HSU CHING FANG v. NG CHOR KUEN AND OTHERS

HCMP 651/2014

[2023] HKCFI 1470

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 651 OF 2014

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	IN THE MATTER of the shares of BESTFIBRE COMPANY LIMITED (萬好紙業有限公司)
	and
	IN THE MATTER of Section 52 of the Trustees Ordinance (Cap 29)

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DECISION ON COSTS

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Applications

1.  This Court handed down its judgment on 15 March 2023 (the “Judgment”).  In the Judgment, this Court makes a costs order nisi that the 3^rd Defendant do pay the Plaintiff’s costs of the action (including the 3^rd Defendant’s counterclaim) to be taxed on a party-to-party basis if not agreed.

2.  By a summons dated 28 March 2023, the Plaintiff applies to vary the costs order nisi by asking the 3^rd Defendant to pay the Plaintiff’s costs of the action (including the 3^rd Defendant’s counterclaim and the Plaintiff’s claim against the 1^st and 2^nd Defendants) on an indemnity basis (the “Plaintiff’s Summons”).

3.  By a summons dated 4 April 2023, the 1^st and 2^nd Defendants also apply for an order for their costs (the “1^st and 2^nd Defendants’ Summons”) to be indemnified from the estate of the Deceased.

The Plaintiff’s Summons

4.  The Plaintiff essentially submitted that the 3^rd Defendant should not have defended the Plaintiff’s claims and had unreasonably and unjustifiably persisted his defence and counterclaim (see O.62, r.5(2)).

5.  The Plaintiff first submitted that it was unreasonable for the 3^rd Defendant to plead a positive case that the Deceased did not say the words of gift as alleged by the Plaintiff when the 3^rd Defendant admitted in his oral evidence that, as he was walking around at the Dinner, it was only that he had not heard the Deceased said the words of gift and the 3^rd Defendant agreed that the Deceased might have said so.  The Plaintiff submitted that taking his oral evidence to the highest, the 3^rd Defendant was in effect saying that he was not sure whether or not the Deceased had said the words of gift.  In such circumstances, there is no proper basis for him to plead a positive case saying that the Deceased did not say so.

6.  Secondly, in relation to the ratio of distribution, the 3^rd Defendant falsely put forward a positive case of fraudulent misrepresentation.

7.  In the Judgment, this Court expressly finds that:-

“90. … I do not find it responsible and credible to mount and maintain a claim on the Misrepresentation for the purpose of setting aside the agreement on the ratio of distribution

…

96.  … This Court finds that, for his own reasons, the 3^rd Defendant was trying to set aside his agreement with the Plaintiff on the ratio of distribution of the outright and immediate gift by the Deceased.”

8.  Mr Wong for the Plaintiff submitted that these findings are close to, if not akin to, saying that the 3^rd Defendant, with full knowledge of the facts, dishonestly mounted and maintained a claim on misrepresentation.

9.  It is trite that costs are entirely within the discretion of the Court.  Under O.62 r, 28(3), the Court may in appropriate cases order costs to be taxed on an indemnity basis. 

10.  In Huge Dragon Corp Ltd v Lung Mun Oasis (IO) [2014] 3 HKLRD 286, Poon J (as he then was) summarized the legal principles in relation to indemnity costs at §§12-13:-

“12. As to when the courts may award indemnity costs, Li CJ had this to say in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114:

[16] The courts have rejected the proposition that an award of indemnity costs will only be made where a case has been brought with an ulterior motive or for an improper purpose or where there is some deception or underhand conduct on the part of the losing party. (Macmillan Inc v Bishopsgate Investment Trust Plc, (unreported, 10 December 1993) (Millett J); Disney v Plummer, (unreported, English Court of Appeal, 16 November 1987)). These decisions and the reasoning on which they were based have been endorsed by the Hong Kong Court of Appeal (Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570 at pp. 575E-576F, per Godfrey JA; see also Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at pp. 1334G-1335I, per Stock J.)

[17] In these and other cases, courts have emphasised the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made. It has been said that

‘… the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be ‘appropriate’.’

(Macmillan Inc v Bishopsgate Investment Trust Plc (unreported, 10 December 1993), per Millett J; Sung Foo Kee Ltd v Pak Lik Co (a firm) [1996] 3 HKC 570 at pp. 575E-576F, per Godfrey JA; see also Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at pp. 1334G-1335I, per Stock J).

