CHINA AGRI-PRODUCTS EXCHANGE LTD v. WANG XIU QUN AND ANOTHER

HCA 1807/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1807 OF 2011

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D E C I S I O N
(Variation of Costs Order Nisi)

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Introduction

1. Before this court were respective applications by the plaintiff and the defendants to vary the costs order nisi made by this court on 11 September 2014 in the judgment handed down of the same date (“Judgment”).

2. In the present decision, I shall adopt the same abbreviations in the Judgment, unless otherwise indicated.

3. The Judgment was in respect of P’s Striking Out Summons, to strike out 8 paragraphs of the Defence, namely paragraphs 24 and 25, and paragraphs 50 – 55, pursuant to Order 18 rule 19(1)(a) and/or rule 19(1)(c), and/or the inherent jurisdiction of the court.  Alternatively, P had sought an order for trial of a preliminary issue over whether knowledge of P of a breach of warranty would amount to a defence to P’s claims under an indemnity clause under paragraphs 50 – 55.

4. In the Judgment, this court only allowed P to strike out paragraphs 24 and 25 of the Defence, and ordered Ds to pay P 50% of their application, with certificate for two Counsel (“Order Nisi”). 

5. Ds issued a summons on 24 September 2014 to vary the Order Nisi to no order as to costs, and for costs of their variation summons to be paid by P to Ds forthwith to be taxed if not agreed (“Ds’ Summons”).

6. P then followed with a summons on 30 September 2014 to vary the Order Nisi that Ds should pay P’s 50% costs forthwith with certificate for two counsel and that there be summary assessment of such costs, together with costs of P’s variation summons (“P’s Summons”).

Brief Background

7. Paragraphs 24 and 25 of the Defence concerned the MOFCOM approval, which Ds said was never obtained to the agreement in relation to the sale and purchase of shares in a PRC company, namely the SPA. This part of the P’s application was successful, and part of this court’s reasoning was that the 89.8 Agreement was not found by the Hubei Court to be invalid, but since the Judgment, this court was informed that Ds’ appeal to the PRC Supreme People’s Court was successful, and on 31 December 2014, the Supreme Court decided that the 89.8m Agreement was invalid.  However, it appeared that the Supreme Court did not hold that the transfer of shareholding in the Company from Ds to P was invalid, or impugn the MOFCOM Approval in respect of such transfer, and further P was entitled to apply for a re-trial within 6 months.

8. Ds has appealed against the Judgment and the appeal has been fixed for hearing shortly on 21 July 2015.

9. Paragraphs 50 to 55 related to the alleged inflation of assets or income in the Management Accounts.  This part of P’s application failed, and this court held that the defence of estoppel was reasonably arguable by Ds.

10. There was also an alternative application by P for a preliminary issue to be tried in relation to paragraphs 50 – 55.  This part of P’s application also failed, and this court held that the issue was not suitable for summary determination and that a preliminary hearing would tend to increase cost and delay.

11. When making the Order Nisi, this court had stated that as P did not succeed in full with the Striking Out Summons, P was only entitled to 50% of the costs.

12. For the present applications, Mr Ambrose Ho SC appeared for P and Ms Chevette Ip appeared for Ds.

Ds’ Summons

13. Ms Chevette Ip submitted that this court when making the Order Nisi, it did not take into account the fact that Ds had succeeded in respect of part of P’s application, and as costs normally follow the event, there were no reasons for departing from the usual course, and Ds should also be entitled to 50% of their costs in successfully opposing part of P’s summons.  Thus, the court should have ordered no order as to costs.

14. Ms Ip argued that it was unfair that Ds, having succeeded in partly opposing P’s Striking Out Summons, ended up paying 3 times more in costs than that of P’s, namely Ds had to pay the entirety of their own costs, plus 50% of P’s, while P only had to pay 50% of its costs. Further, the part of P’s Striking Out Summons relating to paragraphs 50 – 55 of the Defence was not an insubstantial part of the striking out.

