represented by Mr William Wong, SC together with Mr Michael Lok, and the 3^rd defendant, represented by Mr Kevin Hon and Mr Harry Chan, both ask for the indemnity basis.  This the plaintiffs oppose. 

3.  In gist, the plaintiffs’ claim in the present action turns on the existence of two oral agreements alleged by them, referred to in the pleadings as “the First Agreement” and “the Second Agreement” and allegedly concluded between the parties.  The defendants deny that the agreements had ever been made.

The approach

4.  In considering the proper basis of taxation, I would adopt the following approach.  I would take into account the pleadings, the witness statements, the contemporaneous documents referred to in the course of the trial, the oral evidence of Mr Yan, the extensive oral evidence given by Ms Sun, the affirmations filed in respect of, or relevant to, the discharge application, the plaintiffs’ acceptance that the interlocutory injunction should be discharged on the ground of material non-disclosure, and the fact of the application to discontinue the action with costs to the defendants being made on day seven of the trial.

5.  I would also take into account the settlement offers made by the plaintiffs over the past three months, with the final offer being the discontinuance of the action with costs to the 1^st and 3^rd defendants in the sum of $3,000,000 for both defendants.

6.  I would then decide whether I would come to the view, as put forward by Mr Wong and Mr Hon, that the plaintiffs’ commencement and pursuit of the present action is an abuse of the court’s process on the basis that the two alleged oral agreements never existed and they were concocted by the plaintiffs as a plank on which to apply for the interlocutory injunction back in December 2014.

7.  Mr Lam accepts that notwithstanding that the evidence on the oral agreements is not yet complete, when deciding the issue of costs, it is open to me to take the above approach and form a view of the matter on the basis of the materials before me.  Mr Lam also accepts that if my overall impression is that the plaintiffs’ pursuit of the present action is an abuse of process, I am quite entitled to order indemnity costs.

8.  I should add here that by adopting the above approach, I would not be making any formal factual finding on the issues in dispute in this action. 

9.  The evidence before me is incomplete.  Counsel did not have the opportunity to make full submissions in the way they would at closing if the trial proceeded as scheduled.

10.  I am not sure whether in the circumstances, I have the power or am in a position to proceed to make factual findings.  But even if I do, I would decline the invitation of Mr Wong to do so, particularly in light of the fact that there are ongoing litigation between the two camps.  I would be hesitant to make findings of fact when the evidence had not been fully explored on all the disputed issues when these findings may have the effect of creating issue estoppel against the parties concerned.

Abuse of process

11.  Having reflected on the materials before me, I have come to the view that the pursuit of the present action is an abuse of the court’s process and the plaintiffs should pay costs of the action on an indemnity basis.

12.  The plaintiffs now accept that the injunction should be discharged by reason of material non-disclosure.  What is striking in the present case is that when applying for the injunction on an ex parte basis, the plaintiffs exhibited as part of their evidence emails which had been altered. 

13.  Objectively speaking, the altered parts have the effect of corroborating the plaintiffs’ case of the two oral agreements.  The alteration was subsequently admitted by the plaintiffs.  But the admission was not at the first opportunity when they could have done so, that is after the 1^st defendant filed his supporting affirmation in February 2015 pointing out the discrepancies between the exhibited emails and the original emails.  The admission was made much later in January 2016 when it must have become clear to the plaintiffs that there was really no plausible or possible way of explaining the discrepancies.

14.  In January 2016, Ms Sun put forward what on its face is an utterly unconvincing explanation why the altered emails were put forward to the court as part of her affirmation evidence.  She put it down to lack of communication or miscommunication with Mr Yan and the time pressure she was under when the plaintiffs put together the injunction application. 

15.  The explanation is all the more unconvincing given that in the course of 2015, the discrepancies were pointed out to Ms Sun and the plaintiffs on more than one occasion.  See, in particular, the letter from Howse Williams Bowers dated 18 May 2015.  The letter was drafted in direct, clear and simple terms.  There was no way that its content and hence the 1^st defendant’s position could be misunderstood.  Yet the plaintiffs did not see fit to explain then. 

