UDL HOLDINGS LTD AND ANOTHER v. LEUNG YUET KEUNG AND ANOTHER

HCA 4409/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 4409 OF 2002

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DECISION  UPON  APPLICATIONS
TO  VARY  COSTS'  ORDERS  NISI

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The applications

1.  On 22 October 2008 this court handed down Judgment in this action, wherein the plaintiffs had sued the defendants for the sums of US$1.2 million and US$520,778.51.

2.  In the event, for the reasons adumbrated in the Judgment the plaintiffs’ action was dismissed, and the court made a costs’ order nisi that the costs of the action be to the defendants, such costs to be taxed if not agreed; it further was ordered that in so far as either side wished to make application to vary this order, the application so to do was to be made within 21 days of the date of the Judgment.

3.  As matters have transpired, there are in fact cross-applications as to this costs’ order nisi before the court, which directed that these issues be canvassed, and thereafter be decided, on paper.

4.  By its written submission dated 2 December 2008, the plaintiffs filed their submissions in support of a proposed variation, and on 16 December 2008 the defendant filed not only the response to the plaintiffs’ submission, but also purported to make its own belated application for variation.

5.  Thereafter, each party has responded to the others’ allegations, resulting in Reply submissions dated 6 and 9 January 2009 respectively, which further submissions were followed by a slew of acrimonious solicitor’s letters complaining about the conduct of the other side, correspondence which has not figured large in the exercise of my judicial discretion upon the applications for variation now before me.

Applicable legal principle

6.  Variation of costs’ orders nisi recently has been the subject of a judgment of this court in Akai Holdings Ltd (In Liquidation) v Thanakharn Kasikorn Thai Chamkat (Mahachon) [2008] 6 HKC 82, wherein, in the context of an application by the unsuccessful liquidator for a variation to the costs’ order nisi, the principles and approach adopted by the Commercial Court were rehearsed in some detail.

7.  In that Judgment, this court noted that Hong Kong courts had no predisposition requiring them to be “more ready” to make separate costs’ orders reflective of the outcome of different issues in the litigation, and that in the Commercial Court in particular the practice was not ordinarily to engage in any ‘filleting’ of cases in costs’ terms according to the success or failure of disparate issues – albeit, in that specific case, this court was minded, on those particular facts, to take the highly unusual step of making a positive costs’ order in favour of Akai, the unsuccessful plaintiff, upon an issue which in the circumstances should not have been taken at all and which, when taken, was taken deficiently.

8.  In that Judgment this court also made it clear (at paragraph 27) that it did not share the view of Lord Woolf in AEI Rediffusion Music Ltd [1999] 1 WLR 1507 wherein his Lordship had been discussing the merit of the ‘follow the event’ principle, and wherein he had suggested that there had been a move away from the Elgindata approach and that the change of philosophy embodied by the then new English Civil Procedure Rules had begun to permeate judicial practice and to require courts to be “more ready” to make separate orders as to costs reflecting the outcome of different issues: “the new Rules are reflecting a practice which has already started…”

9.  I therefore found it curious that although the written submissions of the plaintiffs’ counsel on this application had rehearsed that part of the judgment in Akai (op cit) wherein this court had referred to its disinclination so to ‘fillet’ cases in terms of disparate issues so as potentially to attract disparate costs’ orders, by the same token the part of that same Akai judgment which had taken respectful issue with the views of Lord Woolf was ignored. 

10.  In this context it is fair to mention, however, that the views of Yuen JA in Wang Din Shin v Nina Kung CACV 460 of 2002 & 67 of 2003, which had favourably quoted Lord Woolf’s views, were prayed in aid on behalf of the plaintiffs, but in my view her Lordship’s broad discursive statement, which was concerned with particular costs’ orders in that case (the result of which was overturned in the Court of Final Appeal), is not binding, and I repeat my disinclination as rehearsed in Akai (op cit.) to follow the view of Lord Woolf in AEI Rediffusion (op cit.), a view which was stated in a different context and which, equally, is not binding on this court.