15. Costs are in the discretion of the court.  Order 62 rule 5 sets out in exercising its discretion, the court shall, as may be appropriate in the circumstances, take into account the various special matters set out in Order 62(1).  One of these matters is whether a party has succeeded on part of his case, even if he has not been wholly successful.

16. Mr Ho submitted that even had the Striking Out Summons been related to only paragraphs 24 – 25 of the Defence, the parties would still have instructed both leading and junior counsel for the preparation and attendance of the hearing, given the intricacy of the legal and factual issues involved, and that the hearing would in all likelihood still have been set down for one day.

17. In the Judgment, paragraphs 3 – 54 set out the background of the dispute between P and Ds, paragraphs 55 – 72 set out the PRC actions between P and Ds, paragraphs 73 – 80 set out the relevant matters in the Hong Kong Action, paragraphs 81 – 82 on the relevant clauses in the SPAs, and paragraphs 85 – 88 on general legal principles on striking out. 

18. Ms Ip had argued that the submissions relating to paragraphs 50 – 55 were based on self- contained legal issues.

19. Paragraphs 50 – 55 were in relation to the Management Accounts of the Company and P had alleged there had been inflation in assets and income, and that Ds were in breach of various clauses in the SPAs and further or in the alternative, P was entitled to seek an order for Ds to indemnify P pursuant to an indemnity clause in the SPAs. 

20. Even though Mr Ho’s then arguments in relation to paragraphs 50 – 55 were based mainly on the law in relation to the effect of the indemnity clause in the SPAs, Mr Edward Chan SC who appeared for Ds at the hearing of the Striking Out Summons had submitted at the time the evidence filed were critically important to the issues as P’s claim was premised on the validity/enforceability of the SPA.  Further Mr Chan referred to the evidence supporting Ds’ case including that the Management Accounts were alleged to have been sent over by Ds to P prior to the signing of the SPAs, and that P had requested Ds to amend figures therein, upon which Ds’ plea of estoppel was based as a defence to P’s Indemnity Claim.

21. Thus, the background to the parties’ dispute and the validity/enforceability of the SPAs and other general matters above mentioned would have to be considered by the court whether the Striking Out Summons was an application in relation to only paragraphs 24 – 25 of the Defence, or whether it was in relation to paragraphs 50 – 55 as well. 

22. Having considered both Counsel’s submissions, I maintain my view that the Order Nisi is a fair order in that P was successful with part of the Striking Out Summons, and that on a broad brush approach, 50% entitlement to costs would be fair.

P’s Summons

23. Order 62 rule 9D (1) of RHC provides that “subject to paragraphs (2) and (4), the costs of any proceedings shall not be taxed until the conclusion of the action” and rule 9D (2) provides that “if it appears to the Court when making a costs order that all or any part of the costs ought to be taxed at an earlier stage it may order accordingly”.

24. There was no dispute between Counsel as to the principles relevant to the court’s exercise of its discretion whether to order the costs of an interlocutory application to be paid forthwith[1].  Mr Ho had summarized the matters to be taken into account in the discretionary exercise, such list not being exhaustive:

(a) whether the proceedings in question are severable and self-contained from the rest of the action;

(b) the justice of making the costs order having regard to the effect on the respective parties’ cash flow.  For instance, the court would have regard to the unfairness of keeping the successful party (in the interlocutory application) out of its money until trial;

(c) whether the amount at stake was sufficient to justify the expense of a separate taxation (NB this consideration did not apply here as P was seeking summary assessment);

(d) the underlying objectives in Order 1A rule 1 of RHC.  In particular, Lam J, as he then was, had said in Midland Business Management Ltd v Lo Man Kui (No 2)[2] that it was recognized that the lack of immediacy of orders to pay costs “in the cause” or “in any event” weakens costs as a sanction against unwarranted applications or resistance, and that under the Civil Justice Reform, the court is encouraged to order immediate payment of costs of interlocutory proceedings and if possible by way of summary assessment of costs, and that after Civil Justice Reform “the court is more astute to the impact of costs on legal proceedings and an order for immediate payment of costs will be made more readily as a discipline against unmeritorious interlocutory applications”.

