PBM (HONG KONG) LTD v. TANG KAM LUN, ALLAN AND OTHERS

HCA12138/1997 &
HCA13316/1997

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 12138 OF 1997

_______________________

BETWEEN:

______________________

ACTION NO. 13316 OF 1997

______________________

(Consolidated pursuant to the Order of Registrar Chu dated 16 July 1999)

______________________

REVIEW OF TAXATION

______________________

Introduction

1. There are three applications for review of taxation, with one each from the Defendants Wyman Chan and Regent Trinity Investment Ltd.  These two applications touching upon the same subject matters were addressed by Mr. Derry Wong in his two written submissions expanded upon in oral submissions.  Mr. Peter Graham advanced the remaining application of the Plaintiff.  All the applications were contested.

The Defendants’ applications

2. They can conveniently be dealt with together as counsel did as they related to the same complaints.

3. In a nutshell, the Defendants’ arguments for review are as follows.  Pursuant to O. 62 r. 28(2) a successful litigant is only entitled to such costs as are necessary or proper for the enforcement of his rights.  The Plaintiff’s cause of action being essentially restitutive and not compensatory in nature as found by the Court of Final Appeal should disentitle the Plaintiff to its costs of tracing and investigation of the fraud committed by Allan Tang, the 1^st Defendant.  The costly steps undertaken to trace the ill-gotten proceeds of the breach of trust should have been disallowed as unnecessary, serving no useful purpose for the advancement of the Plaintiff’s rights or for the attainment of justice.

4. The Plaintiff was only entitled to the costs of the two actions under the order of Deputy Judge Lam as he then was (now Lam J).  Such costs did not encompass any reserved costs that had been overlooked by the trial judge.  Accordingly, it is submitted that the reserved costs should have fallen away and ought not to have been taxed.

5. The final matter of controversy related to my refusal to apportion costs which Mr. Wong contended did not relate to either of the two Defendants before me.

The Plaintiff’s application for review

6. The Plaintiff’s review seeks to overturn my decision to reduce the Plaintiff’s taxed costs for delay in prosecuting the taxation.

The Costs Order

7. The order for costs nisi as varied dated 27 September 2002 of Lam J of the two actions was in these terms:

1. Costs of the trial hearing be paid by CHAN CHUN CHUNG, WYMAN, CHAU SAU LAI and REGENT TRINITY INVESTMENT LIMITED to the Plaintiff;

2. In respect of the Plaintiff’s claim, CHAU SAU LAI to pay the Plaintiff only those costs, in relation to her part and CHAN CHUN CHUNG, WYMAN and REGENT TRINITY INVESTMENT LIMITED to pay the Plaintiff only those costs in related to their part; and

3.    Costs of today’s application be paid by CHAN CHUN CHUNG, WYMAN and REGENT TRINITY INVESTMENT LIMITED to the Plaintiff.

8. Turning to the Defendants’ case for review, I propose to first address the submission on the want of jurisdiction to tax the reserved costs.

The jurisdiction to tax

9. It is wholly accepted that a Taxing Master has no power to tax reserved costs orders not specifically included in a costs order made at the conclusion of the suit: O.62/3/6.  Such costs forming no part of the costs of the action are left where they lie in the absence of a specific order dealing with them: British Natural Premium Provident Association v Bywater [1987] 2 Ch. 531, Gardner v Marshall (1845) 14 Sim. 575.

10. The disputed reserved costs related to interlocutory applications for Mareva Injunctions against all the Defendants under HCA 12138 of 1997 and against the 2^nd, 3^rd and 4^th Defendants in HCA 13316 of 1997.  Mr. Wong contended that these costs were irrecoverable, as the learned judge had failed to deal with them when the order nisi was varied on 27 September 2002.

11. The matter came up for clarification on 13 March 2003.  Mr. Graham was concerned to ensure that the final order for costs did include the reserved costs.  The transcript of that hearing has been produced.  The relevant portions of it read as follows.

(at p.2)

Mr Graham:     And, my Lord, there’s just a bit of mopping-up to be done, dealing with some costs reserved orders and matters of that kind.  My Lord…

Court:  Yes, but those were interlocutory costs, isn’t it?

Mr Graham:     That’s right, yes.  My Lord…

Court:  I would have thought that it has been covered by paragraph 2 in the order.

…..

Court:  This is the order as to costs I made…

Mr Graham: Yes.

Court:  …on 27 September after hearing submissions.

…..

Court:  Paragraph 1, I was dealing with the costs of the trial itself.  And then, paragraph 2, I dealt with the costs of the action and that would include the interlocutory…             

(at p.3)

Court:  Nobody referred me specifically to these order but…

Mr Graham:     No.  Well, I think…

Court:  …when I make an order for the costs of the action;;;

Mr Graham:     I see.  But…

Court:  …the general rule is that it covers all the costs…

Mr Graham:     I see.  Right.