11.  Against this background, therefore, I turn to the respective applications to vary the costs’ order nisi.

The plaintiffs’ application

12.  For the reasons set out in its principal written submission, the plaintiffs seeks a variation in the existing order nisi, and submit that in the particular circumstances of this case that the costs of this action should be to the defendants, save that the plaintiffs themselves should have a positive costs’ order against the defendants in terms of two specific issues which were raised by the defence in this action, but which were abandoned at trial; these were the issues of the plaintiffs’ locus standi, and whether the defendants were de facto or de jure directors of the plaintiff companies.

13.  As to the locus standi issue, it is argued that this was a discrete, self-standing point introduced within paragraph 3 of the Defence, and thereafter expanded substantially by way of amendment to the Defence, which amendment was filed on 4 October 2004 to give effect to the defendant’s denial that the 2^nd plaintiff was an indirect subsidiary of the 1^st plaintiff; in this regard, the plaintiffs were put to strict proof that the present action had been brought with the knowledge and consent of the Scheme Administrator then in place, and had this plea succeeded, it necessarily would have followed that the defendants would have established that the 2^nd plaintiff, being the owner of the vessel “KAI HONG” would have had no locus to bring this action, and thus there would have been no necessity to deal with the other issues in this case.

14.  It is said that the ‘locus point’ was “hotly disputed” between the parties, leading to substantial time and costs being incurred on this specific issue during discovery as well as in the preparation of witness statements.

15.  However, notwithstanding this backdrop, on the opening day of the trial leading counsel for the defendants, Mr Sussex SC, effectively had abandoned the point, and thus the point turned out, in the end, to be of no practical significance.

16.  It is also said on behalf of the plaintiffs that in any event the issue unreasonably was advanced because as directors of the 1^st plaintiff (and the 2^nd plaintiff as director of the 1^st defendant) that the plaintiffs knew or ought to have known that the 2^nd plaintiff was an indirect subsidiary of the 1^st defendant.

17.  As to the second issue upon which the plaintiffs complain that costs were unreasonably and unnecessarily thrown away, namely that of the new allegations by the defendants, made by amendment just over two months prior to the trial, that they neither had been de facto or de jure directors of the 1^st or 2^nd plaintiffs at the material time, and thus belatedly had withdrawn longstanding pleaded admissions in this regard going back to 2002 to the effect that both the defendants had been directors of the 1^st plaintiff and that the 1^st defendant was a director of the 2^nd plaintiff, once again it is asserted that there had been “complete defeat” on this issue by reason of the like fact that on the first day of trial this point again had been conceded by leading counsel; as Mr Sussex SC had put the position to the court, he was “prepared to accept that both the first and second defendants were de jure directors of P1”, and that although he had not seen a resolution appointing the first defendant as director of P2, “I am prepared to accept that he was a de facto director…”

18.  In these circumstances, says the plaintiffs’ counsel, Ms Catrina Lam (who had appeared, together with Mr Daniel Fung SC, on behalf of the plaintiffs at trial), substantial time and costs had been thrown away by the course events had taken, more particularly in the first instance wherein long-standing admissions had been withdrawn, only for the locus point to be peremptorily dropped, and thus the plaintiffs should have a positive costs’ order against the defendants in relation to both such issues.

19.  This application for variation in these terms is strongly resisted by the defendants.

20.  For her part Ms Frances Lok, counsel for the defendants (as, together with Mr Charles Sussex SC, she had been at trial), submits that the plaintiffs’ application should be dismissed because first, it has not been established that the two issues were unnecessarily or improperly raised by the defendants, and hence that this is the type of ‘exceptional case’ wherein the general rule as to costs following the event should not be followed, and second, that the two issues in question did not lead to any substantial wastage of time and costs either during the trial or during the interlocutory process.

21.  In particular, she points out that security for costs was ordered against the plaintiffs on 16 July 2003 on the basis that the 1^st plaintiff was a nominal plaintiff suing for the benefit of Scheme creditors, but the 1^st plaintiff never had produced the written consent of the Scheme Administrator to the commencement of the action by the 1^st plaintiff; she says, also, that after the security for costs order the 2^nd plaintiff had applied to discontinue its claim against the defendants by summons dated 9^th December 2003, an application for discontinuance which was withdrawn only on 24^th August 2004.

