CHEUNG KONG PROPERTY (BUSINESS DEVELOPMENT) LTD v. GOLD BRILLIANT INVESTMENT LTD AND ANOTHER

HCA 280/2021

[2022] HKCFI 3676

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 280 OF 2021

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D E C I S I O N

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1.  There is no dispute regarding the substantive terms on which the Plaintiff’s summons of 12th April 2022 and the Defendants’ summons of 5th July 2022 are to be disposed of.

2.  The only dispute relates to the costs of and occasioned by the two summonses, namely:

2.1     whether costs should be paid by the 1st Defendant to the Plaintiff only up to 1st November 2022 (as the 1st Defendant says) or without such a time limitation (as the Plaintiff says);

2.2     whether costs should be paid on a party and party basis (as the 1st Defendant says) or an indemnity basis (as the Plaintiff says);

2.3     the quantum of costs.

Whether 1st Defendant to pay costs up to 1st November 2022 only

3.  The 1st Defendant says that it should pay costs up to 1st November 2022 only, since the Plaintiff acted unreasonably.  In particular, the 1st Defendant says that:

3.1     its solicitors (“Zhong Lun”) wrote to the Plaintiff’s solicitors (“Woo Kwan Lee & Lo”) that day to indicate that it would no longer oppose the Plaintiff’s summons and would withdraw the Defendants’ summons;

3.2     on 21st November 2022, whilst understanding that the only outstanding issue was the basis for assessment of costs, the Plaintiff still chose to proceed with the hearing on 30th November 2022 instead of proposing that the matter be determined on paper.

4.  However, I note that:

4.1     on 17th October 2022, Woo Kwan Lee & Lo sent a draft hearing bundle index to Zhong Lun and asked for comments, indicating that they would proceed with preparing the bundle in the absence of comments in the next 7 days;

4.2     it was only 8 days later, on 25th October 2022, that Zhong Lun indicated that it would revert with comments within 14 days.  There was nothing to indicate that the 1st Defendant would not be proceeding with the hearing;

4.3     on 1st November 2022, Zhong Lun indicated that it would discontinue opposition to the Plaintiff’s summons and would withdraw the Defendants’ summons, but on the basis of there being no order as to costs.  It provided a draft consent summons;

4.4     Woo Kwan Lee & Lo replied on the next day, 2nd November 2022, proposing amendments to the substantive terms of the consent summons, and saying that costs should be assessed summarily, and on an indemnity basis;

4.5     Zhong Lun did not respond until 14th November 2022, but only to say that it was still taking instructions, and would endeavour to reply by 21st November 2022, and requested that Woo Kwan Lee & Lo should in the meantime withhold preparing hearing bundles and skeleton submissions;

4.6     on the same day, Woo Kwan Lee & Lo replied to say that the brief had been delivered to counsel before Zhong Lun’s previous letter of 1st November 2022 and that it was not reasonable to withhold preparation until 21st November 2022 as this would leave only 2 days to prepare hearing bundles and 4 days to prepare skeleton submissions.  A reply was sought by 16th November 2022;

4.7     on 16th November 2022, Zhong Lun reverted with a revised draft consent summons, indicating that the 1st Defendant agreed to pay costs on a party and party basis;

4.8     on 21st November 2022, Woo Kwan Lee and Lo indicated agreement in principle to the substantive terms of the consent summons, but maintained its stance regarding costs;

4.9     on 23rd November 2022, Zhong Lun proposed that the costs issue be determined on paper;

4.10     on 24th November 2022, Woo Kwan Lee & Lo rejected the proposal for paper disposal on the basis that it was too late to save time and costs and that the matter would be more effectively dealt with at the hearing of 30th November 2022.

5.  In the circumstances, I do not agree that the 1st Defendant should be liable only for costs up to 1st November 2022.

5.1     As at 1st November 2022, the parties had not agreed on either the substantive terms on which the two summonses were to be disposed of, or the incidence of costs (let alone the basis).

5.2     Woo Kwan Lee & Lo had in fact proposed that costs could be summarily assessed by its letter of 2nd November 2022, but as at that date, the 1st Defendant’s stance was that it would not pay costs.

5.3     It was only on 16th November 2022 that Zhong Lun indicated that the 1st Defendant would pay costs (on a party and party basis), and only on 23rd November 2022 that it proposed a paper determination.  By this stage, when the hearing bundles were already due to be lodged and the deadline for filing of the Plaintiff’s skeleton was imminent, I consider that it was not unreasonable for the Plaintiff to take the view that a paper determination of the costs issue would not save costs, but in fact generate further costs.

Whether costs should be paid on party and party basis or indemnity basis

6.  The Plaintiff says that costs should be awarded on an indemnity basis, since:

6.1     cl.9.05 of the Deed of Right of First Refusal dated 1st September 2020 (“the Deed”) provides the Plaintiff with a contractual indemnity as to costs;

6.2     even aside from the Deed, the court should exercise its discretion to award indemnity costs given that the 1st Defendant’s opposition to the Plaintiff’s summons was plainly unmeritorious, the Defendants’ summons was plainly unmeritorious, and given the 1st Defendant’s conduct in withdrawing its opposition and its summons only at a late stage.

(1) Clause 9.05 of the Deed

7.  The 1st Defendant says that the Plaintiff cannot rely on cl.9.05 of the Deed because, inter alia, the parties’ obligations under the Deed are in dispute.