13. What constitute appropriate circumstances to award indemnity costs must be fact-sensitive. As demonstrated by numerous authorities and now enshrined in Order 62, rule 5(1)(e), Rules of the High Court, the conduct of the party against whom indemnity costs are sought is cogently relevant. Thus, where the proceedings in question should never have been brought or defended but the party nevertheless unreasonably and unjustifiably persisted, he may well be visited with indemnity costs: see, for example, Montrio Ltd & Another v Tse Ping Shun David, CACV 291/2011, unreported, 31 January 2013; Grant David Vincent Williams v Jefferies Hong Kong Limited, HCA 320/2011, unreported, 12 July 2013.” (Emphasis added.)

11.  In this Court’s recent case of Hui Chi Ming v Koon Wing Yee [2023] HKCFI 93, this Court ordered indemnity costs against the 1^st defendant for putting forward a false defence and said at §296:-

“296. As far as costs is concerned, it is an abuse of process for a litigant, with full knowledge of the facts, to dishonestly invent a claim, and the Court will award costs on an indemnity basis against such a litigant: see Lai Sin Yan Elsie v Tata Communications (Hong Kong) Ltd [2020] 4 HKLRD 363 at §7, where Bharwaney J adopted the observations by Moses LJ in South Wales Fires and Rescue Service v Smith [2011] EWHC 1749 (Admin) at §§2-4:-

[2] For many years the courts have sought to underline how serious false and lying claims are to the administration of justice. False claims undermine a system whereby those who are injured as a result of the fault of their employer or a defendant can receive just compensation.

[3] They undermine that system in a number of serious ways. They impose upon those liable for such claims the burden of analysis, the burden of searching out those claims which are justified and those claims which are unjustified. They impose a burden upon honest claimants and honest claims, when in response to those claims, understandably those who are liable are required to discern those which are deserving and those which are not.

[4] Quite apart from that effect on those involved in such litigation is the effect upon the court. Our system of adversarial justice depends upon openness, upon transparency and above all upon honesty. The system is seriously damaged by lying claims. It is in those circumstances that the courts have on numerous occasions sought to emphasise how serious it is for someone to make a false claim, either in relation to liability or in relation to claims for compensation as a result of liability.”

12.  Mr Wong for the Plaintiff submitted that considering how the 3^rd Defendant ran his defence, this is an appropriate case for the Court to make an indemnity costs order against the 3^rd Defendant.

13.  Mr Yeung for the 3^rd Defendant relied on the following legal principles:

(1)  Costs are generally awarded on a party to party basis. To justify costs on an indemnity basis, the receiving party must show that the case has some special or unusual feature: Commissioner of Island Revenue v Poon Cho Ming John (No 2)(2020) 23 HKCFAR 74 at §4 per Bokhary NPJ.  Thus, it has been said that “indemnity costs of the whole Action is the ultimate weapon only to be employed as a last resort”: Wang Din Shin v Nina Kung(unrep., CACV 460/2002, 19 April 2005) at §77 per Waung J.

(2)  In this regard, the threshold is high. The losing party’s conduct must be “unreasonable to a high degree”, and not merely wrong in hindsight: Heung Wing Yan v Hangway Housing Management Limited & Ors(unrep., HCPI 347/2012, 14 February 2017) at §19 per DHCJ Marlene Ng (as she then was).

(3)  Insofar as the merits of the case are concerned, even where “severely adverse findings” are made against a party, this does not ipso facto justify an indemnity costs order: Libertarian Investments Limited v Thomas Alexej Hall(unrep., FACV 14/2012, 11 March 2014) at §6 per Ribeiro PJat §§7-8.  Thus:-

(a)  As emphasized in KJ v KMLM(unrep., HCMC 4/2010, 21 May 2014) at §22 per To J:

“Advancing a case which is difficult, unlikely to succeed or which in fact fails, or without any foundation in law or fact, or devoid of merits, is not necessarily in itself a sufficient reason for an award of indemnity costs […] The Court’s finding that the claim or the ground of defence is plainly and obviously incredible on the fact, or that the evidence has been deliberately untruthful will not necessarily in itself warrant an order for indemnity costs. The conduct of the losing party must be of a more venal kind and the conduct of the litigation has in some sense been wicked: see Choy Yee Chun v Bond Star Development Ltd; and Kao, Lee & Yip.”(Emphasis added)

(b)  Similarly, in Kao, Lee & Yip (a firm) v Midland Realty International Limited (unrep., HCA 2153/2007, 31 March 2010), despite a finding that “the factual case upon which this action was also premised was incredible” (§16), DHCJ Lisa Wong (as she then was) aptly observed at §18 that “it must at the end of the day be a question of extent and degree”, and added that in the context of striking out or summary judgment “sometimes involves the Court making a finding that that the claim or the ground of defence is plainly and obviously incredible on the facts. Yet, we do not see the Court order indemnity costs in every such case. Indeed, in every case where there is a material dispute of fact, the Court is bound to prefer one party’s account.  Such a finding, without more, is not a special or unusual feature making indemnity costs appropriate.” (Emphasis added).

