HARBOUR FRONT LTD v. THE OFFICIAL RECEIVER AND TRUSTEE OF THE PROPERTY OF LEUNG YAT TUNG

HCMP 400/2022

[2024] HKCFI 1900

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLEANOUS PROCEEDINGS NO 400 OF 2022

________________________

_______________

_______________

________________________

D E C I S I O N

________________________

INTRODUCTION

1.  On 3 May 2024, I gave a judgment in favour of ORT on an issue of interest, holding that HF was obliged to pay ORT various items pursuant to the Settlement Agreement, ordering that the Share Charges be released upon such payment and I gave consequential directions.  HF’s claim for damages against ORT was dismissed.  I ordered, on a nisi basis that HF do pay costs of ORT with certificates for 2 counsel, summarily assessed at $800,000.

2.  This is HF’s application to vary the costs order nisi such that HF is to bear 80% of the costs of ORT.  There is no challenge as to ORT’s entitlement to costs, certificates for 2 counsel and the overall amount of the summarily assessed costs.

3.  The grounds of this application are that:

(1)  ORT has not been wholly successful in pursuing her claim (“Ground 1”); and

(2)  Compared to the ORT’s written demand dated 19 January 2022, ORT had subsequently withdrawn, modified and in effect accepted some of HF’s objections raised in relation to the quantum of various items (“Ground 2”).

4.  ORT opposes the application on the grounds that:

(1)  HF is liable to pay costs of ORT under Clause 1 of the Settlement Agreement and pursuant to the sanction granted by DHCJ H Au-Yeung to defend the OS.

(2)  There was no significant increase in the length or costs of the proceedings caused by ORT.

LEGAL PRINCIPLES

5.  The principles on award of costs for non-interlocutory proceedings have been set out in the case of Cheng Ka Shing v Bonus Plus Co Ltd [2020] HKCFI 828, §§9-12, Ng J, which followed Elgindata Ltd No. 2 [1992] 1 WLR 1207, at 1214A-C:

(1)  Costs are in the discretion of the Court. 

(2)  They should follow the event, except when it appears that in the circumstances of the case some other order should be made: Order 62, rule 3(2).

(3)  The general rule does not cease to apply simply because the successful party raises issues or makes allegations on which he fails, but where that has caused a significant increase in the length or costs of the proceedings he may be deprived of the whole or a part of his costs. 

(4)  Where the successful party raises issues or makes allegations improperly or unreasonably, the court may not only deprive him of his costs but may order him to pay the whole or a part of the unsuccessful party’s costs. 

(5)  With regard to principles (3) and (4), it is not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs. The court may so order where the failed allegation of the successful party has caused a significant increase in the length or costs of the proceedings.  By the amendments introduced to Order 62 rule 5, litigants should bear in mind the possible costs implications. There is incentive to conduct litigation in a responsible way and be selective as to the issues raised.  See Zhuhai International Container Terminals (Jiuzhou) Ltd v Lo Tong Hoi & Anr unrep, CACV 181 of 2011, 31 July 2012 at [33], Kwan JA (as she then was).

(6)  The phrase ‘a significant increase in the length or costs of the proceedings’ simply requires the court to be satisfied that the increase is one that can be estimated as a more than trifling proportion of the total costs.  As for the question of isolation of those costs from the costs of a successful cause of action, it is not necessary for the court to be able to quantify this to any precise extent.  It suffices if the court can give an estimate of the proportion of these costs.

(7)  The issue-based approach is not a hard and fast rule and the aim of the court is always to make an order which reflects the overall justice of the case: SNE Engineering Co Ltd v Hsin Chong Construction Co Ltd unrep, HCA 1466 of 2012, 23 June 2015, Lok J.

(8)  It is generally disproportionate to embark on an enquiry as to whether an issue-based approach should be adopted, as such is likely to be inconsistent with the underlying objectives in Order 1A rule 1(a) to (c). And the court is required to bear in mind these underlying objectives under Order 62 Rule 5(1)(aa).  See Chinachem Charitable Foundation Ltd v Chan Chun Chuen & Anr, unrep, HCAP 8/2007, 16 April 2010 at §46, Lam J (as he then was).

ORT’s BASES FOR SEEKING COSTS

6.  Clause 1 of the Settlement Agreement was the basis of ORT’s entitlement to costs:

“Harbour Front agrees to make full payment to the Trustee for the satisfaction of all proved debts of creditors and interest pursuant to sections 38(9) and 71 of the Bankruptcy Ordinance in respect of the bankruptcy of [the Bankrupt] within the period specified in paragraph 2 below together with all costs (including all costs of and occasioned by the adjudication of any and all proofs of debt and legal proceedings arising therefrom, as well as all costs which the Trustee may be liable for), fees, expenses and disbursements (including legal expenses) that the Trustee is entitled to receive under the provisions of the Bankruptcy Ordinance.” (underline added)

7.  By an order dated 17 May 2022, ORT was granted leave by DHCJ H Au-Yeung (as he then was) to defend the OS and to instruct counsel to advise and represent her in the proceedings.