22.  It is further submitted that the 2^nd plaintiff was not mentioned as an indirect subsidiary of the 1^st plaintiff in the Scheme documents, that there had appeared to have been a transfer of the shares in the 2^nd plaintiff to a third party for distribution to the Scheme creditors, and that the 2^nd plaintiff had been dissolved on 2 December 2005, only to have been restored on 8^th July 2008 – an order of which the defendants had been wholly unaware until the last Supplemental List of Documents of the plaintiffs dated 1 August 2008 – so that if indeed there had been nothing in the locus point, such application for restoration would have been otiose.

23.  Accordingly, it is argued that in these circumstances the defendants were entitled to take the point, and that it has been shown to be a respectable argument, albeit in the event this was a point not actively pursued at trial.

24.  As to the question of the status of the defendants as directors of the plaintiffs, once again it is said that the plaintiffs had not produced valid evidence of the appointment of the defendants to the Board of the 1^st plaintiff, and in fact even had objected to the production of Minutes of the Board of the 1^st plaintiff for the period from 3 February 1997 to 29 January 1999, whilst the Minutes of the AGM of the 1^st plaintiff held on 21 December 1999 had not been discovered until the plaintiffs’ 3^rd Supplemental List of Documents dated 1 August 2008; had these been discovered earlier, it is submitted, all the argument relating to the status of the defendants qua directors of the 1^st plaintiff could have been saved, whilst even to date, no proof had been provided as to the proper appointment of the 1^st defendant as director of the 2^nd plaintiff.

25.  Once again, therefore, the defendants argue that it could not be said that this matter was wholly inconsequential and should not have been taken, and that this had been a respectable argument for the defendants to raise, notwithstanding that in the exercise of his unfettered discretion as to how to run the case at trial Senior Counsel had decided not to positively take the point.

26.  Accordingly, it is submitted that these were matters which easily and conveniently could have been put to bed at an early stage by the plaintiffs, and in any event it was dubious as to what precisely had been the costs generated at the interlocutory stage by the two issues being allowed to remain on the pleadings, and that the present application would lead to an wholly “disproportionate” wastage of time and costs.

Decision on plaintiffs’ application

27.  The point requires to be made that the specific interlocutory matters the subject of the detailed written submissions by each side on the plaintiffs’ application to vary the order nisi did not come to the attention or scrutiny of the court during the trial because, in the event, these particular points were not pursued by Senior Counsel for the defendants.

28.  However, the fact that they were not pursued does not in itself connote illegitimacy or prima facie unreasonableness of the points having been taken on the defendants’ pleadings, not least since the conclusion of this court was that this was an unmeritorious case, and in which the Judgment, which speaks for itself, recited that in my view (at paragraph 108) that “this action was ambitious, artificial and without obvious merit.”

29.  Against this backdrop, therefore, and in light of the procedural background to this case – including the ‘Procedural Chronology’ which helpfully has been supplied with the Defendants’ submissions – it is eminently clear that this matter has a long and textured interlocutory history, dating back to 28 April 2000, when the 1^st plaintiff’s Scheme of Arrangement was sanctioned by the court.

30.  In these circumstances, and having reflected at some length on the matters respectively raised – of which only the ‘locus’ point seemed to me to hold any promise for the plaintiffs – it strikes me that argument and counter-argument appear equally poised, and accordingly I have decided not to accede to the plaintiffs’ application for a variation of the existing costs’ order nisi.

31.  As this court remarked at trial, and as is evident on the face of the Judgment delivered, the plaintiffs’ case was far from attractive, there remained a real doubt about whether the principal witness had come to court with ‘clean hands’ and that it was tolerably evident that there was “a clear agenda” (vide paragraph 106) on the part of Mr YT Leung in prosecuting this action to trial and a general “air of unreality” (vide paragraph 96) about the manner in which this case had been framed.

