DIMENSIONAL DEVELOPMENTS LTD v. ARCHID GARMENT FACTORY LTD AND OTHERS

HCMP 939/2025

[2026] HKCFI 5201

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 939 OF 2025

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D E C I S I O N

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1.  On 22 April 2026, I handed down my judgment (“Judgment”) in respect of the Applicant’s originating summons seeking leave to commence, on behalf of the 1^st Respondent, a statutory derivative action.  I dismissed the application and made a costs order nisi that the Applicant pays the Respondents’ costs.  The 2^nd to 6^th Respondents seek a variation of that order.  They seek an uncontroversial variation that there be a certificate for two Counsel for the hearing on 5 February 2026, which I will grant.  They also seek a variation that the costs be assessed on an indemnity basis.

2.  The Applicant took a preliminary point in respect of the application to vary the costs, so they are to be assessed on an indemnity basis, namely that this had not been raised at the substantive hearing before me.  In those circumstances, the application should not be entertained.  This submission was premised on observations of Au-Yeung J in Kishin Samtani v Chandersen Tikamdas Samtani[1]. The Applicant has read paragraph 30 as establishing a requirement that any application for indemnity costs must be raised at the substantive hearing of the application.  This is a misreading of the paragraph.  It is clear when read in context that Au-Yeung J is making reference to it being too late to seek indemnity costs because a final costs order had been made, rather than a costs order nisi.  However, I accept that it will normally be sensible for a party which is confident of success to inform the court and the other party that it seeks costs on an indemnity basis in order that the court, even if it is minded to make a costs order nisi, can take this into account whilst writing the substantive judgment.  This is clearly a more efficient way of proceedings, certainly viewed from the point of view of the court.

3.  The principles which govern the determination of an application for indemnity costs are not controversial.  They are summarised by Au-Yeung J in paragraphs 34 to 35 of the Samtani decision.  More recently they have been explained in Sung Chung Kwun & others v Addchance Holdings Ltd[2], [5]–[7].  Mr Chan, on behalf of the 2^nd to 6^th Respondents, emphasised the statement that “maintaining a claim that one knows, or ought to know, is doomed to fail on the facts and on the law, is conduct that is so unreasonable as would justify indemnity costs”.  Essentially, it was his submission that my Judgment demonstrates that the Applicant’s originating summons was such an application, and in the circumstances, the 2^nd to 6^th Respondents should be awarded their costs at the higher level.

4.  It is not necessary for me to repeat the analysis that is found in these judgments.  As the passages in the judgments I have referred to illustrate, the criteria for determining whether or not, in a particular case, an order for indemnity cost is justified are broad and in my view, amount to this: in the view of the court, does the substance of a claim or defence or way the litigation has been conducted take the matter outside the wide ambit of what the court considers permissible litigation conduct.  The fact that a claim is weak is insufficient.  The Applicant’s claim was clearly weak, but not so demonstrably so, in my view, to justify ordering that all the costs are paid on an indemnity basis.  However, I accept that in respect of the misappropriation and mortgage claim they appear to have been advanced despite it manifestly not being in the interests of the Company.  I will, therefore, vary the costs order to provide that 50% of the Respondents’ costs are paid on an indemnity basis and the other 50% paid on a party and party basis.  The costs of the application to vary the costs order nisi will be paid by the Applicant to the 2^nd to 6^th Respondents.