SUN TIAN GANG AND ANOTHER v. CHANGCHUN HIGH & NEW TECHNOLOGY INDUSTRIES DEVELOPMENT PARENT CO AND OTHERS

HCA 179/2015

[2023] HKCFI 819

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 179 OF 2015

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BETWEEN

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D E C I S I O N

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1.  This hearing was to determine the costs of the hearing on 9 October 2018 (“the October 2018 hearing”) which were reserved[1]. At the conclusion of the hearing, this decision on costs was reserved which I now give.

2.  The costs in issue are limited to those of the October 2018 hearing itself and do not include the costs of the summons to amend the Amended Writ together with the Amended Statement of Claim and the affirmations which are part of the costs of the amendment application that Anthony Chan J (“the trial judge”) ordered be to the Defendants in any event: see §7 of his order dated 29 November 2022.

Background

3.  The October 2018 hearing concerned the Plaintiff’s summons to amend the amended writ of summons together with the amended statement of claim by adding 4 new claims.

4.  In this court’s Decision dated 8 November 2018 (“the Decision”), one of the 4 claims was allowed and as to the remaining 3 claims, the court ordered a trial of preliminary issues concerning deliberate concealment under section 26 of the Limitation Ordinance, Cap 347 (“the LO”).

5.  The trial judge allowed the amendments sought in respect of the nominee sale (which relates to 2 of the 3 remaining claims), as well as the joinder of GeoMaxima Holdings Company Limited (“GH”) as the 2^nd plaintiff: see his judgment dated 9 November 2022 (“the 2022 Judgment”).

6.  In relation to the costs of the 2022 Judgment, it was ordered that

(i) the costs of the trial of preliminary issues be in the cause with certificate for 2 counsel; and

(ii) subject to (i) above, and the costs of the October 2018 hearing which have been reserved, the costs of and occasioned by the amendments be to the Defendants in any event.

The Plaintiff’s case

7.  In outline, the amendment proposed was to add the following new claims:

(i) the chargee duty claim against D1;

(ii) the dishonest assistance claim against D2, D3 & D11;

(iii) the partial repayment claim against D1; and

(iv) the double recovery claim against D1.

8.  The Defendants objected to all 4 amendments and advanced 4 grounds of objection at the October 2018 hearing, namely:

(a) the new claims were inconsistent with the Plaintiffs’ primary case that the Debenture dated 28 July 2004 was forged but the objection was rejected by the court[2];

(b) the new claims were time-barred:

(i) in the case of the Plaintiff, the court held that no limitation period applies to his double recovery claim; and

(ii) as regards the rest, the Plaintiff contended that there was deliberate concealment which should be tried as a preliminary issue but the Defendants failed to persuade the court that the deliberate concealment argument was bound to fail; and the court ordered a trial of preliminary issues on deliberate concealment[3];

(c) the Defendants contended that the new claims have no prospects of success but their arguments were rejected[4]; and

(d) the Defendants’ submission that they would be prejudiced such that the claims should be rejected on discretionary grounds was also rejected[5].

9.  Mr James Man, counsel for the Plaintiff, submitted that as the Defendants failed on every ground of opposition, whether applying the general rule of “costs follow the event” or an issue-based approach, the Plaintiff should be awarded the costs of the October 2018 hearing.

10.  The Defendants opposing the Plaintiff’s application were separately represented: Mr Henry Li of Dentons, represented D1, D4 and D8 (collectively, “D148”), and Mr Kwan Ping Kan of counsel represented D2, D3 and D11 (collectively “D2311”). As the causes of action do not involve D9 and D10, they take a neutral position.

D148

11.  Mr Li’s position is that costs should be in the cause. The thrust of his submission is that there is a general principle that if it was not unreasonable for his clients to have opposed the proposed amendments, costs should not be awarded against them and should be in the cause.

12.  He referred to Lessy SARL v Pacific Star Development Limited and Another [1996] 2 HKLR 1 (at 2C and E) where the judge explained the usual order made on an application to amend which is resisted and the rationale behind the distinction between the costs of the amendment payable by the applicant to the respondent in any event and the costs of the hearing to the party who was successful in the argument in obtaining leave to amend and the rationale behind differentiating between the 2 sets of costs.

13.  As Lessy SARL concerned an appeal on costs from the master, unless the master was plainly wrong or committed an error in law, the exercise of his discretion on a costs application will not be overturned on appeal.

14.  In that case, the Master decided that the defendants should be allowed to amend but as it was not unreasonable[6] for the plaintiff to resist the application, he exercised his discretion “in this narrow margin” for not following the usual order: at 2J-3A. On appeal, the judge did not interfere with the Master’s order since it could not be said that the exercise of his discretion was unreasonable.

15.  Mr Li also cited Glory Sky Finance Limited v Chen Jianhua [2018] HKCFI 1657 at §§31-32 which, like Lessy SARL concerned an appeal from the Master on costs. It applied the approach adopted in Lessy SARL and did not take matters further.

16.  Mr Man submitted that Lessy SARL did not establish a general principle that if resisting party was not acting unreasonably, it would be entitled to the costs of the amendment although leave to amend was in fact granted. In Man Fong Hang v Man Ping Nam [2002] 4 HKC 538 where DHCJ Andrew Cheung (as he then was) held (at §24) that:

“as demonstrated by the facts in Lessy SARL itself, if there was a reasonable ground for resisting the application, and even if the application was eventually successful the court could still award the second set of costs, i.e. the costs of the hearing, to the resisting party although he was unsuccessful in opposing the application.” (Emphasis added)

17.  Mr Man submitted that the use of the word “could” supports the submission that no general principle as submitted by Mr Li exists. It is for the court, when exercising its discretion as to costs, to decide whether the circumstances and facts of the particular case justified a departure from the usual order. I agree.

