MONEY LINK TRAVEL CO LTD AND OTHERS v. YIP WING CHING

HCA 1389/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1389 OF 2014

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REASONS FOR DECISION
RULING ON COSTS

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1.  On 22 July 2014 the plaintiffs applied for an interlocutory injunction to compel the defendant to deliver up 7 Vehicle Registration Documents (“the VRDs”).

2.  The matter first came before the court on 25 July 2014.  The order granted by DHCJ B Chu on that day prohibited the defendant, until further order, from using the VRDs for any purpose whatsoever without prior written consent of the plaintiffs (“the Interim Injunction”).

3.  The Interim Injunction was varied by two subsequent orders.  The combined effect of the two variations is that:

(i) The defendant was to deliver 4 of the 7 VRDs to the plaintiffs to enable the plaintiffs to renew the VRDs with the Transport Department.  After renewal, the plaintiffs were obliged to deposit those VRDs with the defendant’s solicitors, who would hold the same as stakeholder and be responsible for their safe custody;

(ii) The defendant was to deliver the other 3 VRDs with his solicitors who would similarly hold the same as stakeholder.

4.  This is the substantive hearing of the plaintiffs’ summons. 

Background

5.  This is essentially a dispute within the family.  Through a number of companies, the Yip family operates a public bus and coach service for passengers. The ultimate holding company in the Group is Yip’s International Holdings Limited (“YIH Ltd”).

6.  The defendant is the patriarch of the family and founder of YIH Ltd. Since last year, the relationship between the defendant on the one hand and his wife, Madam Lau, and their sons on the other has deteriorated. 

7.  Before 31 March 2014, the defendant was the registered owner of 55% of the shares in YIH Ltd.  The other shareholders were Madam Lau, holding 25%, and their two sons, SK Yip and TY Yip each holding 10%.  From the record, it appears that the board of YIH Ltd has on 31 March 2014 approved the transfer of the defendant’s shares to Madam Lau.  But as will be seen in more detail later, the ownership of the 55% shares is the subject of dispute between the parties.

8.  YIH Ltd holds 98.89% of the shares in Great Leader Bus Holdings Ltd (“Great Leader”).  Great Leader is in turn the holding company of 4 wholly‑owned subsidiaries, among them, Man Yee Transportation Bus Company Ltd (“Man Yee Transportation”) and the 1^st plaintiff. Man Yee Transportation in turn wholly owns the 2^nd and the 3^rd plaintiffs. Apart from those already mentioned, there are a number of other corporate entities within the Group (collectively called “the Group”). 

9.  VRDs are documents that show the particulars of vehicles and are issued to owners of the vehicles.  It appears that while the VRDs are not documents of title, they are commonly accepted in the trade as evidence of the vehicles’ ownership and are often bought and sold or used as security for raising finance.

10.  In this action, the plaintiffs’ claim is for trespass, detinue or conversion of the VRDs.  It is the plaintiffs’ case that in May 2014, the board of Great Leader resolved that Madam Lau was to be the custodian of the VRDs and that any person in possession of the VRDs should deposit them with Madam Lau.  Since then despite repeated demands, the defendant did not return the VRDs.  It was discovered in June 2014 that the defendant might have used the VRDs for an application to the bank for finance by way of hire purchase or similar service.  That application was eventually cancelled after intervention of the 1^st and 2^nd plaintiffs.

11.  There is also some evidence that in August 2014, the defendant has initiated an offer to sell the VRDs to one Mr Lung, a fellow operator of public bus service.

The Dispute

12.  At the outset of the hearing, Mr Adrian But, for the defendant, indicates that the defendant would not contest an order to deliver up the VRDs to the plaintiffs.  Hence, for the present purpose there remains only two outstanding issues, namely, whether and if so what undertakings should be given by the plaintiffs in connection with the order to return the VRDs, and the question of costs of the plaintiffs’ summons. 

13.  In relation to the undertakings, Mr But contends that they should include:

(i)     the usual undertaking to compensate the defendant for loss in the event of the court finding that the order for injunction is wrongly made; and

(ii)    an undertaking from the plaintiffs that the VRDs should not be used for any purpose (save and except for their renewal) without the prior consent of the defendant or order of the court.

14.  Mr Abraham Chan (together with Mr Justin Ho), for the plaintiffs, resist both undertakings.  Mr Chan’s primary contention is that the defendant has no arguable defence to the plaintiffs’ claim.  He argues that the defendant never had authority to take possession of the VRDs, and any authority he might have to keep the documents must cease after his removal as director of the respective plaintiffs.  The defendant has in any event failed to file a defence despite the time prescribed for doing so has passed, and for the purpose of the present application, has failed to file any evidence in response.  The merits of the plaintiffs’ claim for the unlawful detention of the VRDs, according to Mr Chan, are so overwhelming that there will be no need for further consideration of any undertaking because the defendant can take matters no further at the trial.

