ACTIVE BASE LTD v. RODERICK JOHN SUTTON AND OTHERS

HCCW 470/2005

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) NO. 470 OF 2005

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D E C I S I O N

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1.  On 4 June 2008, I dismissed two summonses issued by Active Base Limited (“Active Base”) in HCCW No. 470 of 2005 on 26 January 2007 and 8 March 2007.  The reasons appeared in the decision handed down that day (“the Decision”).  I made a costs order nisi that Active Base is to pay the liquidators and the company concerned (collectively “the respondents”) their costs of the summonses.  References will be made to the relevant parts of the Decision.

2.  Active Base issued a summons on 17 June 2008 to vary the costs order nisi to the extent that:

(a) Active Base shall only be required to pay 30% or such part as the court may deem appropriate of the costs of the respondents in High Court Action No. 1083 of 2005 (“the High Court Action”); and

(b)    Active Base shall only be required to pay 60% or such part as the court may deem appropriate of the costs of the respondents in the applications of Active Base by summonses dated 26 January 2007 and 8 March 2007 in the winding-up proceedings.

3.  I had made an order on 8 March 2007 giving leave to the respondents to discontinue the High Court Action and that the costs of the High Court Action be in the cause of the summons issued by Active Base in the winding-up proceedings on 26 January 2007.  Hence, the effect of the costs order nisi on 4 June 2008 is that the costs of the High Court Action will be paid by Active Base to the respondents.

4.  It is the contention of Active Base that the respondents should be deprived of part of the costs incurred in the High Court Action and the winding-up proceedings, to reflect the fact that time and costs have been wasted on certain issues raised by the respondents unsuccessfully.

5.  Mr Barlow, SC for the respondents raised a preliminary point that this court has no jurisdiction to vary the costs order nisi as per (a) as sought in the summons because this court is functus officio. The reason is that I had ordered on 8 March 2007 that the costs of the High Court Action are to be in the cause of Active Base’s summons issued on 26 January 2007 in the winding-up proceedings. There has been no appeal from that costs order.  I cannot vary that order under the powers given to vary a costs order nisi in Order 42 rule 5B(6) of the Rules of the High Court.

6.  Mr Barlow is technically correct, but I do not think this should make any substantial difference overall to the present application.  Instead of seeking variation to the extent that Active Base shall only be required to pay 60% of the respondents’ costs in the summons issued on 26 January 2007, Active Base can ask for a lower percentage, to take into account that the costs of the High Court Action have been subsumed in the costs of the summons in the winding-up proceedings. As submitted by Miss Chan for Active Base, the order of 8 March 2007 only meant that the costs in the High Court Action are to be dealt with as part of the general costs of Active Base’s summons in the winding-up proceedings.

The legal principles

7.  I will start with the well-known principles in In re Elgindata Limited (No. 2) [1992] 1 WLR 1207 at 1214A to D.  They were set out in paragraph 39 of the judgment of Yuen JA in Wang Din Shin v Nina Kung CACV No. 460 of 2002 and CACV No. 67 of 2003, 19 April 2005 with the applicable Hong Kong rules in square brackets as follows:

“(i)    Costs are in the discretion of the court [Order 62 rule 2(4) RHC];

(ii) They should follow the event, except where it appears to the court that in the circumstances of the case some other order should be made [Order 62 rule 3(2) RHC];

(iii)    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 cost of the proceedings he may be deprived of the whole or part of his costs;

(iv)    Where the successful party raises issues or makes allegations ‘improperly or unreasonably’ [in Hong Kong, ‘improperly or unnecessarily’], 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 [Order 62 rule 7(1) RHC].”

8.  Miss Chan submitted that in respect of two of the issues, “the Personal Loan Issue” and “the Uncertainty Issue”, and the adverse inferences advanced by the respondents (see paragraphs 55(1), (3) and (4) of the Decision), not only should the respondents be deprived of their costs but they should be ordered to pay Active Base’s costs on these issues, contending this should come within Elgindata principle (iv) in that the issues were raised unnecessarily, and departing from what was sought in Active Base’s summons to vary the costs order nisi. Alternatively, she contended that the respondents should be deprived of their costs for these issues, relying on principle (iii) in Elgindata. For three other issues “the Consideration Issue”, “the Misrepresentation Issue” and “the Out of Time Issue” (see paragraphs 55(5), (2) and (8) of the Decision), she submitted principle (iii) in Elgindata should apply and the respondents should be deprived of their costs attributable to those issues.

9.  I am firmly of the view the situation here is not such to justify the relatively rare order that the respondents, who are the overall successful party, should pay any part of Active Base’s costs.  In other words, this is not a case that comes withinprinciple (iv) in Elgindata.  The only question which merits consideration is whether Elgindata principle (iii) is applicable.