18.  Mr Li then criticised the Plaintiff for issuing the amendment summons on 5 March 2018 without any supporting evidence. In June 2018, D148 filed an affirmation raising 4 grounds of opposition (inconsistent plea, limitation, delay and prejudice). It was only less than one month before the substantive hearing that the Plaintiff filed an affirmation raising, inter alia, the deliberate concealment point. Mr Li submitted that in those circumstances it was unreasonable to expect his clients to consent to the Plaintiff’s amendment application.

19.  On the question of the absence of a supporting affirmation, Mr Man submitted that the question for the court is whether the pleaded facts are arguable or not and usually there is no need for any supporting affirmation. The court would accede to the amendment unless the new claims are wholly unarguable.

20.  Pausing here, it is to be noted that until the party raises a limitation point the court is not obliged to deal with any limitation issues. As D148 spotted a limitation point, the Plaintiff filed its affirmation in reply raising the deliberate concealment issue.

21.  It is apparent from D148’s 40-odd page skeleton submitted for the October 2018 hearing that their objection was not limited to limitation and deliberate concealment. Rather, full written submissions were made in respect of all 4 grounds (the inconsistent plea point, limitation, prejudice, the inarguability of the proposed amendments meriting dismissal from the outset) all of which were substantively argued at the hearing.

22.  In short, I do not accept the suggestion that had the proposal for a preliminary issues trial on limitation and deliberate concealment been proposed earlier, the parties could have worked out directions avoiding the October 2018 hearing. To my mind, that is wishful thinking when the primary objection was based on the inconsistent plea point.

23.  At the end of this hearing, as an afterthought, Mr Li invited the court’s attention to the following passage in Hong Kong Civil Procedure 2023 at 20/8/4:

“An affidavit is not required, as a rule, except in cases … where any delay or special circumstances require explanation (see Wong Hing Faat v Hong Kong and Yaumati Ferry Code Ltd [1992] 1 HKC 497), or whether the application is made after the expiry of the limitation period.”

24.  Wong Hing Faat concerned leave granted to the defendant to re-amend its defence so as to raise, 11 years after the accident, a limitation of liability defence based on section 503 of the Merchant Shipping act 1894. Reliance on that section required material facts to be pleaded and that had not been done. Kaplan J considered it incumbent on the defendant to explain by affidavit why the defence is sought to be raised so late in the day and why no outline of the factual basis relied upon had been given.

25.  Wong Hing Faat is not applicable as no special circumstances exist in the present case. In so far as limitation is concerned, not only was the limitation point raised by D148 before the October 2018 hearing and substantively argued, D148 were awarded, inter alia, the costs of their affirmation. I reject any suggestion that they had been prejudiced.

26.  Mr Li also addressed the point of what constitutes an event for the purpose of costs and submitted that the authorities show that the event relates to the outcome of an application, whether the application was granted. Because part of the issue could not be finally determined, resulting in a ‘truncated hearing’ with that part adjourned for determination in a trial of preliminary issues, it was submitted that the appropriate order is for costs to be in the cause.

27.  That approach overlooks the fact that D148 strenuous opposition to the proposal of a preliminary issue trial failed. Moreover, the trial judge had already dealt with the costs of the trial of preliminary issues.

D2311

28.  Mr Kwan submitted that his clients should be awarded the costs of the October 2018 hearing and that it would be wrong to treat the Plaintiff as the successful party simply because it obtained an order for a trial of preliminary issues.

29.  The 2 preliminary issues this court directed to be tried were broken down into the 4 paragraphs set out in the Joint List of Agreed Issues[7] the parties submitted to the trial judge. Paragraph (1) of the agreed issues read as follows:

“Whether the fact of the sale of the 999 issued shares in China GeoMaxima Company Limited (“China GeoMax”) at a consideration of HK$41,999,992.20 on 29 August 2005 (“China GeoMax Transaction”) has been deliberately concealed by the 1^st, 2^nd, 3^rd and 11^th Defendants or any of them from the Plaintiff and GeoMaxima Holdings Company Limited (“GeoMax Holdings”) or either of them within the meaning of s.26(l)(b) of the Limitation Ordinance (Cap 347) (“LO”).”

30.  The parties agreed that there were sub-issues of the agreed issues in paragraphs (1) and (4) but could not agree on their formulation[8]. Nevertheless, both formulations acknowledged that section 26 (3) of the LO is a sub-issue arising out of paragraph (1) of the agreed issues.

31.  Section 26 (3) of the LO the following terms:

“(3) For the purposes of subsection (1), deliberate commission of a breach of duty in circumstances in which it is unlikely to be discovered for some time amounts to deliberate concealment of the facts involved in that breach of duty.”

32.  At the preliminary issues trial, D2311 succeeded on section 26 (1) (b) but lost on section 26 (3) which is an expanded definition of deliberate concealment. Hence, it is somewhat disingenuous for Mr Kwan to submit that D2311 was the successful party and should be awarded the costs of the October 2018 hearing.

Conclusion

33.  This application is limited to the costs of the October 2018 hearing. As earlier noted, the costs of the trial of preliminary issues have already been dealt with.

34.  As outlined above, the Plaintiff succeeded on all issues that were decided in the 2018 Decision and, prima facie, should be entitled to the costs of the October 2018 hearing. I am not persuaded by the submissions to the contrary made by Mr Li and Mr Kwan for the reasons already stated.

35.  Accordingly, it is ordered that the costs of the October 2018 hearing be to the Plaintiff with certificate for 2 counsel such costs to be summarily assessed and payable forthwith.

36.  As the Plaintiff’s statement of costs has been lodged, D148 and D2311 are directed to lodge their objections (if any) within 14 days hereof and the Plaintiff his reply (if any) within 7 days thereafter.