CHINA PROPERTY DEVELOPMENT (HOLDINGS) LTD v. MANDECLY LTD AND OTHERS

HCCT 53/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

CONSTRUCTION AND ARBITRATION PROCEEDINGS NO. 53 OF 2010

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JUDGMENT ON COSTS

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1.  On 30 March 2015, I handed down judgment allowing the plaintiff’s application to set aside part of an award in an international arbitration made in 2010.  In the arbitration, the plaintiff and the 5^th defendant herein were the claimants while the other defendants herein were the respondents.  As requested by the parties, I directed the parties to lodge written submissions on costs for ruling on paper[1]. No news had since been heard, save that the case subsequently went on appeal, which was dismissed in May 2016[2].

2.  It was not until last week when my attention was drawn to the fact that the parties had indeed lodged their respective submissions on costs as directed, but the same together with the case file had never reached me, then sitting in the Wanchai Law Courts.  It was upon the written enquiry of the plaintiff that the mishap in the case file dispatch back then was subsequently discovered.

3.  In this judgment, I shall adopt the same defined terms and abbreviations in the main judgment.

4.  To recapitulate, Minghuaxuan, the 4^th defendant and in liquidation, did not enter appearance, while BPP, the 5^th defendant, was joined as an interested party in the arbitration.  The main contestants opposing CPDH’s application in these proceedings were Mandecly, Tsoi and Chan.

5.  Two sets of costs are in issue:

(1) costs of the main proceedings; and

(2) costs of the application by Tsoi for security for costs.

Costs of the main proceedings

6.  As to the costs of the main proceedings, Mandecly and Chan confirmed that they had no submission.

7.  As indicated in the main judgment[3], costs of the main proceedings should be expected to follow the event.  CPDH asks for this with certificate for 2 counsel.  Tsoi asks for no order as to costs.  His basis for that is that CPDH had delayed in prosecuting the proceedings, and had no genuine intention of pursuing the proceedings.

8.  Considering the sequence of events, including the early stage of these proceedings involving service, I do not accept the complaint of Tsoi to be an accurate depiction of the complete picture.  Such complaint, in the events that had followed up to the conclusion of these proceedings, also afforded no valid reason for the court to depart from the norm in exercising discretion to order costs of the main proceedings to follow the event.

Costs of the application for security for costs

9.  This concerns Tsoi only.

10.  Through his solicitors, Tsoi demanded security for costs from CPDH on 18 June 2013, and took out the summons for such purpose 6 days later.  The summons was returnable on 4 July 2013, which was less than 6 weeks before the substantive hearing in the main proceedings.

11.  CPDH resisted the application and filed its affirmation in opposition on 3 July 2013. Written submissions, including those from Tsoi’s solicitors, arrived on the same day, but Tsoi’s affirmation in reply was only filed on the day of the hearing of the summons.  It was obviously unrealistic to expect the court to accommodate by allowing the parties to press on with substantive argument within the limited time allotted for the call-over hearing.  The application was adjourned for argument on 26 July 2013, which was slightly less than 3 weeks before the substantive hearing in the main proceedings.

12.  The application was eventually disposed of by consent.  CPDH provided security for Tsoi’s costs in the sum as sought.  Costs of such application were nevertheless reserved.

13.  As the applying party, Tsoi asks for costs of the application.  He argued that in view of CPDH’s concession, he was effectively the successful party.  CPDH disagreed. I have to consider effectively whether Tsoi’s application would have succeeded or failed, had it not been resolved by consent.  For this purpose, I have considered not only the submissions on costs but also the submissions lodged by the parties in respect of the application back in 2013.

14.  The principles governing application for security for costs pursuant to O.23, Rules of the High Court are trite.  I do not propose to set them all out here.

15.  Tsoi applied on the basis that CPDH, being a Cayman Island corporation, was ordinarily resident overseas and it did not have any substantial assets in Hong Kong that he might look to for the enforcement of any costs order, if CPDH failed in the main proceedings.

16.  CPDH argued that O.23 did not bite these proceedings.  Even if the provision did, CPDH argued that its central control and management was located here.  It claimed strong merits in the main proceedings, and thus the chance of liability under an adverse costs order was low.  It claimed that it would be able to meet any adverse costs order in any event.

17.  Regarding the applicability of O.23, CPDH argued that as an application to set aside part of an international arbitration award, the main proceedings were more akin to an appeal instead of an action.  CPDH also argued that had this been a case of the defendants’ action to enforce the arbitration award, effectively the same litigation would have arisen but in that case, there would have been no question of CPDH having to provide security for costs.