(4)  The high threshold above applies even to situations where serious allegations are made against a party:-

(a)  Even in contempt cases, “there is no general rule that indemnity costs should be awarded against the contemptor, the appropriateness of such order depending on all the circumstances of the case”: Libertarian at §6 per Ribeiro PJ.

(b)  This is equally so in the context of striking out for an abuse of process, which does not ipso facto constitute a “special or unusual feature”for the purposes of an indemnity costs award: Huinong Delta Investments Ltd & Ors v CCCC Financial Ltd & Ors[2018] HKCFI 952 at §§26-27 per B Chu J.

(c)  The above applies a fortioti to the mere hostile conduct of litigation – “[n]ormal litigious hostility would not suffice”:KJ v KMLM at §21 per To J. As aptly summarized in Wang Din Shin v Nina Kung at §§69-70 per Waung J, “the normal order of costs is on a party and party basis and is not on an indemnity basis […] even the most hostile litigation […] does not alter the general application of the basic rule of costs on a normal party and party basis.”

(5)  Finally, in terms of allegations of an ulterior motive:-

(a)  An ulterior motive will only warrant indemnity costs where a party has “commenced [an] action without any genuine motive”: Tang Siu Nam v Tang Chi Man [2019] 4 HKLRD 312 at §21.

(b)  The threshold required is high – if the Court finds there could well be “other less sinister reason[s]” for commencing proceedings, this is insufficient: Hong Kong Television Network Ltd and Another v Asia Television Ltd and Another(unrep., HCA 2217/2012, 20 November 2015) at§§71-73 per Chung J.

(c)  Similarly, in Mimi Kar Kee Wong Hung v Severn Villa Ltd and Ors (unrep., HCMP 243/2011, 31 October 2011) , although DHCJ Carlson observed that the case “from the start […] has been very hostile litigation”, and that the Plaintiff’s summonses “inevitably raises the strongest suspicion of an ulterior motive” (§14), this was insufficient to support the finding of an ulterior motive, and an application for costs on an indemnity basis was rejected (§15).

Analysis

14.  Having considered the parties’ submissions carefully, I come to view that the facts of the present case do not merit a costs order on an indemnity basis.  The main reason is that at the tail end of the trial, I did invite the Plaintiff to make submissions on the conduct of the 3^rd Defendant in relation to the plea of fraudulent misrepresentation given the fact that during the trial the 3^rd Defendant did not rely on the pleaded particulars. However, no submissions were made on this aspect.  As a result of which this Court did not make any finding of dishonesty or deliberate falsehood on the part of the 3^rd Defendant.   I agree with Mr Yeung that it will not be fair now to award costs against the 3^rd Defendant on an indemnity basis on the ground of dishonesty or deliberate falsehood on his part.  

15.  Mr Wong for the Plaintiff is correct that this Court’s findings are close to, if not akin to, saying that the 3^rd Defendant, with full knowledge of the facts, dishonestly mounted and maintained a claim on misrepresentation. But close to is not the same as outright dishonesty.

16.  Mr Yeung is right that this Court in the Judgment did not make any finding (after bringing the issue to the parties’ attention and inviting submissions thereto) that the 3^rd Defendant’s evidence on the USA Assets was dishonest and/or deliberately false.  Mr Yeung reminded this Court of the case of Provident Commercial Investments Ltd v Incorporated Owners of Provident Centre & Ors [2005] 4 HKC 155 at §§26-27, while the appellant’s case was “based on unpleaded facts”, Yuen JA nonetheless saw “no grounds for that higher scale of costs”, rejecting the application for indemnity costs.