15.  Despite Mr Chan’s able submissions, however, I think the plaintiffs are taking too narrow a view over the dispute between the parties.  It is evident that the claims over the defendant’s dealings with the VRDs is but one aspect of a much larger dispute between the defendant and Madam Lau and other members of the family.  Apart from this action, I am informed that other proceedings are pending in the High Court where, among other things, the beneficial ownership of the 55% shares in YIH Ltd is being litigated.  As the available materials show, the issues in the other proceedings include the authenticity of a declaration of trust over the 55% shares allegedly having been signed by Madam Lau in favour of the defendant; the validity of the transfer of those shares by the defendant and the approval allegedly given by the board of YIH Ltd in respect to such transfer (referred to earlier); allegations of misappropriation of moneys by the defendant from the companies within the Group; and probably counter‑allegations by the defendant against Madam Lau of wrongful conduct in their dealings of the companies’ affairs including issues of authority to commence the present proceedings.  It suffices to say that the dispute spreads over a range of issues.

16.  Although I do not have a complete view over the entire dispute, it is readily apparent that an important thread running through the many issues in the various proceedings concerns the beneficial ownership of the YIH Ltd shares and control of the companies within the Group.  A determination of that issue is likely to affect the validity of the actions taken at the board or shareholders level. 

17.  Mr Chan contends, however, that the shareholders’ resolutions to remove the defendant as director in each of the plaintiffs cannot be impugned even if the 55% share transfer in YIH Ltd were eventually held to be invalid.  According to Mr Chan, since Great Leader and Man Yee Transportation (ie the immediate holding companies of the plaintiffs) had several directors and the defendant, being outnumbered at the board level, could have done nothing to preclude Great Leader and Man Yee Transportation from procuring his removal from the respective plaintiffs.  For the reasons I have already discussed, I think Mr Chan’s submissions have overlooked the fundamental question of control of the companies.  In the event of the court ultimately finding that the defendant was and at all times has remained the rightful majority shareholder in YIH Ltd (the ultimate controlling company of the Group), it is by no means clear that the validity of the acts of those entities further down the corporate chain are altogether unimpeachable.  This, as earlier discussed, may well impact upon the authority to commence the present action.

18.  Mr Chan, on the other hand, is undoubtedly correct in saying that the defendant, if he has any defence at all, has the responsibility to plead his case properly and put in relevant evidence if he wishes to contest the present application, which he has failed to do.  These are, of course, valid criticisms.  But in my view, it would be wrong to focus only on the issue of the claim regarding the VRDs and ignore the implications of the broader dispute between the parties. 

19.  In short, it would be premature for me to form a view at this stage that the merits of the plaintiffs’ claim are so overwhelming that the requirement of the usual undertaking as to damages should be dispensed with.  

20.  I will turn to the second undertaking regarding dealings with the returned VRDs, a point I need only to deal with briefly.  The purpose of the first undertaking is to protect the defendant against any loss he may suffer.  This is already adequate protection in case the injunction is wrongly granted.  I agree with Mr Chan that there is no factual basis to justify an additional undertaking.  The proposed second undertaking, if anything, is likely in practice to engender further conflict between the parties.  In this regard, while Mr But seems to suggest that the vehicles are all unique and there will be irreparable harm to the companies if the plaintiffs were allowed to deal with the VRDs freely, there is simply no evidence to support these assertions.  I would not accede to the defendant’s request for the second undertaking.

Costs

21.  On the question of costs, Mr Chan argues for costs to the plaintiffs on an indemnity basis.  Mr But on the other hand contends that the appropriate order should either be costs in the cause of the action, or the plaintiffs’ costs in the cause. 

22.  Mr Chan puts his argument first on the basis that there are no merits in the defendant’s case and secondly, that the conduct on the part of the defendant amounts to an abuse of the court’s process which has led to substantial costs and expenses having been incurred by the plaintiffs unnecessarily.  Mr Chan refers to the following observations of Hoffmann J (as he then was) in Kickers International SA v Paul Kettle Agencies Limited [1990] FSR 436, at 438‑439:

“An order for a party’s costs to be ‘in the cause’ is made because the court has not investigated the merits and considers that it would not be fair for him to recover those costs unless he succeeded at the trial. But the fact that the merits have not been investigated, or not fully investigated, does not necessarily mean that the court cannot dispose finally of interlocutory costs. The question cannot be settled simply by reference to practice: it must be answered on the facts of the individual case. Would it be unfair in this case for the defendants to have the costs of the motion even if they lost at the trial? On balance I do not think that it would. Although I cannot decide the merits, I can form a view on whether the plaintiff, on the material it has produced and what it must have known about the defendants, was justified in launching the motion. I do not think it was. Therefore whatever the outcome of the trial, the motion which has now been abandoned has put the defendants to a great deal of unnecessary expense.