32.  Accordingly I am unsympathetic to any argument which now would seek to ‘fillet’ the existing costs’ order in a manner in which, I would guess, would be likely to cause significant difficulty at taxation and would, in my judgment, in any event not be fair having regard to the extended procedural history of the case, a history of which, as I have said, I have only at this stage briefly become acquainted.

33.  It follows, therefore, that I have concluded that the plaintiffs’ application to vary the costs’ order nisi itself is to be dismissed with costs, such costs to be taxed if not agreed.

34.  I so order.

The defendants’ application

35.  By its own application, the defendants’ themselves seek to vary the costs’ order nisi, and request that this order be varied to substitute therefor that the costs of this action should be to the defendants “on an indemnity, alternatively common fund basis, to be taxed if not agreed.”

36.  This application is patently an ‘after-thought’ which obviously has been precipitated by the plaintiffs’ application, paragraph 4 of the defendants’ submissions in opposition to those of the plaintiffs commencing thus: “As the issue of costs is now re-opened and considered by the court afresh, in light of the overall conduct of the parties in this action, the defendants further submit that the costs of the action…should be on an indemnity, alternatively common fund basis…”

37.  It seems to me that in this context two distinct issues arise for consideration:

first, are the defendants now entitled to belatedly raise the issue of the scale of costs at this late stage, not having done so by application within the 21 days as specified within the final paragraph (paragraph 110) of the Judgment?; and

second, and if so, what are the merits of this application?

38.  On that which for convenience of reference I will term the ‘time issue’, the plaintiffs’ Reply Submissions strongly oppose what is denigrated as this “belated attempt to ‘slip in’ a cross-application out of time and through the ‘back door’”, and note that this was not an application foreshadowed in any of the correspondence between the parties.

39.  In this connection, reference is made to the decision in PCCW-HKT Telephone Ltd v Telecommunications Authority, CACV 274 of 2003, judgment dated 7 September 2004, wherein Ma CJHC (with whom Rogers VP and Le Pichon JA agreed) had emphasized that an application to vary a costs’ order nisi should formally be made by summons rather than by informal application (a letter in that case), and that such informal application was “most unsatisfactory” and “incorrect”; the reason for this, as the learned Chief Judge explained, was to apprise the other side and the court as to the precise nature and extent of the variation order as is being requested, “otherwise there is a danger that it becomes unclear just what is being sought from the court, thereby allowing the parties to ask for relief in haphazard manner”.  In principle, I respectfully agree with this sentiment.

40.  In the instant case, the point forcefully is made by the plaintiffs that the defendants have made no attempt whatever, whether by summons or letter, to vary the order nisi, nor for that matter had there been any explanation for the “substantial delay” in making the cross-application for variation.  Accordingly, the plaintiffs say that absent any such explanation, this “haphazard cross-application” ought not to be entertained, and that the costs should be borne by the defendants in any event.

Decision on defendants’ application

41.  In my view the ‘time point’ is a serious one, and one as to which I am unaware of any direct authority.

42.  Necessarily implicit within the defendants’ approach is that in these circumstances in which variation of the existing order nisi is sought to be raised by the plaintiffs, the defendants now are entitled as of right to mount this cross-application for variation absent any letter or summons announcing their intention in this regard.  Is this correct?

43.  Whilst a formal summons clearly is to be preferred, nevertheless given that this is the Commercial Court – wherein procedural formalism is not always insisted upon provided that procedural fairness otherwise can be achieved – I should not have rejected the application by reason of the mere absence of a summons if and in so far as, within the 21 day period laid down in the judgment for applications to vary the order nisi, the defendants’ application had been made in time by letter announcing both to the court and to the opposing party the intention to seek to vary, and the consequential order to be sought; the precise grounds of the application thereafter naturally would appear in the skeleton argument of the party seeking the variation in the terms sought.