16.  In the three days of cross-examination, Ms Sun certainly came across as an articulate and careful witness.  She has a bachelor’s degree in law and a master’s degree in maritime law. She took care to understand counsel’s questions and answered them at length.  She was anxious to make sure that her answer would not get misunderstood.  This impression that I have formed (and indeed anyone in the court room would have formed) of her does not sit well at all with her assertion that the altered evidence was used because of lack of communication, miscommunication, or time pressure.

17.  The use of altered documents in legal proceedings clearly is an extremely serious matter.  The plaintiffs now accept that indemnity costs should be granted for the discharge application.  But that is not the end of the matter.  It certainly has a bearing on how I evaluate the materials before me when I consider the plaintiffs’ conduct of the present action as a whole.

18.  I accept Mr Wong’s submission that when one looks at the substance of the matter, one gains the impression that the injunction obtained back in December 2014 was really the main target of the plaintiffs, as the injunction had the substantive effect of preventing the 4^th defendant from managing and controlling its own ship at that time.  The injunction application was launched on the basis of the two oral agreements. 

19.  But the materials before me do give an impression that there is really no substance in the allegation concerning the oral agreements. 

20.  None of the plaintiffs could point to a single occasion or conversation where the oral agreements, or some of the terms, were reached.  That was the situation before the trial commenced. But, surprisingly, Ms Sun told the court over the past few days, ie more than six years after the event, that she could now recall a meeting on 19 February 2013 where some of the terms were agreed. 

21.  Furthermore, none of the plaintiffs can point to any contemporaneous documents recording, reflecting or referring to the alleged oral agreements.

22.  Some of the oral terms in fact were directly contradictory to the express terms of the contemporaneous documents, such as the facility agreement signed with Credit Suisse.

23.  In the course of submissions this morning, all parties agreed that it is open to me in the present context to form a view on the oral agreements and whether they were a fabrication on the part of the plaintiffs.

24.  That is indeed the overall impression that I have formed, having considered the materials before me.  Needless to say, the pursuit of a legal action based on such fabrication of facts is an abuse of the court’s process.

The settlement offers

25.  In the normal course of things, the court would look favourably at settlement offers made by a party in an action.  Here, the plaintiffs have made three in the recent months.  But the making of such offers must now be seen against the impression that I have formed above.  Thus viewed, the weight that I should give to such offers must be considerably diminished. 

26.  The action was commenced in late 2014.  These offers were made in early 2021, in the three months before the trial.  They seem to me to be last-minute efforts not to genuinely settle the claim, but to save the plaintiffs from the likely fate of failure at the trial.

27.  Had the plaintiffs done what they have done this morning, that is to seek leave to discontinue the action with costs to the other side with no monetary limit imposed, the 11-day trial would very likely have been vacated.

Conclusion

28.  For the above reasons, I would order that costs be granted on an indemnity basis, in favour of the 1^st and 3^rd defendants.

[Submissions on form of order]

29.  I make the following orders.

30.  Upon the plaintiffs’ undertaking not to subsequently revive the plaintiffs’ causes of action in relation to the First and Second Agreements as pleaded in paras 16 and 17 of the amended statement of claim as against all the defendants:-

(1)  The injunction order made by Deputy High Court Judge Wilson Chan dated 17 December 2014 as varied and continued by Chow J on 24 December 2014 (“the Injunction Order”) be discharged on the ground of material non-disclosure;

(2)  Costs of and occasioned by the defendants’ summons dated 11 February 2015 to discharge the Injunction Order be to the 1^st defendant with certificate for two counsel, to be taxed on an indemnity basis if not agreed;

(3)  Leave to the plaintiffs to discontinue this action as against all the defendants, without prejudice to any party’s right to enforce the plaintiffs’ undertaking as to damages pursuant to the Injunction Order;

(4)  Costs of this action (save for the costs of the afternoon of 14 April 2021 and the morning of 15 April 2021, for which there be no order as to costs) be to the 1^st and 3^rd defendants with certificate for two counsel, to be taxed on an indemnity basis if not agreed;

(5)  There be liberty to apply.