WADDINGTON LTD v. CHAN CHUN HOO THOMAS AND OTHERS

HCMP 1326/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 1326 OF 2017

(ON AN INTENDED APPEAL FROM HCA NO 3291 OF 2003)

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the Court):

1.  On 25 May 2017, Chow J refused leave to the plaintiff to appeal against a costs order he made on 5 April 2017. Pursuant to section 14(3)(e) of the High Court Ordinance, Cap 4, leave is required for an appeal relating only to costs. This is the plaintiff’s renewed application in the Court of Appeal for leave to appeal by a summons dated 8 June 2017. The same grounds of appeal advanced before the judge are relied on in the present application.

2.  We exercise our power under Order 59 rule 2A(5) to determine this application on the basis of written submissions only without an oral hearing.

The principles

3.  The applicable principles are well established.  Leave to appeal will not be granted unless the court is satisfied that the intended appeal has a “reasonable prospect of success”.  That means a prospect that is more than “fanciful” but without having to be “probable” (SMSE v KL [2009] 4 HKLRD 127, §17).  But even if the threshold test of reasonable prospect of success is satisfied, the court still retains a discretion whether to grant leave, although the fact there is, ex hypothesi, a reasonable prospect of success would heavily influence the court’s exercise of discretion.  The court may refuse leave to appeal in the interests of procedural economy and proportionality (Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887, §30).

4.  The Court of Appeal will not interfere with the exercise of a judge’s discretion in the award of costs unless it was shown that he failed to exercise the discretion, or exercised it upon a false principle, or did not exercise it judicially (Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at 1337A).  Further, it is trite that an appeal against the exercise of discretion will not be entertained unless it is shown that the discretion was not exercised at all, or that the judge made some error of law or facts or was in disregard of principle, or that he took into account irrelevant matters, or that the decision was “plainly wrong” or was “outside the generous ambit within which a reasonable disagreement is possible” (Hong Kong Civil Procedure 2018, vol 1, §59/0/54).

The background

5.  The relevant background giving rise to the award of costs on 5 April 2017 may be stated as follows.

6.  The action (HCA 3291/2003) is a multiple derivative action brought by the plaintiff for and on behalf of the 5^th defendant against one of its directors Chan Chun Hoo Thomas (the 1^st defendant) and other defendants.  On 18 December 2013, Recorder Patrick Fung, SC gave judgment in favour of the 5^th defendant against the 1^st defendant (“the Main Judgment”) in the sum of over $33 million.  On 10 March 2014, the Recorder ordered the 1^st defendant to pay the plaintiff the costs of the action, to be taxed on the common fund basis.  He also ordered the 5^th defendant to indemnify the plaintiff in respect of any costs incurred by the plaintiff which it will not have been able to recover from the 1^st defendant (“the March Indemnity”).

7.  The 1^st defendant lodged an appeal against the Main Judgment (CACV 10/2014).  On 26 November 2014, the Recorder ordered the 5^th defendant to indemnify the plaintiff in relation to the costs of the appeal (“the Appeal Indemnity”).  He also ordered interim payment of $23 million to the plaintiff from the sum paid into court by the 1^st defendant, pursuant to the March Indemnity.

8.  The 1^st defendant’s appeal in CACV 10/2014 was dismissed on 20 May 2016.  The Court of Appeal also dismissed the plaintiff’s cross-appeals save in relation to the issue of pre-judgment interest.  The court made an order nisi that the 1^st defendant was to pay the plaintiff 75% of its costs of the appeal and cross-appeals, to be taxed on a party and party basis.

9.  On 14 October 2016, the Court of Appeal dismissed the 1^st defendant’s application for leave to appeal to the Court of Final Appeal with costs, which was assessed summarily at $149,585.  The 1^st defendant renewed its leave application to the Court of Final Appeal.

