BOLD SHINE INVESTMENT LTD v. ZHENG DELI

HCA 1676/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1676 OF 2011

_________________________

_________________________

______________________

DECISION ON COSTS

______________________

I.   BACKGROUND

1.  On 10 June 2013, I handed down my Decision in respect of the plaintiff’s application for summary judgment against the defendant (“Decision”). For convenience, I adopt the abbreviations in the Decision.

2.  In the Decision, I concluded there were features in this case that required resolution by trial, and the defendant had raised triable issues of fact that could not be resolved in a summary way. I was not persuaded that I should dismiss the summary judgment application (ie the Amended Summons) as there were also matters in the defendant’s case that needed to be canvassed.

3.  At the Hearing, Mr Chang, counsel for the defendant, offered not to dispose of the Property until the final determination of the present action. I believed it was an appropriate offer to preserve the status quo pending final determination at trial. It was also not onerous since I was given to understand the plaintiff had registered the writ of summons against the Property at the Land Registry.

4.  On such basis, I ordered that conditional upon the defendant not to sell, transfer, assign, charge, dispose of or otherwise deal with the Property or any part thereof until the final determination of the present action (“Condition”), leave to defend be granted to the defendant (“Order”). I also granted an order nisi that costs of the Amended Summons be costs in the cause (“Costs Order Nisi”).

II.  APPLICATION

5.  On 24 June 2013, the defendant took out a summons to seek the following reliefs (“Variation Summons”), and the hearing of the Variation Summons came before me on 11 October 2013 (“Variation Hearing”):

(a)   to vary the Costs Order Nisi to the extent that costs of the Amended Summons for the period from 15 November 2012 to 19 February 2013 be costs in the cause of the present action, and costs of and occasioned after 19 February 2013 be to the defendant to be summarily assessed or alternatively to be taxed if not agreed and to be paid forthwith (“Variation Application”);

(b)   to clarify whether the Condition encompasses residing at or renting out the Property or any part thereof (“Clarification Application”).

6.  On 30 September 2013, the plaintiff filed Sousa’s 2^nd affidavit in support of the Variation Summons. Sousa claimed he had to travel to a remote part of Mainland China where the defendant was imprisoned in order to take instructions to oppose the Amended Summons, and this had been a costly exercise. He said the plaintiff also made a summary judgment application against the defendant’s wife in HCA1867/1999, which was dismissed by DHCJ Sakhrani on 16 April 2013 with costs to the defendant’s wife. The defendant suspected that the plaintiff’s summary judgment applications against him and his wife respectively in the present action and in HCA1867/1999 despite obvious triable issues in both actions were made “with a view of draining the Defendant and his wife out of their funds so as to undermine their ability to conduct” both sets of proceedings.

7.  I do not propose to deal with the matters set out in the above paragraph because (a) they did not feature in counsel’s written submissions and (b) Mr Chang informed me at the Variation Hearing that the defendant would not be relying on such grounds.

8.  Sousa’s 2^nd affidavit went on to say that after his affidavit for opposing the Amended Summons was filed on 14 February 2013, the defendant’s solicitors wrote to the plaintiff’s solicitors on 19 February 2013 (“Letter”) to make an open offer to dispose of the Summons for the sake of saving the court’s and the parties’ time and costs.

“As you must well know from our client’s affirmation in opposition ……, our client has (i) clearly raised triable issues entitling him to unconditional leave to defend; and (ii) your client has grave difficulties to prove its case, for reasons which are apparent form the Affirmation. As the hearing is coming up soon, we shall have to deliver brief to counsel soon.

In view of the above, we are instructed to make an open offer to your client that (i) the Application be withdrawn; (ii) our client shall have unconditional leave to defend; (ii) our client shall have leave to file his Defence within 14 days from the date of the consent order to be made; and (iv) costs of the Application be in the cause of the action. If your client agrees, kindly let us have your consent summons for our consideration. ……

We invite your client to seriously consider our proposal above, in an attempt to save the parties’ time and costs, and in the light of the underlying spirit of the Rules after the Implementation of the Civil Justice Reform. Please revert within 14 days from the date hereof. ……”

9.  The defendant claimed the offer in the Letter was reasonable, and the plaintiff should have accepted it and thereby saved the time and costs for the Hearing and the Variation Hearing. Sousa’s 2^nd affidavit claimed that at least the plaintiff should have seized the offer as a starting point to explore a way forward for avoiding unnecessary court hearing, but to the defendant’s disappointment the plaintiff did not reply to the Letter. As a result, the Hearing went ahead. The defendant claimed it was unreasonable for the plaintiff to ignore the offer made in the Letter, and asked for an order to be made in terms of the Variation Application.

