EMAGIST ENTERTAINMENT LTD v. NETHER GAMES (HONG KONG) LTD AND OTHES

HCA 1659/2012

[2022] HKCFI 3471

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1659 OF 2012

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(By Original Action)

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(By Counterclaim dated 3 May 2013 as amended on 14 July 2015)

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(By Re-Amended Counterclaim dated 24^th December 2018)

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DECISION ON COSTS

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1.  This is the paper application to vary the costs order nisi made by me in the Judgment handed down on 28 March 2022 (“the Judgment”)[1].

2.  The background of this case has been set out in the Judgment and I do not want to repeat the same here.  For the purpose of this Decision on Costs, I will adopt the same abbreviations that I used in the Judgment.

3.  In the Judgment, I made the following costs order nisi:

(i)  save that there be no order as to costs as between Emagist vis-à-vis Eric, Simon and Nether, the costs of the Original Claim be paid by ART to Emagist;

(ii)  in respect of the Eric Counterclaim, the costs be paid by Eric to Emagist and Boniface; and

(iii)  in respect of the ART Counterclaim, save that there be no order as to costs as between ART and Simon vis-à-vis Eric, the costs be paid by ART and Simon to Boniface, Emagist and Emagist Cayman.

4.  Boniface, Emagist and Emagist Cayman (collectively “the Emagist Parties”)  now apply to vary the costs order nisi.  They contend that:

(i)  the costs awarded to them should be taxed on an indemnity basis as: (i)  the defence and counterclaim of ART, Simon and Eric (collectively “the ARTSE Parties”)  are scandalous or vexatious; and (ii)  the Game was surreptitiously and dishonestly removed by ART from Emagist;

(ii)  in any event, the ARTSE Parties had failed to obtain a better result than the alleged sanctioned offer made by the Emagist Parties to them on 7 August 2020 (“the Emagist’s Offer”), and so the costs incurred by the Emagist Parties after 4 September 2020, which was the last day for the acceptance of the Emagist’s Offer, shall be paid on an indemnity basis; and

(iii)  the Emagist Parties also ask for certificate for 2 counsel.

The conduct of the parties

5.  In support of the first ground, solicitor for the Emagist Parties (“Emagist’s Solicitor”)  has relied on the following:

(i)  DHCJ Woo, in §13 of his judgment handed down in this case on 7 January 2013 in respect of the interlocutory injunction application[2], had expressed the view that the ARTSE Parties had taken the law into their own hands and took advantage of a situation created by their own fault or blameworthy conduct;

(ii)  there is no merit in the Licence Defence and the Partnership Asset Defence and both defences are in fact inconsistent;

(iii)  there is no merit in the misappropriation claim against Boniface, who has been dragged into the present litigation unnecessarily, causing him considerable anxiety, stress, financial pressure and inconvenience;

(iv)  this court has been critical on the ARTSE Parties in how they formulated their defence and counterclaim;

(v)  the Eric Counterclaim is full of contradictions, and he had grudges against Boniface causing him to stand on the side of ART and Simon;

(vi)  as such, both the defence and counterclaim of the ARTSE Parties are dishonest, vexatious, scandalous and disgraceful.

6.  I disagree.  The main reason as to why the ARTSE Parties failed in the trial was because the court rejected their evidence on the Sun Chiu Kee Agreement on the balance of probabilities.  Furthermore, the relationship between the parties is a question of mixed law and fact, and the line between partners and employees are sometimes difficult to draw especially in a start-up operation like the present one.  Under such circumstances, I do not find that the conducts of the ARTSE Parties were dishonest or disgraceful to the extent that justifies the award of indemnity costs.

7.  In addition, the fact that the ARTSE Parties have been running inconsistent defences by itself does not make them dishonest.  As mentioned above, the legal relationship between the parties is a matter of mixed law and fact.  Both defences involve principles of law, and it is not unusual for litigants, having sought legal advice, to run different defences at different times.  After all, the legal relationship between the parties herein deserves full investigation at the trial and I find nothing improper in the conduct of the defence and counterclaim.

