MATHNASIUM CENTER LICENSING, LLC v. CHANG CHI HUNG (also known as ALEX CHANG)

CACV 180/2019 & CACV 406/2019
(Heard together)

[2021] HKCA 112

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NOS 180 OF 2019 AND 406 OF 2019

(ON APPEAL FROM HCMP NO 1550 OF 2017)

________________________

________________________

________________________

(Heard together)

________________________

DECISION ON COSTS

________________________

Hon Kwan VP (giving the Decision on Costs of the Court):

1.  At the conclusion of these appeals on 26 November 2020 against an order of committal for contempt and the prison sentence, we allowed the defendant’s appeals. We set aside the judge’s order of committal and the sentence. Our reasons for judgment (“Reasons”) were handed down on 11 December 2020. We directed the parties to lodge written submissions to deal with the question of costs below and on appeal. Having considered the submissions on both sides, we will determine the question of costs on paper.

2.  In summary, the plaintiff sought to commit the defendant for contempt based on an admission made in the defence filed in another action by a company, Mathnasium Hong Kong Limited, that was verified by the statements of truth of the defendant.  We allowed the appeals because on a proper reading of the statement of claim and the defence and counterclaim in that other action, it is apparent that there was no clear and unqualified admission of the relevant averment in the statement of claim.  In the absence of a clear and unqualified admission in the defence, the application to commit the defendant for contempt fell at the first hurdle[1].  Furthermore, it was held that the judge had misdirected himself as to the effect of certain material evidence, in light of which it is plainly wrong for him to conclude that the standard of proof beyond reasonable doubt has been reached for the defendant’s case of mistake to be rejected in the entirety[2].

3.  Mr John Yan SC[3] submitted for the defendant as there is no reason why costs should not follow the event, the plaintiff should pay the defendant’s costs below and on appeal.  Further, costs should be awarded to him on an indemnity basis as there are unusual or special features that would justify such an award:

(1)  As held by this court, the application to commit for contempt fell at first hurdle, so this is not a case where the applicant marginally failed to meet the high evidential threshold or where the application was dismissed on a technical ground.

(2)  The root cause for this failure is entirely of the plaintiff’s own making, as it is found within the inconsistent pleading in the statement of claim.  Added to this problem were those parts of the defence and counterclaim that undermined or contradicted the allegedly unqualified admission[4].

(3)  The plaintiff’s legal advisers were aware or should have been aware of these problems, as the defendant had complained of inconsistent, erratic and loose language in the statement of claim in his opposing affirmation[5] and the plaintiff’s counsel made a tactical move in withdrawing reliance on §6(a) of the statement of claim and the admission of this paragraph in §40 of the defence as part of the “Subject Admission” at the outset of the hearing before the judge[6].

4.  Mr Yan submitted that whilst the litigation tactics of the plaintiff might be considered “fair game” in ordinary hostile litigation, such tactics should have no place in quasi-criminal proceedings in which the liberty of the alleged contemnor is at stake.  The defendant suffered tremendous mental stress and financial strain for three and a half years since leave was granted to the plaintiff to bring the contempt proceedings and was close to being sent to prison but for the stay of the order of committal pending appeal.  It follows that he should not be left out of pocket in the final reckoning.

5.  Mr Anson Wong SC[7] submitted that not only should the plaintiff not be liable to pay any costs despite failing in its application to commit the defendant for contempt, the defendant should pay the plaintiff’s costs before the judge, and despite the defendant being successful on appeal, there should be no order as to the costs on appeal. Alternatively, he contended there should be no order as to costs both below and on appeal.

6.  Mr Wong took a number of points in an attempt to justify his proposed costs orders.

7.  First, he contended that the defendant did not argue the point that the admission in the defence is unclear “at all”, and that the notice of appeal made a “different point” that reliance on the admission was unreasonable when there are contradicting averments.  Where a litigant succeeds on appeal on a new point, the court can deprive him of the costs below or even order him to pay those costs, and the court can deprive him of the costs of the appeal.

8.  We do not accept his submission that the defendant did not raise the point that the admission is unclear.  Mr Wong was splitting hairs. The gravamen of the defendant’s complaint was clear from the outset, and it goes to the inconsistency or lack of clarity of the statement of claim and hence whether there is a clear and unqualified admission in pleading to the relevant averments in the statement of claim[8].  The point was raised before the judge but rejected by him as a “non-issue”[9].  It was mentioned in the notice of appeal[10].

9.  Second, Mr Wong submitted that the defendant’s “main legal argument” (whether a false admission in a pleading verified by a statement of truth can give rise to contempt) was rejected by the judge and on appeal.  Hence, the court has discretion to deprive a successful litigant of the costs incurred in respect of a failed issue.

10.  We decline to exercise our discretion to deprive the defendant of the costs incurred in respect of this failed issue, both on appeal and below.  It does not appear to us significant time was taken up by this legal issue, whether before the judge or before us.  Nor do we think the issue was improperly raised, given the novelty of the situation and the grave consequence to the defendant.

11.  Third, Mr Wong argued that the defendant’s own conduct should justify depriving him of costs, as he had “acted rashly, or steered rather close to the wind”, quoting the words of Russell LJ in Knight v Clifton [1971] 1 Ch 700 at 713F.  He mentioned the evidence of the defendant to the effect that he signed the statement of truth before the draft defence was finalised and without having sight of the finalised pleading, despite knowing the importance of verifying the truth and accuracy of the facts stated in a legal document.

12.  As pointed out by Mr Yan, this court allowed the appeal not on the basis of accepting any particular version of events but on the flawed treatment by the judge of material evidence which did not support the rejection in the entirety of the defendant’s case of mistake.  Given that the case of mistake should not be wholly discounted, it would not be appropriate to infer that the defendant must have acted rashly or steered too close to the wind.  In any event, as stated by Russell LJ at 714A to B: “Motions to commit a man to prison should not be launched except on solid grounds, and it would, I think, be unfortunate if plaintiffs were encouraged to think that where a defendant has acted rashly and foolishly, their threat to his liberty may, with luck, be made at his expense when they fail to establish a case of contempt.”

13.  Fourth, Mr Wong submitted that the proceedings for contempt were “reasonably brought”.  This is because the defences of (a) the HK Centres were RFCs and not FCs, and (b) mistake were “belatedly raised”.

14.  This contention is wholly without merit.  Whether these defences were belatedly raised (Mr Yan submitted they were not) is neither here nor there.  As explained in the Reasons, these proceedings for contempt were misconceived and have no reasonable prospects of success.  They should not have been brought in the first place.  An application to commit for contempt is a serious step, putting the freedom of the alleged contemnor at risk and should not be embarked on without solid grounds. Mr Wong’s submission that the plaintiff was “entitled” not to accept the defendant’s case that the HK Centres were FCs or his mistake theory without a trial simply misses the point.

15.  We reject all the submissions of Mr Wong.  There is no reason to depart from the general rule that the costs below and on appeal should follow the event.  We set aside the judge’s orders on costs made on 18 March 2019 and 8 August 2019.  We order the plaintiff to pay the defendant’s costs both here and below, including the costs of the present application, with a certificate for two counsel.  We think there are unusual and special features to justify awarding costs to the defendant on an indemnity basis and we so order.