10.  I have cited to me a number of cases on the applicability of principle (iii), it may be useful to summarise the relevant propositions before I apply them to the facts of this case:

(1) The party seeking to displace the general rule that costs should follow the event bears the burden of showing that the circumstances justify the exceptional course of such displacement (Mariner International Hotels Limited v. Atlas Limited (No. 2) [2007] 4 HKLRD 194 at 199, paragraph 18).

(2) The court has a discretion to exercise whether to deprive a party of all or part of his costs in respect of those issues on which he has failed.  It would be wrong to read principle (iii) in Elgindata as laying down a rule, instead of a discretion.  The court has to exercise its discretion to achieve a just result having regard to the circumstances of the case (Hong Kong Kam Lan Koon Limited v. Realray Investment Limited (No. 4) [2005] 4 HKC 162 at 166I to 167A, paragraph 14).

(3) Where the party who has been successful overall has failed on one or more issues, particularly where such issues have occupied a significant amount of hearing time or led to the incurring of significant expense, the court may in its discretion order a reduction in the award of the costs to him.  An issue for this purpose must be something so distinct and separate in itself that the decision of it constitutes an “event” (Seepersad v. Persad [2004] UKPC 19 at paragraph 24).

(4) It is not the case that lack of success in any specific argument of itself attracts a costs sanction (Rabobank, Hong Kong Branch v. Bank of China, HCCL No. 56 of 2001, 23 July 2004,Stone J, paragraph 17).  It is only if it is possible to isolate an issue in the case in that it can properly be said it is unnecessarily pursued as having no bearing on the real questions in the suit that it would be proper to deprive the successful party of all costs of that issue, otherwise a more general assessment should be made (Elgindata, supra. at 1218D to E).  So unless discrete points can safely be isolated and can be shown to have led to a wastage of time and costs, the practice of the court is not to engage in any “filleting” of cases according to the success or failure of the disparate issues which, when taken cumulatively, constitute the dispute to be judged (Akai Holdings Limited (in liquidation) v. Thanakharn Kasikorn Thai Chamkat (Mahachon) (also known as Kasikornbank Public Limited Company) HCCL No. 59 of 2004, 31 July 2008,Stone J, paragraphs 28 to 31).

11.  I should mention that I respectfully agree with the views of Stone J in Akai Holdings at paragraph 26 that courts in Hong Kong have not adopted the approach of more readily departing from the principle that costs should follow the event and making separate costs orders to reflect the outcome of different issues, referred to by Lord Woolf in AEI Rediffusion Music Limited v. Phonographic Performance Limited [1999] 1 WLR 1507 at 1523A to B.

If the costs order nisi should be varied

12.  I am not persuaded by Miss Chan that it is possible to isolate the issues determined in favour of Active Base, which are issues of mixed fact and law, from the other issues determined against Active Base so that the court is satisfied that significant time and effort has manifestly been wasted to justify a reduction of the costs awarded to the respondents.

13.  As submitted on behalf of the respondents, the fundamental dispute of fact here is the circumstances surrounding the execution of the loan documents and the debenture.  Conflicting accounts were given by witnesses of Active Base and of the company.  It is not possible to resolve the conflict without cross-examination.  At the trial, the liquidators were not able to rely on the account given by the company’s witnesses as they were unable to serve subpoenas on some of the principal witnesses and another witness who attended court was unco-operative, claiming she had no recollection.  It was reasonable for the liquidators to place before the court the evidence as to the circumstances in which the documents were executed in its entirety, as they could not have attempted to accept some parts of the evidence of the company’s witnesses and some parts of the evidence of Active Base’s witnesses.  They were in no position to determine which part of each witness’s evidence should be accepted, even though they had discovered irregularities and possibly fraudulent behaviour on the part of the senior management in the running of the company.

14.  The legal arguments presented on both sides flowed from the fundamental dispute of fact.  To determine the legal arguments, it was necessary for the court to resolve the fundamental dispute of fact.  This was the case for those legal arguments decided in Active Base’s favour and those decided in the respondents’ favour.  The court could not properly have determined in the respondents’ favour that the corporate loan documents were void for want of authority until it had grappled with the factual dispute surrounding the circumstances in which the documents were executed and come to a view what Active Base’s witnesses knew or should have known at the material time.  The evidence concerning the execution of the documents must be considered in the entirety.

15.  I am not satisfied significant time and costs had been wasted in this exercise to justify the exercise of the discretion to deprive the respondents part of their costs.  There are interwoven strands of fact and law and discrete points cannot safely be isolated in this instance.  I accept the respondents’ submission the only “event” in these proceedings within the meaning of the Seepersad decision was the determination of the fundamental dispute of the surrounding circumstances in which the documents were executed and the dismissal of Active Base’s appeal against the decision of the liquidators in rejecting its proof of debt.

16.  For the above reasons, I decline to vary the costs order nisi.

17.  The costs of this application should follow the event.  I order Active Base to pay the respondents’ costs of this application.