Court:  …including the interlocutory proceedings and that…

Mr Graham:     All right.  Well, my Lord, I think that the – the sort of – the old-fashioned practice was that if costs were reserved, they wouldn’t be part of the normal costs of the action;  they’d have…

Court:  I see.

Mr Graham:     …to be dealt with separately.  But I know that’s not the modern practice in England and it may not be the practice in Hong Kong anymore but, my Lord, we’re grateful.  If you’d simply make it clear that that’s the case, I think – then we’re – everything’s dealt with.

Court:  Yes.

…..

(then at p.5)

Court:  Well, because I – perhaps I will spell out my understanding of the effect of my order on 27 September.  My understanding  -- and this was my intention when I made the order – was that in paragraph 2, I was dealing with all the costs in relation to these two actions other than the costs of the trial and that would cover all interlocutory steps taken unless there had been previous order as to costs otherwise.  That means if those – if there has been an order from, for example, Findlay J expressly dealing with the costs of the injunction.  That, of course, has been dealt with by Findlay J and paragraph 2 would not have the effect of overriding what had been ordered.  But, if previously the costs as to those interlocutory steps were reserved, then it would be covered by paragraph 2.

(at p.7)

Court:  …and I have dealt with all interlocutory costs in paragraph 2 of my order.

(at p.8)

Court:  …if it was reserved then it would be covered by paragraph 2 of my order on 27 September.

12. The order for costs was neither reversed nor varied on appeal.  In light of what the learned judge said of the intended ambit of his order on varying the costs order in September 2002, the submission on jurisdiction must fail.

Were the costs allowed proper or necessary?

13. These costs represent a substantial portion of the Plaintiff’s bill.  They were incurred in relation to surveillance and other investigatory work undertaken by accountants for the purpose of the trial.  The application for review of these items and their quantum was couched in the following terms:

The learned Master erred in principle and/or exercise his discretion in allowing the Plaintiff’s costs for locating evidence for support of the finding of the ‘sham’ transaction.

The learned Master is invited to consider the position in light of the following grounds:

The Court of Final Appeal had in FACV 19 of 2003 clarified and/or effectively ruled that the Plaintiff’s true cause of action having regard to the claim (which was not of compensation) was a tracing claim based on the 1^st named Defendant’s (in the aforesaid Actions) breach of trust giving rise to a constructive trust (common ground) by reason whereof the tracing exercise of the Plaintiff whereby the accountant Price Waterhouse Cooper tried to trace AT’s misappropriated money into Wyman Chan’s bank accounts as well as investigator’s costs and all costs incurred by the Plaintiff in connection therewith and/or incidental thereto was irrelevant and/or unnecessary and/or improper for the attainment of justice or for enforcing the right of the Plaintiff.

Further as it turned out, all such tracing by Price Waterhouse Cooper and investigations by Traquair and FIA were also useless which, for that reason alone, should render costs in relation thereto to be disallowed (HKCP2005 62/App/54).

14. All such costs were urged to be completely taxed off, failing which their quantum should be revisited.

15. In furtherance of this contention, Mr. Wong questioned the necessity and usefulness of the work undertaken by the accountants and investigators to the Plaintiff’s case that could only have been a proprietary claim founded on constructive trust and not one of knowing assistance sounding in damages only as the Court of Final Appeal found in defining the Plaintiff’s route and entitlement to restitution.  This crucial deviation in approach from the lower courts’ decisions rendered the attempts to link the misappropriate trust monies to the Defendant Wyman Chan wholly superfluous.  It is further submitted that the expensive undertaking had failed to achieve its stated purpose as the trial judge had to resort to the role of intermediaries to fill the lacuna in the evidence.  In short, the efforts of the accountants and the investigators in tailing the 1^st Defendant served no useful purpose in advancing the Plaintiff’s claims and the costs thereof should be totally discounted.

16. As Mr. Graham aptly pointed out, the Plaintiff’s claim was not just one for restitution.  The reliefs sought included, knowing assistance, constructive trusteeship, equitable tracing and restitution.  The matrix of facts as found by the judge, remaining essentially undisturbed by the appellate courts, permitted all three levels of courts to uphold the Plaintiff’s entitlement to judgment.  That the Court of Final Appeal had departed from the trial judge’s approach in coming to the same conclusion can have no impact on the Plaintiff’s entitlement to the costs of these disputed items.  The decisions at first instance and on appeal including the costs orders were upheld.

17. At trial, the Plaintiff was put to strict proof as the defence was one of denial and non-admission.  Under such circumstances, it was imperative for the Plaintiff to adduce evidence of the fraud practised over a period of time by the 1^st Defendant, of the tracing of the stolen monies including the involvement of accomplices and of the relationship and financial transactions between the 1^st Defendant and Wyman Chan and Regent Trinity Investment Ltd.  To do so, it had to bring in accountants and investigators.  This was a necessary, costly and time consuming forensic exercise.