8.  Regarding the migration of the Game, ART wrongly believed that they were partners of the Game Business which empowered them to do such act.  Though the court eventually found against them on such issue, I do not accept that their conduct warrants the award of indemnity costs.

The Emagist’s Offer

9.  I then turn to the Emagist’s Offer.

10.  There was correspondence between the parties in early August 2020 (about 2 months before the trial)  with a view to settle the case.  The Emagist’s Offer was the final offer made by the Emagist Parties to the ARTSE Parties on 7 August 2020 which contained the following main points:

(i)  the ARTSE Parties were to issue a statement confirming that: (a)  Emagist is the copyright owner of the Game; (b)  ART and Simon were not partners with Boniface in the operation of the Game Business; and (c)  they would forfeit all claims and would not initiate any future claims against the Emagist Parties arising from the issues in dispute as described in this action (whether presently envisaged as issues in dispute for trial, or matters arising from the factual matrix described and alleged therein by the parties);

(ii)  the sum of US$43,232,677.28 paid by Emagist into court pursuant to my order dated 7 July 2020 (with interest thereon)  shall be released to Emagist;

(iii)  the payments made by Ryan into court (US$369,871.98 on 2 January 2013 and US$86,056.41 on 25 January 2013)  pursuant to the order of DHCJ Woo dated 2 January 2013 (including interest thereon)  shall be released to Emagist; and

(iv)  costs of the action shall be paid by the ARTSE Parties.

11.  After trial, I held that:

(i)  ART and Simon were not partners of the Game Business;

(ii)  Emagist owns the copyright of the Game;

(iii)  the quantum of damages suffered by Emagist caused by the “migration” of the Game was the same as the payments made by Ryan into court;

(iv)  no ruling was made in respect of the propriety of Boniface’s withdrawals, and the counterclaim for the alleged misappropriations of the fund of Emagist was dismissed solely on the ground that Emagist should be the only party to sue for such losses and no proper derivative action has been commenced in the present case; and

(v)  there was considerable confusion in conduct of the Cherubic Transaction but ART and Simon did not have the locus to challenge the allotment of shares made by Boniface.

12.  On the face of it, it seems that the Emagist Parties are doing better than the terms in the Emagist’s Offer.  However, I take the view that the ARTSE Parties should not have been asked to waive any future claims against the Emagist Parties arising from the issues in dispute as described in this action.  Despite the fact that the Game Business was not operated in the manner as alleged by the ARTSE Parties, they are still shareholders of the Game Business: Eric is a partner proper and ART and Simons are shareholders by reason of the shares allotted to them.  They may still have a claim against Boniface for alleged misappropriation of funds and wrongful allotment of shares, provided that the proceedings are instituted by proper plaintiff and all the relevant parties are joined in the proceedings.  Despite that the Emagist Parties succeed in the first stage of the litigation, the Judgment has left open some of the issues that may be followed-up by the parties in the future.  I therefore take the view that, despite losing in the issues adjudicated at the trial, it was proper for the ARTSE Parties not to have accepted the Emagist’s Offer in particular the waiving of their rights of pursuing future claims.

13.  For these reasons, I refuse to award indemnity costs to the Emagist Parties for the period after the making of the Emagist’s Offer.

Certificate for 2 counsel

14.  I also reject the request of the Emagist Parties for certificate for 2 counsel.  Some of the written submissions lodged with the court are unnecessarily lengthy, but this does not in any way show that this case involves difficult or complicated issues of law or fact which justifies the engagement of 2 counsel.  I therefore refuse such request.

15.  For these reasons, the order nisi is made absolute.  All the costs will be taxed on a party-to-party basis with no certificate for 2 counsel.

16.  As the Emagist Parties fail in this paper application, the costs of such application is awarded to the ARTSE Parties.