44.  However, the present situation is very different.

45.  As I understand the situation, notwithstanding the date of the judgment containing the order nisi, that is, 22 October 2008, no move whatever was made by the successful defendants to vary this order nisi until the plaintiffs themselves sought a variation.

46.  Whilst the matter has not been expressed thus, the defendants’ underlying assumption is that by means of the plaintiffs’ application so to vary, the plaintiffs thereby have rendered the costs’ issue at large, with the result that there is no necessity to ask for an extension of the 21 day period as prescribed for a variation application, nor indeed to proffer any explanation for the delay, and that the defendants thereby are entitled to put forward their own plea for a variation.

47.  With respect, I consider that this approach is neither permissible nor appropriate.

48.  It seems to me that in principle an application to vary a costs’ order nisi is ‘party-specific’, by which I mean that, absent any cross-application within the prescribed period by the opposing party in whatever terms may be considered appropriate, the approach of the respondent to any variation application as properly constituted is confined to resisting the application and to upholding the order nisi as originally made, and I fail to see why the fact of a variation application by one party in effect gives the opposing party carte blanche to make its own distinct and substantively different variation application out of time.

49.  Of course, it remains open to the party which is out of time to seek leave to extend time to make such variation application, but no effort has been made to do this in this case, and for my part I wish to give the lie to the apparent idea that a cross-application simply can be ‘tacked on’, as of right, to a properly-constituted application.  In my judgment it cannot.  And in the current instance the court has been given no material upon which to exercise any discretion to extend time, even had it been asked to do so, which it has not.

50.  Thus I am unable to agree with the contended effect of the defendants’ reliance, as outlined in its ‘Addendum to Defendants’ Submissions’, upon the terms of Order 42, rule 5B(6), which provides that “Where a written decision is given pursuant to this rule the Court may make therein an order nisi as to costs and, unless an application has been made to vary that order, that order shall become absolute 14 days after the decision is pronounced”, and the corresponding assertion, following upon citation of that Order, that “the order nisi has not become absolute due to the plaintiffs’ application to vary and therefore can be considered by the court afresh”.

51.  The short point, it seems to me, is that the order nisi indeed can be reconsidered by the court, upon appropriate application within time, in terms of the variation proposed, but only in terms of that proposed variation, and that if and in so far as the opposing party wishes to canvass its own variation, for the reasons adumbrated in any specific application, the court can and will consider that variation also; however, as earlier indicated, what in my view it does not do is effectively to throw the entire issue costs’ issue open to general and unrestricted debate, and thereby relieve the opposing party from responsibility for the proper formulation, within time, of its own proposed variation. 

52.  Accordingly, if this view be correct, this ruling leaves the defendants’ application out of time and out of court for a variation in terms of the appropriate scale of the original costs’ order, and the application thus is rejected on this basis alone. 

53.  I so order.

54.  If and in so far as this ruling is incorrect – which I do not consider that it is, albeit in principle this point clearly would benefit from appellate consideration – then nevertheless I should go on to indicate what would have been my view had the defendants made their own variation application within time, or alternatively had applied for an extension of time in which to do so, underpinned by relevant evidence.

55.  The short point here is that in any event I would not have considered this case to merit a costs’ order on the basis of indemnity costs, for which award the principles have been clearly set out by the Chief Justice in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114, at 124.

56.  As the judgment of this court in this case makes clear, whilst I did not think much of the plaintiffs’ case, I did not and do not pitch it as high as warranting such a stringent order as indemnity costs.

57.  Whether I could have been persuaded to depart from the normal party and party basis in favour of common fund is less clear, although I suspect (although I cannot now say with any degree of conviction, given the passage of time) that had I instinctively been inclined to this view at the time of writing the judgment, I should have followed the practice of this court and have made such an order nisi on this enhanced basis.

58.  However, there is little to be gained by speculation; this was not done and, as I have now ruled, it is too late to revisit this issue.

59.  It follows, therefore, that the defendants’ purported cross-application for variation of the order nisi to make provision for an enhanced basis as to costs also is dismissed, with the costs of such application to the plaintiffs, such costs to be taxed if not agreed.

60.  I so order.