ROLF-ARNE ÖSTLING v. ROLF SEBASTIAN OSKAR ÖSTLING AND ANOTHER

HCMP 782/2022

[2023] HKCFI 952

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 782 OF 2022

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J U D G M E N T

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1.  The trial of these proceedings, which were begun by originating summons was fixed for a four-day trial due to commence on Friday 24 March 2023 at which related proceedings (HCMP 783/2022) was also to be heard. The principal relief sought by the Plaintiff was a declaration that 10,000 shares in the 2^nd Defendant registered in the name of the 1^st Defendant are beneficially owned by the Plaintiff and are held on trust by the 1^st Defendant for the Plaintiff.

2.  On 20 March 2023 the Plaintiff’s solicitors, Deacons, wrote to my Clerk informing the court that HCMP 783/2022 had been settled and its trial would not proceed. However, in the present proceedings, a summons was issued on 16 March 2023 returnable on 22 March 2023 seeking an order under Order 21, rule 3 of the Rules of the High Court (“RHC”) that the proceedings be discontinued. It was listed for three minutes. It was contested for reasons I explain in the following paragraphs, and it was adjourned and heard by me on 28 March 2023.

3.  As I have explained the Plaintiff seeks an order that the proceedings be discontinued and an order that he pays the Defendants’ costs. The 1^st Defendant seeks an order that the action be struck out, the costs are paid on an indemnity basis and an order that monies paid into court by the Plaintiff by way of security for costs be paid to them forthwith.

4.  O21 r3 of the RHC provides:

“3. Discontinuance of action, etc., with leave (O. 21, r. 3)

(1) Except as provided by rule 2, a party may not discontinue an action (whether begun by writ or otherwise) or counter-claim, or withdraw any particular claim made by him therein, without the leave of the Court, and the Court hearing an application for the grant of such leave may order the action or counterclaim to be discontinued, or any particular claim made therein to be struck out, as against any or all of the parties against whom it is brought or made on such terms as to costs, the bringing of a subsequent action or otherwise as it thinks just.

(2) An application for the grant of leave under this rule may be made by summons or by notice under Order 25, rule 7. (L.N. 152 of 2008)”

5.  On 22 March 2023 the 1^st Defendant’s position was that the proceedings should be dismissed. However, before me on 28 March 2023 Mr Singh, who appeared for the 1^st Defendant, accepted that the language of the rule did not permit that order to be made[1] and sought instead an order that the claims be struck out and the action dismissed, which it is apparent from the wording of r3 the court can order. The 1^st Defendant seeks an order that the action be struck out because it may assist them in two respects. First, it may be helpful in resolving on-going ancillary litigation in Sweden. Secondly, it assists them in pursuing a possible claim in Germany in respect of what the 1^st Defendant says is the wrongful disposal by the Plaintiff of property owned by subsidiaries of the Company.

6.  It seems to me that the correct approach in a case such as the present is as follows. If a plaintiff allows an action to proceed until shortly before trial (in this case eight days) and then decides to withdraw their claims, unless the plaintiff can show good reason why the discontinuance should not be on terms that prevent the plaintiff relitigating the claims, the order for discontinuance should be made on terms that prohibit the plaintiff recommencing the claims. This approach was accepted by Mr Tom Ng on behalf of the Plaintiff. Generally, this will provide a defendant with all the protection from the risk of relitigation that is required. If for some reason the defendant wants the action struck out it will have to demonstrate by reference to the established criteria (essentially those to be found in O18 r19[2]) that it is appropriate. Generally, such an application will be inappropriate because if the matter is about to go to trial necessarily the implication is that it does not fall within any of the categories for striking out identified in r19.

7.  In the present case the 1^st Defendant has not argued that the claim discloses no reasonable cause of action or, for example, is an abuse of court. Mr Singh’s submission was to the effect that the case was devoid of merit. As Mr Ng reminded me the 1^st Defendant had wanted a trial and cross-examination in order to demonstrate that the declaration of trust made by the 1^st Defendant’s ex-wife (“Ms Kan”), which demonstrated she had held the shares as the Plaintiff’s nominee, did not mean, as alleged by the Plaintiff, that her subsequent transfer of shares to the 1^st Defendant was on the basis that the 1^st Defendant also held the shares as the Plaintiff’s nominee. It seems to me that if the 1^st Defendant had sought to demonstrate that the Action should be struck out on the conventional grounds that it was plain and obvious that it would fail having regard only to the Plaintiff’s evidence, he is unlikely to has been successful. In my view, a defendant who wishes an action to be struck out and who cannot satisfy the conventional criteria should ask the court to order the trial to take place. If the plaintiff elects not to prosecute the claim it will be struck out at what will be the end of probably a very short and straightforward trial.

8.  I will, therefore, order that the action be discontinued and that the Plaintiff shall not commence proceedings in Hong Kong seeking the same or substantially the same relief. Mr Ng asked me to give liberty to apply. I decline to do so. In my view the court should not permit a plaintiff in a case such as the present to come back to the court and seek leave to recommence the proceedings unless a sensible reason is advanced for so doing. None has been.

