NICHOLAS V.A. SCHEBEK-FUERSTENBERG v. YIP WAI SANG AND ANOTHER

HCA 221/2017

[2020] HKCFI 3004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 221 OF 2017

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D E C I S I O N
(On Variation of Costs Order Nisi)

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Introduction

1.  This Court handed down a judgment on 28 July 2020 dismissing P’s claims against D1 and D2 for return of money on the basis of unjust enrichment and/or money had and received by the defendants and held on constructive and/or resulting trusts by the defendants respectively for the plaintiff (“Judgment”). I made an order nisi that there be no order as to costs as between P and D1 and also no order as to costs as between P and D2 (“Order Nisi”).

2.  D1 issued a summons to apply for variation of the Order Nisi and his summons is supported by his 4^th affirmation.  D1 is seeking an order that (1) P to pay D1’s costs of this action on a party to party basis; or alternatively, (2) P to pay D1’s costs incurred in this action since 15 July 2019 on a party to party basis.

3.  I directed that the application be dealt with on paper.  In this decision, I shall continue to adopt the abbreviations in the Judgment unless otherwise indicated.

Grounds for D1’s variation

4.  It was submitted on D1’s behalf that there was no legitimate reason from the Court to depart from the general rule that costs should follow the event and further:

(1) It was P who instituted this action against D1, claiming he was a victim of fraud committed by Zenia and after trial, it was found that P’s claim was not supported by sufficient evidence that there was fraud on the part of Zenia.  With or without the defence of bona fide purchaser or recipient for value without notice raised by D1, P’s case would have been dismissed and that D1 was the successful party;

(2) D has been dragged into this action since 2017, with his bank account frozen for 3 years and 7 months, incurring substantial costs in defending P’s unjustified claim which failed because P had failed to prove his case.  D1 should not be deprived of his costs only because he failed to establish the bona fide purchaser defence.  By this Court penalizing D1 for costs on the ground of the usurious loan is particularly unfair because P had admitted at trial that he had also engaged in lending with excessive interest to Zenia in breach of the MLO;

(3) It was not unreasonable at all for D1 to rely on the bona fide purchaser point which was his only defence.  D1 could not be expected to defend his case only by subjecting P to strict proof of the allegations of fraud.  The fact that D1’s bona fide purchaser defence was raised and survived the two injunction applications by P showed that the defence was not an unreasonable one to raise. 

(4) Alternatively, D1 relies on his former’s solicitors’ without prejudice letter dated 15 July 2019 in which he proposed a drop-hands solution to this action with no order as to costs.  P rejected this sensible approach and the outcome is practically the same proposed in the letter dated 15 July 2019.

Discussion

5.  The starting position is that costs follow the event.  As pointed out by Mr Brown and as seen in paragraph 273 of the Judgment, this Court did start from the position of costs to follow the event, but stated that even though P had not succeeded in his claim against D1, D1 was not able to satisfy this Court that he was a bona fide purchaser/recipient for value without notice, and further this Court found he was involved in an illegal transaction.

6.  There was no suggestion that P was at fault in the proceedings taking 3 years and 7 months to come to trial.  Further, in relation to the injunction applications, which resulted in D1’s bank account being frozen, costs had been awarded in D1’s favour.  As seen in her 1^st decision on P’s injunction application, Lisa Wong J said she was inclined to think that P had passed the threshold test of a good arguable case, and that D1’s defence was fact sensitive.  She declined to continue the ex-parte injunction essentially as there was no sufficient evidence of risk of dissipation.  Similarly, for her 2^nd decision on P’s injunction application, she ordered the P’s application be dismissed essentially on lack of sufficient evidence of risk of dissipation.  Insofar this Court can see, all Lisa Wong J said of D1’s defence was that it was fact sensitive.

7.  The fact was that D1’s failed defence did take up a substantial part of the trial.  Unlike D1, P accepted that the interests on his loans to Zenia were in breach of the MLO and P did not try to cloak the illegality of his loans in sham transactions even though this Court did find his evidence not credible on other matters.  On the other hand, D1 maintained all along that those investment agreements/guarantees he had with Zenia were in relation to investments for the sale and purchase of Culture Raft/s including in particular the Guarantee in question.  As a result of this Court’s findings against him, those alleged investments were thus sham transactions.  I do not think it reasonable for D1 to continue to maintain a defence that the Guarantee was a genuine investment.  In fact, the defence of bona fide purchaser without notice was not his only defence, and D1 could have raised a change of position defence which he did not pleaded properly.

8.  As for the “without prejudice” letter, as pointed out by Mr Brown, it was not a “without prejudice save as to costs” letter, and was not a written offer which this Court has to take into account under Order 62 rule 5 of RHC, nor was it a sanctioned offer as it did not comply with the requirements of Order 22 rule 5 of RHC.  In any event, D1’s without prejudice letter was brief with no other offers or concessions save on costs.  There was no reason given as to why suddenly D1 would think P would agree to discontinue the proceedings.

Conclusion 

9.  Costs are in the discretion of the Court.  Having considered the parties’ respective submissions and the circumstances of this case, I see no reason as to why the Order Nisi should be varied.  I dismiss D1’s summons issued on 13 August 2020 and order D1 to pay P’s costs of the summons, to be summarily assessed on party and party basis.

10.  P has submitted a statement of costs totalling HKD 63,050 for summary assessment.  Mr Cheung complained that the solicitors’ costs were excessive and unreasonable.  Having considered that D1’s 4^th affirmation is only about 3 pages, and that Counsel was instructed to prepare submissions, I agree that the solicitors’ costs were on the high side.  I am only prepared to allow HKD 10,000 in total for solicitors’ costs.  I thus allow HKD 1,400 for Section B, HKD 10,000 for Sections C and D, HKD 25,000 for Section E (Counsel Fees) and HKD 100 for Section F (other disbursements).  The total amount summarily assessed on party and party is HKD 36,500, which I order D1 to pay within 14 days hereof.