10.  On 30 November 2016, the plaintiff issued a summons seeking further interim payment of $10 million odd pursuant to the March Indemnity, payment of $4.5 million odd in respect of the Appeal Indemnity, an order for indemnity in relation to the 1^st defendant’s applications to the Court of Appeal and the Court of Final Appeal for leave to appeal against the Court of Appeal judgment of 20 May 2016 (“the Leave Indemnity”), and an interim payment of $16,800 pursuant to the Leave Indemnity. Decision in respect of this summons was given by Chow J on 9 February 2017.  This is the subject of another renewed application for leave to appeal and is dealt with in our judgment in HCMP 1327/2017.

11.  On 14 March 2017, the plaintiff issued a summons for further disclosure from the 5^th defendant’s former solicitors about the funding of the 5^th defendant’s costs (“the plaintiff’s Disclosure Summons”), with the view to identifying the real individuals against whom an application for non-party costs should properly be made, and the extent of their liability inter se.

12.  On 31 March 2017, the 5^th defendant issued a summons seeking leave to intervene at the hearing of the plaintiff’s Disclosure Summons (“the 5^th defendant’s Intervention Summons”).  This summons was strenuously opposed by the plaintiff’s counsel at the hearing before Chow J on 5 April 2017.  The judge granted leave to the 5^th defendant to intervene.  He ordered the costs of the 5^th defendant’s Intervention Summons be paid by the plaintiff to the 5^th defendant, with certificate for one counsel.  He saw no reason why costs should not follow the event.  This costs order is the subject of the present application for leave to appeal.

13.  Three grounds of appeal were advanced in the draft notice of appeal.

Ground 1

14.  The contention here is that the judge erred in principle and/or wrongly exercised his discretion in refusing to reserve the issue of costs of the 5^th defendant’s Intervention Summons until after the substantive determination of the plaintiff’s Disclosure Summons.  Ms Eu, SC[1] submitted for the plaintiff that the substantive outcome of the plaintiff’s Disclosure Summons is a relevant factor which ought to be taken into account when determining costs, citing Order 62 rule 5(2).  She also mentioned as an example the earlier decision of Chow J in this action on 23 February 2017, which concerned among other things the costs of the 5^th defendant’s summons to intervene in relation to an application to compel the 1^st defendant to pay judgment interest into court.  Even though the 5^th defendant succeeded in that summons, the judge awarded the costs of its intervention application in favour of the plaintiff against the 5^th defendant, because the 5^th defendant failed in resisting the substantive application brought by the plaintiff.

15.  The judge considered these arguments and rejected them for the reasons given in §§25 and 26 of his decision of 25 May 2017 (“the Decision”).  He regarded the plaintiff’s Disclosure Summons and the 5^th defendant’s Intervention Summons as separate and distinct.  He considered that the 5^th defendant is plainly entitled to intervene, so even if the plaintiff should succeed in its Disclosure Summons, there is no reasonable basis to oppose the Intervention Summons.  The judge is entitled to take the view he did.  There is no basis for the appeal court to interfere with his exercise of discretion.

16.  The judge disagreed with the submission that his costs order on 23 February 2017 should be treated as a precedent for the present situation as the circumstances were different.  We do not think his reasoning can be faulted.

Ground 2

17.  It was submitted by the plaintiff that the judge erred in law and in principle by failing to recognise that the 5^th defendant’s participation in the proceedings for the purpose of opposing the plaintiff’s Disclosure Summons was wrongful for these reasons:

(a)  The 5^th defendant’s opposition amounted to a breach of the order of the BVI court on 30 September 2005[2], which limited the powers of its directors to “carrying out any necessary functions … for the purpose of prosecuting or defending the said derivative action.”

(b)  The 5^th defendant must take a neutral stance in the derivative action and not a stance adversarial to the plaintiff.  Any positive stance taken by the 5^th defendant is inherently intertwined with the 1^st defendant’s interest.