9.  There is no dispute that the Plaintiff should pay the costs of the application. Neither are the principles that guide the court in deciding whether or not to order indemnity costs controversial. They are conveniently summarised in two judgments. The first is the judgment of the Court of Final Appeal in Town Planning Board v Society for Protection of the Harbour Ltd (no 2)[3]at [16]–[18]:

“16. The courts have rejected the proposition that an award of indemnity costs will only be made where a case has been 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. (Macmillan v. Bishopsgate Investment Trust Ltd, unreported, judgment delivered 10 December 1993 (Millett J); Disney v. Plummer, unreported, judgment delivered 16 November 1987 (English Court of Appeal)). These decisions and the reasoning on which they were based have been endorsed by the Hong Kong Court of Appeal (Sung Foo Kee Ltd v. Pak Lik Co. (A Firm) at 575E-576F, per Godfrey JA; see also Choy Yee Chun v. Bond Star Development [1997] HKLRD 1327 at 1334G-1335I, per Stock J.)

17. In these and other cases, courts have emphasised the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made. It has been said that

‘the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate”.’

18. Neither statements of principle nor authority provide any support for the Board’s proposition that the attributes of the parties and the character of the proceedings are irrelevant to the exercise of the discretion to award indemnity costs. In relation to the award of costs generally, it has been accepted, as Chu J pointed out, that while

‘the grounds [upon which costs are awarded] must be connected with the case. This may extend 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.’ (emphasis supplied)

(Scherer v. Counting Instruments Ltd [1986] 1 WLR 615 at 621F, per Buckley LJ). There is no reason why this statement does not apply with equal force to the exercise of the discretion to award indemnity costs.”

10.  The second is the judgment of DHCJ Marlene Ng in Heung Wing Yan v Hangway Housing Management[4] at [19]:

“Although the discretion to award indemnity costs is unfettered and uncircumscribed,[5] there must be some special or unusual feature in the case to justify an order for indemnity costs.[6] I accept indemnity costs are no longer limited to cases where a party’s conduct lacks moral probity or deserves moral condemnation for which the court wishes to express disapproval. But such conduct must be “unreasonable to a high degree; unreasonable in this context certainly does not mean merely wrong or misguided in hindsight….. It follows from all this …… it will be a rare case indeed where the refusal of a settlement offer will attract …… not merely an adverse order for costs, but an order on an indemnity rather than standard basis”.[7] Further, whilst pursuit of a weak claim will not usually, on its own, justify an order for indemnity costs, the pursuit of a hopeless claim (or a claim which the party pursuing it should have realised was hopeless) may well lead to such an order.[8]”

11.  The 1^st Defendant asks the court to order taxation on an indemnity basis on the grounds that the Plaintiff’s claim had no merit and his affirmations contain statements which are untrue.

12.  I shall start by explaining what I consider to be the correct approach in a case such as the present to determining the incidence of costs and on what basis they are to be taxed. As RHC O62 r5(1)(aa) makes clear in exercising its discretion as to costs the court should take into account the underlying objectives of RHC O1A r1. The relevant objectives are (c) to (f), namely:

“(c) to promote a sense of reasonable proportion and procedural economy in the conduct of proceedings;

(d) to ensure fairness between the parties;

(e) to facilitate the settlement of disputes; and

(f) to ensure that the resources of the Court are distributed fairly.”

13.  In the present context this means in my view that the court should not permit, and certainly avoid encouraging, disputes over the basis on which costs are ordered unless fairness requires it. Indemnity costs orders are the exception and the court is only likely to make an order for costs to be taxed on this basis if it has not heard argument on the merits of an application or proceedings as a whole, if it is obvious that the circumstances justify it and to do otherwise would be unfair to the successful party.

14.  Viewed practically this requires the court to be satisfied of two things. First, that if the matter had gone to trial not only would the Plaintiff have won but it is probable that the court would have taken the view that certain features of the Plaintiff’s case or its prosecution justify ordering costs on a higher basis. Secondly, that this conclusion can be reached quickly and with confidence. If it quickly becomes clear that the court is required to do more than look at a limited amount of incontrovertible evidence the application should be rejected without further argument.

15.  In the present case what is said is that despite the existence of the declaration of trust and the absence of any written documents passing between the parties recording that the declaration of trust had ceased to be effective, various matters support the 1^st Defendant’s case that he was clearly intended to take both the legal and beneficial interest and, secondly, that the Plaintiff also clearly makes a number of assertions in his affirmations, which are untrue.

16.  The Plaintiff’s 1^st affirmation is short. His case is simple. Ms Kan held the shares as his nominee. He was not aware she had transferred them to his Son in 2018. He wanted them back. I accept that the evidence subsequently filed by the 1^st Defendant, Ms Kan and the Plaintiff himself points fairly clearly to the conclusion that the Plaintiff did know in 2018 of the share transfer. To that extent his 1^st affirmation was incorrect. Whether this was because he had forgotten (he is now 78), he was lying and or he was convinced the position was clear and had overlooked emails that tended to demonstrate what he said was wrong, I cannot assess. Therein lies the difficulty with the 1^st Defendant’s application for indemnity costs. I cannot determine with confidence whether if the matter had gone to trial I would have concluded that the Plaintiff had presented a wholly disingenuous case that justified imposing indemnity costs or I would have concluded that he had not intended to transfer the beneficial interest in the shares despite what some of the contemporaneous documents suggest. I decline, therefore, to order indemnity costs.

17.  So far as the application that the amount of HK$1.13 million paid into court by way of security is concerned, I was told that the 1^st Defendant’s legal costs are approximately HK$1,400,000. I will order that HK$900,000 are paid out forthwith. The balance to be retained pending either the agreement or the taxation of the 1^st Defendant’s costs.

18.  I will make an order nisi that the costs of the hearing before me on 28 March 2023 are paid by the 1^st Defendant to the Plaintiff.