III.  VARIATION APPLICATION: PLAINTIFF’S CASE

10.  Mr Chow, counsel to the plaintiff, submitted that even when unconditional leave to defend is given (ie a trial is ordered), the usual order as to costs is for costs to be in the cause. But here the court only granted conditional leave to defend. Since (a) the defendant in the first place asked for dismissal of the Amended Summons (which did not find favour with the court), (b) at the Hearing Mr Chang “offered for the first time to impose conditions for leave to defend”, and (c) the Letter proposed to dispose of the Summons on the basis of unconditional (and not conditional) leave to defend, there was no basis to vary the Costs Order Nisi.

11.  Mr Chow accepted that the Decision did not appear to be the strongest of cases where conditional leave to defend was given, but the court obviously came to the conscious decision that a condition (being the one orally offered by Mr Chang at the Hearing) was necessary and appropriate given that there were “matters in [the defendant’s] case that need to be canvassed”. He reminded that although there were questions arising from the plaintiff’s case that required resolution at trial, the court by the Decision did not exactly endorse all the defendant’s contentions. Since the defendant’s main arguments did not carry the day, there was no basis to vary the Costs Order Nisi. After all, the Costs Order Nisi was fair in that it still allowed the defendant to recover costs of the Amended Summons if he ultimately succeeds in his defence in the main action.

IV.  VARIATION APPLICATION: DEFENDNT’S CASE

12.  On the other hand, Mr Chang emphasised there were triable issues even on the plaintiff’s own evidence, and upon receipt of the defendant’s evidence in opposition on 14 February 2013 the plaintiff should have known there were further triable issues which should have persuaded them to accept the defendant’s sensible offer in the Letter for the application for summary judgment to be withdrawn with costs in the cause. Instead, the plaintiff caused two affirmations by Luo and Feng to be filed exhibiting voluminous documents which raised more questions than answers and which did not advance their claim any further.

13.  Mr Chang submitted that the Decision did not reflect a typical case where the court was prepared to grant conditional leave to defend on the basis that the defence put forward was shadowy and the court was almost prepared to give summary judgment. The condition was only imposed because of the voluntary offer made by Mr Chang at the Hearing which the court considered to be an “appropriate offer in preserving the status quo pending the full determination at trial”. Given all the triable issues in the case found by the court in the Decision, Mr Chang submitted there was never any prospect of the plaintiff succeeding in their application for summary judgment with or without the Condition.

14.  Mr Chang further reminded that the plaintiff only withdrew the Order 14 relief for payment of rental received by the defendant from the Property at the Hearing, and they also made an unmeritorious attempt to exclude the defendant’s evidence in opposition made through his handling solicitor despite knowing of the defendant’s present predicament of being incarcerated in Mainland China. Mr Chang submitted that the plaintiff had acted unreasonably in invoking the summary judgment procedure, and had the plaintiff not done so or at least accepted the offer in the Letter substantial headway would have been made in progressing the present action towards trial. Mr Chang argued that the appropriate course would be to vary the Costs Order Nisi to reflect disapproval of the plaintiff’s unreasonable conduct and to fairly remedy the defendant who in practical terms was the successful party in respect of the Amended Summons

V.  VARIATION COSTS ORDER: DISCUSSION

15.  There is no dispute that where a trial is ordered pursuant to a summary judgment application, the usual order is for costs to be in the cause. “However, where unconditional leave to defend is given, rather than dismissing the summons, in order that further orders for the proper conduct of the action may be given …… the court may make an order it could make on dismissing the summons in respect of costs. ……”[1] In the event of conditional leave to defend, the order for costs generally corresponds with the condition imposed, and its operation may depend upon whether or not the condition is complied with.[2]