18. The trial judge meticulously dealt with the vigorously contested evidence before concluding that the monies used for the acquisition of Regent Trinity Investment Ltd by the rogue Allan Tang and his girlfriend Chau Sau Lai and the subsequent proceeds of the sale of the property belonged to the Plaintiff in equity.  The evidence that had to be led plainly entitled the judge to further hold that Wyman Chan was acting dishonestly in the Regent Trinity Investment Ltd transaction and had the requisite knowledge that the funding had been misappropriated from the Plaintiff.  These significant findings of fact derived partly from the evidence from the accountants and investigators formed the basis of the Court of Final Appeal’s ruling that Wyman Chan could not possibly have been a bona fide purchaser for value without notice.  Even Mr. Wong had to admit when replying to Mr. Graham’s submissions that ‘it may be that the Court of Final Appeal had to go through all the evidence to come to the bona fide ruling’.  How then can it be said that these disbursement costs were unnecessary or improper for the enforcement of the Plaintiff’s rights or for the attainment of justice?

19. I find no merits in the arguments advanced on review.  The items complained of as taxed and allowed were neither excessive nor unreasonable in quantum.  I see no valid reason to disturb them.

Apportionment of Costs

20. The final aspect of the Defendants’ review relates to my refusal to order apportionment.

21. It is pertinent to note that the Defendants Wyman Chan and Regent Trinity Investment Ltd had sought and were refused a split costs order by the trial judge save only as to the costs pertaining to the case against the Defendant Chau Sau Lai.  On 27 September 2002, the order nisi for costs was varied as detailed above so that, inter alia, Chau Sau Lai had to pay to the Plaintiff only those costs in relation to her part with the applicants before me to bear the Plaintiff’s costs only in relation to their parts.  The effect of the costs order as revised and subsequently unmodified throughout provided that with the exception of Chau Sau Lai (the costs against whom were excluded from the bill of costs), all the costs of the actions in the bill of costs were to be paid by Wyman Chan and Regent Trinity Investment Ltd jointly and severally. 

22. Mr. Wong’s objection targeted among other things, the costs in relation to the Mareva applications launched in the early days of the suits.  In broad sweep, I comprehend the submission to query why the costs of such applications that were inapplicable to his clients and why the costs of all other investigatory work undertaken should have be borne by them.

23. In the stark light of day, the necessary and proper steps taken to freeze the proceeds of the massive fraud, to investigate and trace the stolen trust funds and to examine the close nexus and financial dealings between Allan Tang, Wyman Chan and Regent Trinity Investment Ltd were the only recourse open to the Plaintiff.  All these things had to be done for its claims to be prosecuted comprehensively, diligently and above all, successfully to judgment.  The applicants can hardly be heard to complain, as they were the driving force behind the defence at trial.

24. The taxed bill of costs contains no items that can be said to be wholly extraneous or non-essential to the exercise undertaken by the Plaintiff to obtain redress.  Accordingly, this facet of the review also fails.

Costs

25. The Plaintiff having succeeded in resisting the review is entitled to the costs of the application including the costs reserved in respect thereof, taxed if not agreed, with certificate for counsel.

The Plaintiff’s Review

26. At the taxation hearing on 19 January 2006, having heard submissions, I ordered that the taxed costs of the Plaintiff be reduced by 15% for undue delay.  The Plaintiff takes umbrage, contending that my decision was erroneous and unjustified in the circumstances of the case, alternatively, that insufficient regard had been paid to the complexity of the bill thereby warranting a lesser reduction.

27. I fully accepted and still do that the bill filed for taxation required considerable time and effort to put together.  It was a complex bulky document running to many pages.  Nonetheless, it was incumbent upon the Plaintiff, failing agreement on costs, to proceed to taxation diligently and expeditiously, notwithstanding the background of appeals in this case.  The taxation regime requires a successful litigant to prosecute its entitlement to costs without undue delay.  So much is common ground and clear from decided cases.

28. Whilst it is true that the Defendants have sought to delay the taxation of the two bills of cost in CACV 37 of 1998 and CACV 256 of 1997 by threatening to apply for a stay of taxation pending final resolution by the Court of Final Appeal, no such steps were taken by them to defer the taxation of the trial judge’s order for costs.  In those circumstances, the costs order should have been dealt with with a minimum of delay.

29. I maintain the view that some leeway should have been afforded to the receiving party to put its house in order given the complexity of the bill and that six months from 27 September 2002 when the order was varied would have been a reasonable allowance to make.  From April 2003 to the date of the filing of the bill on 13 August 2004, some 16 months have elapsed, representing a period of inordinate, unjustified and inexcusable delay.  The prejudice to the defence is the extra interests that would have to be paid, but this factor must be set-off against the advantage that funds would have been retained by the Defendants for their use.

30. To encourage timely taxation, the displeasure of the court must be demonstrated.  In the circumstances of the case, I ordered a 15% global reduction of the taxed amount.  I still consider this decision to be appropriate and just.

31. The Plaintiff’s application therefore fails.

32. The Defendants shall have their costs of the review including the reserved costs, taxed if not agreed.  The matter is certified fit for counsel.