8.  Paragraph 35 of the Defence pleads that the Defendants have been relieved of their contractual obligations under the Deed by reason of the Plaintiff’s refusal to meet the Payment Obligation (as defined in the Defence).

9.  I accept that it would be arguable by the Defendants that such contractual obligations include the obligation under cl.9.05 of the Deed.  It is neither appropriate nor necessary, in the light of my views regarding the merits of the summonses, to determine this issue at this stage.

10.  Ms Sara Tong SC, counsel for the Plaintiff, cited Forcelux Ltd v Binnie (Costs) [2009] EWCA Civ 1077 at [13] for the proposition that a contractual costs indemnity may be upheld even if the grantee of such an indemnity loses a claim against the grantor, provided that the grantee acted reasonably in pursuing the claim.  However, Warren J was not addressing the situation where the validity of the grantor’s obligations, including the obligation under the contractual costs indemnity, were themselves under challenge.  Whilst Ms Tong submits that the 1st Defendant has not expressly pleaded that it is relieved from its obligations under cl.9.05, it seems to me that paragraph 35 of the Defence is broad enough to encompass this position, and I cannot determine this summarily at this stage.

(2) Merits of the 1st Defendant’s stance on the summonses

11.  I first deal with the Plaintiff’s summons for discovery of the unredacted Heads of Agreement and Definitive Agreement.  I agree with Ms Tong that the redacted information is relevant to:

11.1     the parties’ preparation of expert evidence as to the value of the Plaintiff’s loss of a chance to make a profit from the Development Project resulting from the Defendants’ breach of the Deed; and

11.2     whether the Plaintiff would have exercised the right of first refusal under the Deed had a proposal notice been given by the Defendants pursuant to the Deed.  

12.  The 1st Defendant says that it was reasonable to resist the Plaintiff’s summons because the Plaintiff failed to first show that the redacted figures in the Heads of Agreement of 9th February 2021 and the Definitive Agreement of 24th February 2021 were prima facie relevant, by putting forward evidence of the figures it would have accepted under the Heads of Agreement and the Definitive Agreement.

13.  However, under the Peruvian Guano test for relevance, it cannot be the case that the Plaintiff first has to put forward a set of figures before the relevance of the redacted information can be triggered, contrary to the 1st Defendant’s submission. No authority was put forward for this novel proposition.

14.  Second, I turn to the Defendant’s summons for a split trial.  The 1st Defendant says that it was reasonable to apply for a split trial so that unnecessary discovery of the redacted information would not have to be given.  It is said that the information is confidential to the Defendants and Great Eagle Holdings Limited (“GE”), the counterparty to the Heads of Agreement and the Definitive Agreement.  However:

14.1     the proper course was for the Defendants to seek an order protecting confidence whilst ensuring the document is disclosed: Re Promontoria [2020] EWHC 104 (Ch) at [59], rather than to seek directions for a split trial;

14.2     GE indicated that it did not object to disclosure pursuant to a court order and provided that the disclosure was limited to certain parties.

15.  The 1st Defendant also says that the issues of liability and quantum are distinct, and that there would be costs savings in splitting the trial.  However:

15.1     as Ms Tong submitted, the issues are not distinct.  One example is that the assessment of profit which could be made by the new developer from the Development Project would be relevant to both liability and quantum;

15.2     no particulars of the savings which would be gained from a split trial have been provided.  It is unclear what savings would be gained when the parties have already given discovery in respect of both liability and quantum, and embarked on preparing expert evidence on the basis that both would be tried together.  The 1st Defendant has not discharged its burden of showing that it is just and convenient to depart from the general rule that all issues in a case are to be tried at the same time: Telford Development Limited v Shui On Construction Co Ltd [1990] 2 HKC 110 at 117B.

16.  I accept Ms Tong’s submission that the application to split the trial of liability and quantum is in truth an attempt to resist the giving of discovery.

16.1     It has all along been the Defendants’ position, as shown in their Timetabling Questionnaire and in the parties’ joint application for directions for expert evidence, that liability and quantum should be tried together.  No real explanation has been given for the change in stance, except for the vague assertion that “the valuation has been made more complicated than necessary and thus it appears very likely that far more substantial costs and time would be incurred”: Affirmation of Cheng Ka Yan paragraph 4.

16.2     In the 2nd Affirmation of Pan Sutong (the 2nd Defendant), relied on by the 1st Defendant, Mr Pan actually said that “the just and convenient course for this Court to take is to order a split trial so that the redacted figures would not have to be discovered unnecessarily.”  The claim that the issues of liability and quantum were distinct was put forward as a secondary reason only.

17.  I therefore agree that the 1st Defendant’s opposition to the Plaintiff’s summons was plainly unmeritorious, as is the Defendants’ summons.

18.  The Plaintiff’s summons was issued in April 2022 and the Plaintiff’s last affirmation (addressing both the Plaintiff’s summons and the Defendants’ summons) was filed on 1st September 2022, so that the 1st Defendant would have been in a position to assess the merits of its stance.  Yet the 1st Defendant did not indicate its current stance until 1st November 2022 (and despite Woo Kwan Lee & Lo’s letter of 17th October 2022 indicating that it had started preparations for the hearing).  Furthermore, it did not accept that it should pay costs until 16th November 2022.

19.  In the circumstances, I will order that the 1st Defendant pay the costs of and occasioned by the summonses on an indemnity basis, to be summarily assessed.

20.  I will hear the parties in relation to the summary assessment of quantum.