(c)  The purpose of the plaintiff’s intended application for a non-party costs order is to shift the liability to pay costs from the 5^th defendant to the real party or parties so that the assets of the 5^th defendant may be preserved for its benefit and indirectly of its shareholders and not be expended on legal costs, citing another decision of Chow J in this matter on 25 January 2017 at §25, and Dunghutti Elders Council (Aboriginal Corporation) RNTBC v Registrar of Aboriginal and Torres Strait Islander Corporations (No 4) (2012) 200 FCR 154 at §94.  Hence, the 5^th defendant stands to benefit directly from the plaintiff’s Disclosure Summons and there is no identifiable rational basis for the 5^th defendant to intervene and oppose it and to prevent the plaintiff from obtaining a non-party costs order against the real party.  The only possible explanation for the 5^th defendant’s intervention and opposition is that it is acting under the control of the 1^st defendant or the real party.

18.  The judge rejected the above contentions in §27 of the Decision.  The point regarding breach of the BVI court order was not raised at the hearing on 5 April 2017 and whether the 5^th defendant’s Intervention Summons amounted to a breach of the court order is a matter of BVI law, not something that can be determined simply on the basis of the wording of that order.  As for the other matters, all of which the judge regarded as controversial, he did not think any of them could justify denying the 5^th defendant an opportunity to be heard in respect of a matter which directly concerns or affects its interest.

19.  We agree with the judge’s reasoning.  Further, as rightly pointed out by Mr Chan, SC[3] for the 5^th defendant, there is no appeal against the order giving leave to the 5^th defendant to intervene.  We also agree with Mr Chan that whilst a company in a derivative action should take a neutral stance in the trial of the action, this is not necessarily the case in respect of interlocutory applications that may directly concern or affect the interest of the company.

Ground 3

20.  It was submitted by the plaintiff that the judge erred in law and in principle in failing to order the 5^th defendant to indemnify the plaintiff in respect of any costs incurred by the plaintiff in relation to the 5^th defendant’s Intervention Summons, in that the plaintiff’s Disclosure Summons was issued for the benefit of the 5^th defendant to preserve its assets, citing Wallersteiner v Moir (No 2) [1975] 1 QB 373.  And since the judge regarded the matters raised in ground 2 as all controversial, he should have reserved the issue of costs of the 5^th defendant’s Intervention Summons for detailed consideration at the substantive hearing of the plaintiff’s Disclosure Summons instead of determining costs summarily on 5 April 2017.

21.  We see no merit in this ground of appeal.  The judge considered there is no reasonable basis for the plaintiff to oppose the 5^th defendant’s Intervention Summons (§25 of the Decision).  Any indemnity of the plaintiff’s costs would only cover the costs reasonably incurred by the plaintiff (Wallersteiner v Moir (No 2) at 391G to 392C).

Orders

22.  As the threshold requirements for granting leave to appeal are plainly not met, we dismiss the plaintiff’s application.  And as the application is wholly without merit, we make a further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be considered at an oral hearing inter partes.

23.  We see no reason why costs of this application should not follow the event.

24.  In refusing to grant leave to appeal, the judge awarded costs to the 5^th defendant on an indemnity basis with certificate for junior counsel only.  The costs were ordered to be taxed on an indemnity basis because the application is completely without merits and the judge was not prepared to grant a certificate for two counsel as this is a simple matter which would not justify the costs of engaging a Senior Counsel (§30 of the Decision).  For the same reasons given by the judge, we make a similar costs order for this renewed application.

25.  The 5^th defendant submitted a statement of costs for summary assessment in the sum of $258,900.  We regard this as excessive, even on an indemnity basis.  Besides, we are minded to grant a certificate for junior counsel only.  We bear in mind that the same grounds of appeal argued before the judge are relied on in the present application.  The costs for preparation of a statement of costs are generally not allowed in a summary assessment (Practice Direction 14.3, §13).  The amount of costs we allow on the basis as indicated is $113,300.

26.  The costs order and gross sum assessment are orders nisi.  Any party seeking to vary the orders nisi shall lodge a written submission within seven days hereof, failing which the orders shall become absolute.