8.  Neither Clause 1 nor the order stated that costs to ORT should be on indemnity basis.

GROUND 1: ORT NOT WHOLLY SUCCESSFUL IN PURSUING HER CLAIM

9.  HF submits that ORT was not entirely successful in relation to Item 7 on interest, and was unsuccessful in relation to Item 5.

10.  Item 7 was the core issue at the substantive hearing.  Eventually, the Court accepted HF’s argument that ORT breached her contractual duties in failing to complete the adjudication by the Deadline and ORT was precluded from claiming interest for about 1 year under the prevention principle. 

11.  In my view, ORT’s mere failure in relation to less than a year’s interest has not caused any significant increase in the length or costs of the proceedings or a more than trifling proportion of the total costs incurred in these proceedings.  That deprivation of interest was the result of analyzing the arguments on the period of interest issue.  

12.  In relation to Item 5 of the Demand (ie interest on the Petitioner’s Costs), the ORT’s claim was rejected on the ground of lack of basis and the analogy with the winding-up scheme (§119 of the Decision) was likewise rejected on matters of principle. The supporting affirmation of the ORT failed to identify a clear basis for claiming Item 5.  The hearing time spent on Item 5 was little, compared to Item 7, only because counsel had prepared well beforehand.  However, item 5 was a distinct and substantive issue ruled against ORT.  The costs incurred on item 5 could not be regarded as trifling. 

GROUND 2: ORT HAD SUBSEQUENTLY WITHDRAWN, MODIFIED AND IN EFFECT ACCEPTED SOME OF HF’S OBJECTIONS RAISED IN RELATION TO THE QUANTUM OF SOME ITEMS

13.  Items 8 (court fees and taxing fees) and item 9 (shorthand writer’s fees for various hearings) contained no breakdown which caused difficulty in HF’s understanding of the basis of its liability and verification of the amounts claimed.  It transpired that ORT over-claimed some of the sub-items in these 2 Items.  ORT only withdrew some of the sub-items in Cheung-1^st filed on 23 June 2023, long after filing of the OS. 

14.  There were also items modified by ORT in without prejudice correspondence.  Items 1-3, 12 and 13 of the Demand were broadly in relation to costs orders awarded to ORT or the Petitioner.  ORT had all along insisted that HF should pay the entirety of the costs claimed, even though one of HF’s main objections was that such costs orders should be taxed, there being no indemnity order against HF.  It was not until January 2024 that OR proposed a sum in full and final settlement of Items 12 and 13 and 2 February 2024 when ORT accepted that items 1-3 should be taxed.

15.  HF submits that the belated withdrawals, modification of claims or acceptance of HF’s objections to quantum led to incurrence of prior unnecessary expenses.  I agree.  In fact, HF’s objections were with rational or legal bases.

16.  Having read both parties’ written submissions and the without prejudice correspondence, I find that the parties had engaged in genuine negotiations in trying to settle without the need for a hearing and when that failed, to narrow down the issues. HF was particularly keen in trying to push things forward.  HF’s grievance was justified in that:

(1)  In pre-summons letters from as early as 22 July 2015, the affirmation filed in support of this OS, and without prejudice correspondence, HF had always complained about ORT’s delay in completing the adjudication by the Deadline but ORT had never made any concession on interest.  The Decision (§22) in fact identified 2½ years of complete silence of ORT.

(2)  In correspondence, ORT’s position was that it was unable to compromise the sum payable “unless with the Petitioner’s agreement” or “in consultation with the Petitioner”. That position was untenable because the Petitioner was not a party to the Settlement Agreement and this Court had refused leave to join the Petitioner in these proceedings.  ORT’s position would have contributed to the failure to reach a compromise with HF over the OS.

17.  Ground 2 is established.

Conclusion

18.  Having regard to ORT’s failure on Item 5 and establishment of ground 2, collectively, I find that the costs on those identified items could not be regarded as trifling.  It is not necessary to embark on a disproportionate enquiry to ascertain the proportion of costs.  A board brush approach suffices.  It is justified to reduce ORT’s costs claimed ($869,020) by 20%.  This means HF should pay ORT $695,000. The order nisi is varied accordingly.

19.  On a nisi basis, costs of this summons is to be borne by ORT.  The summons has no complexity.  ORT is to pay costs of $35,000 to HF, to be set off against the costs awarded to ORT.

20.  I thank Mr Poon and Ms Chow for their assistance.