16.  In Skink Ltd (in liquidation) v Comtowell Ltd,[3] Penlington JA held that “…… O 14 is only to be used in the plainest possible cases”.[4] Godfrey JA also said as follows:[5]

“I wish to express my approval of a valuable passage in the judge’s judgment in which he commented on the use, in the present case, of O 14. The passage is worth quoting in full. The judge said this:

I cannot leave this case without commenting, that, in my judgment, it is a pity that an application under O 14 was taken out because it would have been better, as it usually is, to pursue an early hearing date. The writ was issued almost 12 months ago, on 28 April 1993. For some reason it took five months for the statement of claim to be issued. The defence was dated the 1 December and there were consequential amendments. The O 14 summons was not taken out until 31 January 1994. Had the statement of claim been taken out earlier, bearing in mind that this is not a case where there can be a great deal of discovery as the documents speak for themselves, by mid 1994 the matter could have, perhaps, been ready for trial. The issue of fact is relatively simple and I do not think that this case could or should last more than a couple of days. At the O 14 hearing before me, the hearing lasted less than a day and we canvassed most of the authorities that would be required at trial. Order 14 applications seem to be a reflex action in Hong Kong, and a great deal of a civil judge's time is taken up deciding whether or not cases should go on for a hearing. In many of them, the parties would have been better off to go on with the matter and get a final judgment at trial. [Emphasis added.]

I entirely agree with these observations, and would add that a plaintiff who starts O 14 proceedings believing that the defendant has no defence to the action should be advised, as soon as a credible defence is shown, to give up trying to obtain summary judgment; to do otherwise is simply to waste time and money. In particular, it should be realized that this court will only very rarely be prepared to reverse a decision by a judge that the defendant ought to have unconditional leave to defend the action.”

17.  Mr Chow sought to downplay the per curiam observation by Godfrey JA which he said was made in the context of an appeal from a decision to grant unconditional leave to defend involving an element of fraud that precluded the jurisdiction of the court to hear the matter to begin with. Nevertheless, Mr Chow agreed that Godfrey JA’s observation must generally be correct.

18.  Whilst I agree there is no fixed formula for costs which are in the discretion of the court, Godfrey JA’s words of wisdom take on particular significance after the Civil Justice Reform with its emphasis on efficiency, economy and proportionality.[6] His guidance is also reflected in Order 62 rule 5 of the RHC which provides as follows:

“(1) The Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account – (aa) the underlying objectives set out in Order 1A, rule 1;…… (e) the conduct of all the parties; …… (g) any admissible offer to settle made by a party, which is drawn to the Court’s attention.

(2)     For the purpose of paragraph 1(e), the conduct of the parties includes – (a) whether it is reasonable for a party to raise, pursue or contest a particular allegation or issue; (b)      the manner in which a party has pursued or defended his case or a particular allegation or issue  ……”

19.  In my view, the guidance in Order 62 rule 5(2)(a)-(b) of the RHC in the context of summary judgment applications are well reflected in the aforesaid observation by Godfrey JA.

20.  An example of the exercise of discretion on costs in light of the above considerations can be seen in Alviero Martini SPA v Bubble Retail Management Limited & anor.[7] In respect of the summary judgment application in that case, the plaintiff did not file any affidavit in reply upon expiry of the court-imposed deadline of 7 September 2009. The hearing for the application was scheduled on 24 September 2009. On 11 September 2009, the plaintiff’s solicitors proposed to the defendants’ solicitors to give the defendants unconditional leave to defend. DHCJ L Chan (as he then was) held as follows:

“25. I am of the view that 7 September was the time for the plaintiff to fairly and properly advise the defendants of its change of position. If the plaintiff was still considering what to do, it should at least have informed the defendants on a without prejudice save as to costs basis about its consideration and requested the defendants not to incur further costs. I am not sure if such notification made on or about 7 September could or could not have saved the further costs as the hearing date was approaching and counsel’s availability had to be secured. However, silence would surely not assist the plaintiff.