One solution sometimes adopted is to reserve the costs of the motion to the trial judge. There is a superficial attraction about this course because the trial judge will have all the facts and be in the best position to decide whether a party should have interlocutory costs despite the fact that he has lost at the trial. But in practice it has serious disadvantages. One is the difficulty of reconstructing for the trial judge how things looked at the time of the interlocutory application, particularly when it involved questions of balance of convenience which were irrelevant at the trial. But the more important reason is that very often there is not trial. In such a case, an order that costs be in the cause or reserved to the trial judge is in practice a decision that there should be no order as to costs. Not many defendants, even with the encouragement of success at the interlocutory stage, are willing to insist on a trial for the purpose of recovering their interlocutory costs. But unless they do, the costs are left in limbo, as in Stratford v. Lindley (No. 2) [1969] 1 W.L.R. 1547. This gives the unsuccessful plaintiff a powerful bargaining weapon. He can face the defendant with the alternative to accepting a substantial discount on the interlocutory costs or having to incur the trouble, expense and risk of a trial. Furthermore, the existence of an order for substantial costs contingent upon the outcome of the trial, or reserved to the trial judge, may push the parties into a trial of an action which would otherwise have settled.

Thus it seems to me that in making a costs order at the interlocutory stage, there are two risks of injustice which have to be balanced against each other.  On the one hand, a final order might award a party costs which, upon fuller consideration at the trial, he would not have been given.  On the other hand, failure to make a final order might have the practical effect of depriving a party of some or all of the costs which he should in fairness have recovered.  I think it is possible that in the past the courts may have been more impressed by the first risk than by the second.”

23.  The above observations were adopted by DHCJ To (as he then was) in Wah Cheong Construction Company Limited v Super Bright Engineering Limited & others, HCCT 10 of 2003 (dated 6 June 2003).  The learned judge further remarked (at para 3) that the courts are now more keen to exercise its discretion and make a final costs order after considering the facts of the case than to leave it to be determined at trial.  Similarly, in Korea Exchange Bank, Hong Kong Branch v SSCP Holdings (Hong Kong) Limited & others, HCA 146 of 2013 (dated 26 June 2013), Au Yeung J expressed the view that it is not necessarily the case that costs should be in the cause and the court is entitled to look at the merits of the injunction at the time of its application, citing Au J in Mendlowitz & Associates Inc v Winner International Group Ltd & another, HCA 574 of 2009.

24.  On the other hand, Mr But refers to the observations of DHCJ Horace Wong SC in Guccio Gucci SPA v Cosimo Ludolf Gucci & others, HCA 1582 of 2008, at paras 21 and 22; and those of DHCJ Carlson in Chen Tek Yee v Chan Moon Shing & another, HCA 954 of 2010, at paras 9 and 10, to support his contention that costs should be in the cause because there is yet to be a determination on the substantive merits of the plaintiff’s claim.

25.  As Lord Hoffmann said in Kickers International (supra), the court has to balance the two risks of injustice.  For the reasons I already discussed in the preceding section of this Decision, it would not be right at this stage for me to form a view on the merits of the plaintiffs’ claim without regard to the broader context of the disputes between the parties.  The appropriateness of this interlocutory application should best be considered after trial of the action. 

26.  On the other hand, I am sympathetic to the second aspect of Mr Chan’s argument.  As already noted, the application was first listed for hearing on 25 July 2014.  The defendant was represented by counsel at that hearing when the court granted the Interim Injunction.  The defendant, however, evaded service of the order and eventually the plaintiffs had to apply for and obtained an order for substituted service.  Furthermore, in the meantime, the Interim Injunction had to be varied twice to enable the VRDs to be renewed. 

27.  As noted earlier, the defendant has not responded properly to this application.  It was only shortly before this hearing that the defendant has indicated his willingness to return the VRDs to the plaintiffs for custody.  Had he done so earlier, I have little doubt that much of the costs incurred in the interim could have been avoided.  There is no justification for him to treat this application in the manner he did. 

28.  Although my view remains that the appropriateness of the present application should best to considered after trial, it is clear that the defendant ought not to be given any costs for this application even if he wins the action.

29.  The overall result is that the plaintiffs have obtained largely, though not totally, what they seek in the application (including arguments on the undertakings and costs).  Taking all circumstances into account, I think the most appropriate order for costs would be plaintiffs’ costs in the cause of the action, and that such costs, if awarded to the plaintiffs, are to be taxed on a party‑and‑party basis. 

Summary

30.  I have already granted an order at the hearing, namely, that the defendant was to return to the plaintiffs within 24 hours the respective Vehicle Registration Documents for the 7 vehicles referred to in para (1)(a), (b) and (c) of the summons, subject to the usual undertaking by the plaintiffs to compensate the defendant in the event of the court later finding that this order has caused loss to the defendant and that the court decides that the defendant should be compensated for that loss. 

31.  By this Ruling on Costs, I further order that costs of the plaintiffs’ summons be the plaintiffs’ costs in the cause of the action, and that such costs, if awarded to the plaintiffs, are to be taxed on a party‑and‑party basis.  For the avoidance of doubt, I would allow a certificate only for one counsel despite their able assistance.