TARGET INSURANCE COMPANY LTD (IN COMPULSORY LIQUIDATION) v. NERICO BROTHERS LTD

CACV 223/2022, [2025] HKCA 139

On appeal from [2022] HKCFI 1487

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 223 OF 2022

(ON APPEAL FROM HCCW 47 OF 2022)

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J U D G M E N T

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Hon Barma JA (giving the Judgment of the Court):

1.  This is the petitioner’s application, by Summons filed on 11 January 2024 (“the Variation Summons”), to vary the costs order nisi made by this Court (Yuen, Barma and Au JJA) (“the Costs Order”) at [22.1] of our judgment dated 28 December 2023[1] (“the December Judgment”).

2.  The Costs Order required the petitioner to pay the costs of the submissions lodged by Nerico Brothers Ltd (“the Company”) on 11 May 2023 dealing with the basis of taxation of the costs of a successful application by the petitioner to strike out the Company’s Notice of Appeal (“NoA”) filed on 30 May 2022 (“the Striking-Out Application”)[2]. This Court’s judgment on the Striking-Out Application was dated 13 April 2023[3] (“the April Judgment”).

3.  By the Variation Summons, the petitioner seeks to vary the Costs Order so that, instead of requiring the petitioner to pay the costs of the Company’s submissions referred to in the preceding paragraph, those costs should be reserved pending the hearing fixed to be heard before this Court on 21 January 2025 (“the Stage (2) Hearing”), or alternatively there should be no order as to those costs.  This application is supported by an Affidavit of Chan Heung Wing for the petitioner dated 11 January 2024, and by written submissions for the petitioner dated 10 May 2024.  The Company did not file any evidence or submissions in opposition.

4.  Having considered the documents filed and lodged before this Court, we consider it appropriate for the present application to be determined on the papers.

Background

5.  The background to the parties’ dispute and the procedural history are set out in the April and December Judgments, and need not be repeated in detail.

6.  Essentially, when striking out the NoA, this Court found that the NoA disclosed no reasonable ground of appeal and/or constituted an abuse of the process of the Court.  The petitioner, who had succeeded in striking out the NoA, had asked (in its summons for Striking-Out Application) for the costs of the Striking-Out Application to be awarded to it on an indemnity basis.  However, as neither party had addressed the issue of the basis of taxation in their respective submissions, the April Judgment gave directions for the filling of written submissions by both parties on this matter (see [38] of the April Judgment).

7.  The petitioner lodged submissions (said to be pursuant to the directions given) on 27 April 2023 (“Petitioner’s Costs Submissions”).  However, those submissions did not address the basis of taxation, and made no submission as to why such costs should be taxed on an indemnity basis, nor was the application for taxation on an indemnity basis withdrawn (see [4.2] of the December Judgment). Instead, they addressed an application made by the petitioner on the same date seeking to join the director of the Company to the proceedings for the purpose of making a costs order against him.  The Company lodged written submissions on 11 May 2023 (“Company’s Costs Submissions”) in which it submitted that the costs of the Striking-Out Application should be on the party and party basis and not on the indemnity basis.

8.  As the petitioner failed to make submissions justifying an order for indemnity costs, this Court ordered that costs of the Striking-Out Application should be taxed on the party and party basis (see [5] of the December Judgment), and made the Costs Order requiring the petitioner to pay the Company’s costs of its submissions on this issue (see [22.1] of the December Judgment).

9.  The December Judgment also dealt with the petitioner’s application to join the director of the Company to the proceedings with a view to making a costs order against him personally.

Discussion

10.  The Costs Order awards to the Company the costs of lodging, pursuant to [38] of the April Judgment, the Company’s Costs Submissions on the basis of costs of the Striking-Out Application. 

11.  As noted, the petitioner suggests that the costs of such submissions should not be awarded to the Company, and should instead be reserved until after the determination of the application for an order for costs against the director, or alternatively that there should be no order as to costs.

12.  In its submissions for this application, the petitioner suggests primarily that the appropriate costs order should be for the costs of the application for indemnity costs to be reserved until after the determination of the costs application against the director, on the bases that (1) it would be inappropriate for such costs to be determined before giving the paying party an opportunity to be heard, and (2) if no third party costs order were eventually made, it would make no sense for the petitioner to seek an order for indemnity costs against the Company, since such costs would ultimately be borne almost entirely by the petitioner as it is the single largest creditor to whom virtually the whole of the Company’s debts are owed (the petitioner’s debt represents 99.58% of the total indebtedness of the Company).  In these circumstances, the petitioner says that it was “unnecessary” to deal with the basis of costs in its written submission of 27 April 2023.

13.  We cannot agree with this suggestion.  It was quite clear from [38] of the April Judgment that the written submissions to be filed by the petitioner within 14 days of that judgment were to address the issue of the basis of taxation of the costs of the Striking-Out Application.  If the petitioner felt that it would be appropriate to defer this question in the light of the taking out of the application for a costs order to be made against the director, this could and should have been stated in its submissions.  The petitioner did not do so.

14.  Further, the basis of costs of the Striking-Out Application has now been determined by the December Judgment to be that such costs should be paid on the party and party basis, and there is no challenge to this order.  There is thus no reason to reserve the costs of the application for indemnity costs, when that can no longer be affected by the outcome of the application for the director to be made personally liable for the costs of the Striking-Out Application (in the event, the director was made so liable by this court’s order made on 21 January 2025, when stage two of that application was heard).

15.  However, in relation to the petitioner’s alternative suggestion that there should simply be no order as to the costs of the application for indemnity costs, we think that this would be appropriate, as it is clear from the December Judgment that the reason why indemnity costs were not ordered was because of the petitioner’s failure to put forward submissions in support, rather than because of the actual submissions made by the Company.  In these particular circumstances, it seems to us that to make no order as to the costs of the application for indemnity costs would provide a fair outcome.

16.  We will therefore accede to the Variation Summons to the extent of varying the Costs Order to provide that there should be no order as to the costs of the application for indemnity costs in place of the order requiring the petitioner to pay the Company its costs of its submissions on that matter.

17.  So far as the costs of the Variation Summons are concerned, although the petitioner has been partially successful, it seems to us that the petitioner has succeeded only to the extent of its fall back position, and can properly be regarded as the author of its own difficulties by reason of its failure to lodge submissions as directed in the April Judgment, or to explain why it thought it appropriate not to do so.  We would therefore make no order as to the costs in respect of the Variation Summons.