26. One further point raised by counsel for the plaintiff is that even if the matter should have proceeded to argument, the defendants would only have obtained at best unconditional leave to defend with costs to be in the cause. I think there is a mistaken assumption that the court would invariably order costs to be in the course if unconditional leave to defend is given. If the defendant’s affidavit in opposition should reveal an entitlement to unconditional leave to defend, but the plaintiff still pursues the application for summary judgment without good reason, then the plaintiff should be ordered to bear all costs incurred from the time when the defendants’ case has been properly revealed. Such costs would normally include the costs of the hearing.

27.    For the above reasons, I agree with the position taken by the defendants.  …… I order that the costs incurred by the defendants in the Order 14 Summons after 7 September 2009 including the costs for this paper argument be paid by the plaintiff to the defendants in any event.”

21.  Mr Chow sought to distinguish Alviero Martini SPA on the basis that the summary judgment application in that case was disposed of by consent giving the defendant unconditional leave to defend. Whilst I agree that each case must turn on its own facts, I do not see how the broad principle elicited from such case, ie that as soon as a plaintiff is sufficiently aware of a triable issue upon the affirmation in opposition he should fairly and properly arrest the summary judgment application and alter course to proceed to trial, can be objectionable. In my view, failure to adopt such approach in face of triable issues must be a relevant consideration in the overall exercise of the discretion on costs.

22.  Turning to the present case, it must be apparent from the Decision that the plaintiff’s own case/evidence on the source of the monies in the Company Account and/or Joint Account is wanting for the purpose of seeking summary judgment,[8] and the documentary evidence does not entirely sit together with the plaintiff’s case.[9] Therefore, even though some of the documentary evidence also does not appear to sit too well with the defendant’s case,[10] the defendant was able to demonstrate that the present case should go to trial.[11] As explained in the Decision, the 1998 and 2000 Minutes and the findings in the PRC Judgment only served to highlight the disputes of fact that could only be resolved at trial. On the question of the purchase of the Property, the documentary evidence also did not sit entirely comfortably with the plaintiff’s case, and these matters required resolution at trial.[12]

23.  Even though Mr Chow submitted that the court found certain triable issues not advanced by Mr Chang at the Hearing,[13] which were matters drawn from the documentary evidence that were either the plaintiff’s documents or were documents exhibited to the defendant’s evidence in opposition. In such circumstances, upon service of the defendant’s evidence in opposition, the plaintiff should be in a position to re-consider whether their summary judgment application should be pursued (particularly in light of the reminder by way of the Letter).

24.  Further, the fact that the court did not favour some of the defendant’s contentions made at the Hearing does not alter the fact that there were triable issues even on the plaintiff’s own case. This is quite different from Tai Da Trading (HK) Limited v Chan Wai Kuen (and Hoosenally & Neo, Solicitors (a firm)[14] in which on the particular facts of that case I held that, contrary to the defendant’s and the third party’s contentions, the plaintiff’s case was quite arguable, but the affidavit evidence revealed an arguable defence of waiver which if successful might raise an arguable defence. Hence in that case, the defendant’s and/or the third party’s “success” in having unconditional leave to defend was not due to inherent concerns about the plaintiff’s case but because of arguable contentions apparent from the affidavit evidence even though they had not been specifically put forward. It was on such basis that I ordered costs to be in the cause. The circumstances of Tai Da Trading (HK) Company Limited are a far cry from the present situation, and I am not persuaded that such case-specific ruling on costs is of assistance here.

25.  I agree with Mr Chang that the present case is no ordinary case of the court granting conditional leave to defend simply on the basis that the defence is shadowy. I have made clear that the Condition was imposed in the spirit that it was offered, ie it would preserve the status quo pending the final determination at trial, and also because it would not be onerous to the defendant (since after all the writ of summons had been registered against the Property at the Land Registry). The Condition was not imposed against the will of the defendant and certainly not because of any shadowy defence. The fact there are matters in the defendant’s case that need to be canvassed at trial does not necessarily make his defence shadowy for it merely mirrors the fact there are also triable issues in the plaintiff’s case that require resolution by trial.

26.  On such analysis, it is necessary to bring the Letter into consideration at this point. In my view, the plaintiff should have given the offer in the Letter serious consideration as it was made after service of the defendant’s evidence in opposition. In my view, the plaintiff should have agreed to the offer of unconditional leave to defend by 7 March 2013, ie the initial court-imposed deadline for filing the affidavit in reply to the Amended Summons pursuant to my order dated 24 January 2013. Such period would have allowed the plaintiff to have a fair opportunity to consider the defendant’s evidence in opposition and to revisit their own position in respect of the summary judgment application. By that time, the plaintiff should have realised there are triable issues even on their own case irrespective of the defendant’s case and/or any condition.