(e) As in any other exercise of its costs discretion, the court is also entitled to consider the conduct of the parties, including the manner in which a party has pursued or defended his case or a particular allegation or issue: Order 62 rule 5 of RHC.

25. I accept that the Striking Out Summons is a completely severable and self-contained from the rest of the action.  The eventual outcome of the trial of this action will not have any impact on the costs order made by the court at this stage.  The costs are not of an insignificant amount, with involvement of Leading Counsel at a 1-day hearing.  There is no suggestion from Ds that immediate payment of P’s costs would have any serious impact on their cash flow or prejudice their positions in the action in any manner.  Ds are not domiciled in Hong Kong.  D1 is believed to be in Australia, while D2 is a PRC company.

26. Mr Ho had submitted that there was no reason as to why P, which had succeeded with part of the Striking Out Summons should be kept out of the amount until trial, which would be a considerable time away.

27. Ms Ip had, however, pointed out that the proceedings are at an advanced stage, with witness statements including expert statements already exchanged, and a case management conference fixed on 29 July 2015. 

28. However, in light of the present state of the High Court’s diary, even though a case management conference has been fixed, the trial is unlikely to take place until sometime next year.

29. Ms Ip submitted that the Striking Out Summons was not a straightforward application as put by Mr Ho, namely considerable background information was relevant which appeared in a number of affidavits : 8 from P and 4 from Ds, and there was bound to be some overlap between the Striking Out Summons and the earlier interlocutory applications.  Ms Ip also pointed out DHCJ Marlene Ng had declined to order summary assessment for those applications before her in her Reasons for Decision on Costs dated 16 January 2014, although she ordered the costs to be taxed , if not agreed and paid forthwith.

30. Having considered Ms Ip’s submissions, even though I accept that the Striking Out Summons was not really that straightforward, and that there could be overlap between the Striking Out Summons and the earlier interlocutory applications before DHCJ Marlene Ng when she declined to order summary assessment, I am of the view that any overlap could be taken into account during the assessment.  Further, P’s costs herein were much less than those in the applications before the learned Judge.  I am therefore of the view that summary assessment is appropriate in relation to the Striking Out Summons.

31. I will therefore allow summary assessment and order that such summarily assessed costs of the Striking Out Summons are to be paid by Ds within 14 days after the assessment.

Conclusion

32. In view of what I have said above, I dismiss Ds’ Summons and will allow P’s Summons.

33. As for costs for the variation, I order Ds to pay costs of both Ds’ Summons and P’s Summons, such costs to be summarily assessed, and to be paid within 14 days after the assessment.  I accept Ms Ip’s submission that there should be certificate for one Counsel only for both these variation summons.

34. P had lodged two statements of costs, one dated 30 September 2014 in relation to the Striking Out Summons and one dated 16 March 2015, in relation to P’s Summons which included two Counsel’s fees, but did not seem to have included P’s costs of Ds’ Summons.

35. In light of my decision herein, I direct P to re-submit their statements of costs within 7 days, D to submit their lists of objections within 7 days thereafter, and any reply by P to be submitted within 7 days thereafter.

[1] see Kickers International SA v Paul Kettle Agencies Limited & anor [1990] FSR 436, 439-440 per Hoffmann J, Naf Naf SA & anor v Dickens (London) Limited & anor [1993] FSR 421, 429-430 per Hoffmann J, Hui Yin Sang & anor v Tsoi Ping Kwan & anor HCA 392/2008, Sakhrani J (unreported, 14 July 2009) at paras 17-19, Midland Business Management Ltd v Lo Man Lui (No 2) [2011] 2 HKLRD 667, 671-673 per Lam J, and The Liquidator of Wing Fai Construction Company Limited (In Compulsory Liquidation) v Yip Kwong Robert & Ors FACV 3/2011 (unreported, 24 May 2012) at paras 4-9 per Ribeiro PJ (adopting the analysis by Lam J (as he then was) in Midland Business Management Ltd)

[2] At paras 9 and 12 of Midland