18.  No authority was tendered in support of the argument that the nature of these proceedings fell outside the ambit of O.23.  Security for costs may be ordered against an appellant.  O.23 catches those who take upon themselves as the attacker by initiating the relevant litigation.  Whether the order for security would actually be made in the circumstances of this case is another question, and of course a matter of discretion.

19.  There was no dispute that CPDH was not a registered overseas corporation in Hong Kong.  It had no trading or business activities here, except as a holding company.  There was evidence back in 2004-2007 that it had a service address in Hong Kong.  Putting aside the concern about whether that remained to be the case in 2013, the assertion of location of central management of the corporation here by reference to the keeping of books and company secretarial service would not carry substantial weight in the consideration in the circumstances of this case.

20.  It was said that CPDH had bank accounts in Hong Kong.  The evidence in this respect went no further than such assertion.  It is trite that in a place like Hong Kong, the existence of bank accounts, even with substantial credit balance at a given point of time, would not be viewed as assets of permanent in nature sufficient to address the concern about possible enforcement of costs order in due course.

21.  As to the merits of the main proceedings, and thus the likelihood of CPDH’s exposure to an adverse costs order, this would not be judged by reference to the outcome of the main proceedings, now known both in the first instance and on appeal. The burden of CPDH as the applicant in the main proceedings was onerous.  Even assuming CPDH managed to overcome the hurdle of establishing the grounds for impeaching the relevant parts of the award, the court would still have had to consider whether or not to set aside the relevant parts of the award as a matter of discretion.  Suffice to say that for the purpose of the application for security for costs, it was then not obvious that CPDH would succeed in the main proceedings.

22.  The court retained the discretion to make the order for security or not.  Whilst an application of this sort may be made at any stage of the proceedings, delay in making the application for security, and its resultant prejudice, could be a factor militating against the making of such an order.  Guidance in respect of the consideration of this factor on the scale could be found in, amongst others, BBMB Finance (Hong Kong) Ltd v China Underwriters Life and General Insurance Co Ltd (in liquidation) [1991] HKLR 617 at 626-628; Peconic Industrial Development Limited & Anor v Chio Ho Cheong & Ors, HCA 16255/1999 (26 October 2005).

23.  The main proceedings were served on Tsoi in December 2010.  The request for security for costs, as mentioned, was made in June 2013.  His explanation for not having made the request for security until then was not forthcoming until the lack of that was pointed out by CPDH in its affirmation in opposition.  Tsoi then explained by his latest affirmation, which, as mentioned, was filed only on the day of the call over hearing.  Notwithstanding his latest affirmation, I was not impressed that Tsoi managed to explain well why the opportunities for demanding security for costs had never been seized of over the past 2.5 years, when the overseas status of CPDH was known.

24.  As what happened in the authorities cited above, the court would have had to consider the resultant prejudice of delay instead of delay per se.  CPDH complained that this was an ambush, whereby it was left with insufficient time to prepare for the opposition.  But that ceased to be significant, when I gave leave to CPDH to adduce further evidence in opposition for the adjourned hearing and CPDH had filed none subsequently.

25.  CPDH also expressed concern about the prospect of the other defendants following suit in seeking security for costs against it, if Tsoi’s application was entertained.  But I would have been surprised, had the other defendants indeed adopted the alleged wait-and-see approach at that point.  The other main contestants, Mandecly and Chan, instructed the same team of counsel as that of Tsoi to advise them.  They would be expected to have been advised that such approach and thus further delay would only have driven the court to rule against a similar application by either of them.

26.  Incidental to the consideration of delay, the real hesitation was whether CPDH could not come up with the security within reasonable time without derailing the hearing in August 2013.  Yet unlike what happened in Peconic Industrial Development Limited (above), CPDH made no assertion or adduced any evidence in respect of any difficulty in coming up with the security for costs in time without jeopardising the substantive hearing of the main proceedings.  Instead, it referred to its financial strength, including the substantial credit balance in its bank accounts, its corporate connection and backup in Hong Kong.  There was actually no argument as to the amount of the security being sought.

27.  Lastly CPDH referred to the costs that it would in any event be entitled to recover from the defendants, Tsoi included, in the arbitration, which, it asserted, should far exceed Tsoi’s costs of the main proceedings here.  It was not suggested that Tsoi’s accrued liability to pay CPDH’s costs in these proceedings far exceeded CPDH’s potential liability to pay his costs as a matter of set-off. It was therefore unclear how the argument worked in its favour.

28.  All circumstances considered, I would have acceded to the application for security for costs.  The delay in the making of the application for security for costs also did not suffice to alter the norm of ordering costs to follow the event.

Order

29.  Save that it shall pay Tsoi’s costs of and occasioned by his application for security for costs, CPDH shall have its costs of the main proceedings, including any other costs reserved, with certificate for 2 counsel.  Costs shall be taxed if not agreed.