27.  In all the circumstances, I vary the Costs Order Nisi to the effect that costs of the Amended Summons (including all costs reserved, if any) up to and including 7 March 2013 shall be costs in the cause and thereafter such costs shall be paid by the plaintiff to the defendant to be taxed forthwith if not agreed. I do not consider it appropriate to deal with the costs payable to the defendant by way of summary assessment as there may be apportionment issues. There may also be some complexity in respect of communications with the defendant who is imprisoned in Mainland China, which may well benefit from the process of taxation.

VI.  CLARIFICATION APPLICATION

28.  Mr Chang submitted that the rationale for imposing the Condition was to preserve the status quo of the Property pending trial. He argued that so long as the Property would not be disposed of or otherwise encumbered, that should serve such purpose. The defendant was concerned that the words “otherwise deal with” imposed under the Condition, which if viewed cautiously would appear to prohibit him from even residing in or renting out the Property. Mr Chang submitted that would be unnecessarily wide, particularly when the plaintiff had withdrawn their claim for summary judgment for payment of the rental of the Property received by the defendant.[15] He argued that the defendant should thus be permitted to reside in or rent out the Property pending full determination of the present action. Mr Chang invited the court to make an order/direction to such effect.

29.  Mr Chow informed the court that save and except for the following observations the plaintiff would adopt a neutral stance in respect of the Clarification Application:

(a)    the Clarification Application was neither an appeal against the Order nor an application for amendment under the slip rule;

(b)   the terms of the Order were clear and unequivocal that the defendant was prohibited from residing in or renting out the Property.

30.  I do not agree with the observations made by Mr Chow. In my view, the clarification sought is consequential to the Condition imposed in the reasoned Decision. Very often, in a reasoned decision, the court focuses on matters argued before it, and there may well be consequential or uncontroversial matters which the court does not deal with in the reasoned decision. But that does not mean the formal order should not deal with such matters otherwise it would be a recipe for future applications that translate into time/costs inconsistent with the spirit of the underlying objectives in the RHC. But of course this avenue is confined to matters properly within the ambit of the proceedings seized by the court in coming to the reasoned decision.

31.  In my view, the Condition must be viewed in context, ie it was made to preserve the status quo pending trial and it was not onerous because the plaintiff has registered the writ of summons against the Property at the Land Registry. In referring to the registration at the Land Registry, plainly the court had in mind preservation of the Property against disposal, alienation and/or encumbrances. Bearing in mind that the court found there were triable issues that ought to go to trial when the court would adjudicate on the dispute over the ownership of the Property, the plaintiff ought not by virtue of the Condition gain a windfall protection akin to a prohibitory injunction just because the defendant made an offer to preserve the status quo and the plaintiff has not made any attempt to seek interim injunctive relief. Neither the defendant’s residence at the Property nor his letting of the Property (save for some kinds of registrable leases) affect the registration of the lis pendens at the Land Registry.

32.  I hereby direct that for the avoidance of doubt paragraph 1 of the Order does not prohibit the defendant from residing at and/or renting out the Property until the final determination of the trial or until further order.

VII.  COSTS

33.  The parties have agreed that costs should follow event I should find in favour of the defendant in respect of the Variation Application. Notwithstanding my invitation, Mr Chang did not address on the costs of Sousa’s 2^nd affidavit in view of the abandoned grounds therein for the Variation Application. I therefore order that:

(a)   there be no order as to costs in respect of a third of Sousa’s 2^nd affidavit filed on 30 September 2013;

(b)   subject to (a) above, the plaintiff do pay to the defendant costs of the Variation Summons insofar as it relates to the Variation Application to be taxed forthwith if not agreed.

34.  In respect of the Clarification Application, since it is an application for clarification of the Condition imposed by the court and the plaintiff adopted a fairly neutral stance, it is agreed and I order that costs of the Variation Summons insofar as it relates to the Clarification Application be costs in the cause.