17.  In relation to the first ground, I take into consideration that the 3^rd Defendant might not have appreciated the difference between putting the Plaintiff to strict proof and putting forward a positive case.  Mr Yeung submitted that the 3^rd Defendant believed that the Deceased did not utter the words “這些就都給你們了” at the Dinner (the “Words”)because he was walking around to take care of the 4^th Defendant who arrived late.  Thus, the 3^rd Defendant “did not hear” these words, but he fairly accepted that the Deceased “might have said so” upon cross-examination (Judgment §94). This explains why the 3^rd Defendant maintained the position that the Words were not uttered, and resisted the Plaintiff’s claim in the present litigation. I accept Mr Yeung’s submission on this point.  In any event, I do not consider this fact alone warrants an order on an indemnity basis.

18.  For all the reasons set out above, the Plaintiff’s Summons is dismissed with costs.

The 1^st and 2^nd Defendants’ Summons

19.  Insofar as the 1^st and 2^nd Defendants’ costs are concerned, I agree that in the context of claims involving trustees, unless a trustee has been shown to have acted unreasonably, the trustee is entitled to an indemnity from the estate.

20.  In the context whereby a trustee is placed between competing claims, Chung J in Re Estate of Lau Wai Chau, unrep., HCMP 1025/2004, 18 January 2008, rightly observed that:

“12. The applicable legal principles regarding when an administrator is entitled to be indemnified by the estate for his costs are undisputed. They are summed up in the administrator’s written submissions. The relevant passages are:-

…

trustees (administrator, in this case) may be involved in 3 broad kinds of ‘disputes’ – ‘a Trust Dispute’; ‘a Beneficiaries Dispute’; ‘a Third Party Dispute’;

…

‘for a trust dispute, the modern view is that where there is hostile litigation between the rival claimants to the trust estate, the trustee should remain neutral and if he does not, he will have his proper and necessary costs indemnified. If the trustee should take an active part in litigation, and if he is successful, he may be entitled to costs out of the estate, for he has preserved the interests of the beneficiaries under the tust. But if he should lose, he is not entitled to be indemnified for his costs, as the costs have been incurred in an unsuccessful attempt to prefer one class of beneficiaries to another’ (Re Kennedy (No.3) [2005] 2 HKC 73 at 76F-G)” (Emphasis added.)

21.  I am of the view that the 1^st and 2^nd Defendants are only entitled to the costs of and incurred as a result of their being joined as a party to these proceedings.  Thereafter, they should have maintained neutral and let the Plaintiff and the 3^rd Defendant sort out their disputes in these proceedings.  I do not see any reason why the 1^st and 2^nd Defendants should file witness statements and engage counsel to participate in these proceedings.

22.  The 1^st and 2^nd Defendants could have simply made clear that they would transfer the Bestfibre Shares pursuant to the Court’s orders and refrain from participating in these proceedings. That would have saved substantial costs. By incurring more costs than what are legitimately required, the 1^st and 2^nd Defendants incurred such costs at their own risk. Accordingly, I am of the view that the 1^st and 2^nd Defendants can only be indemnified for costs up to the discovery stage.  Thereafter, they have to bear the extra costs that they voluntarily and unnecessarily incurred.

23.  Mr Wong for the Plaintiff also reminded this Court that the 1^st and 2^nd Defendants made an application for Beddoe order on 26 May 2016 but was dismissed by Madam Justice B Chu on 7 January 2020.  

24.  Although Mr Wong for the Plaintiff submitted that had the 1^st and 2^nd Defendants transferred the Bestfibre Shares without delay, these proceedings might have been avoided.  I accept Mr Pang’s submission that that was done with the Plaintiff’s consent and not for the purpose of delaying any transfer or complicating the matter.

25.  Further, insofar as the part of the costs to be indemnified from the estate, I am of the view that the same should be paid by the 3^rd Defendant as this is basically an adversarial dispute between the Plaintiff and the 3^rd Defendant. The Plaintiff prevails on his claims and there is no reason why he should be out of pocket (as in his interest in the estate of the Deceased being affected) by the 3^rd Defendant’s failure to defend the Plaintiff’s legitimate claims.

26.  Finally, I should also clarify that as regards the Plaintiff’s costs of his claims against the 1^st and 2^nd Defendants, they do form part of the Plaintiff’s costs of the action and are covered by the costs order nisi.

Disposition

27.  For all the reasons set out above, I make the following orders:

(1)  The Plaintiff’s Summons be dismissed;

(2)  The Plaintiff is to pay the costs of and occasioned by the said summons to the 3^rd Defendant, to be taxed on a party to party basis, if not agreed.

(3)  The 1^st and 2^nd Defendants’ costs up to the discovery stage are to be indemnified by the estate of the Deceased.

(4)  The 1^st and 2^nd Defendants are to bear the costs incurred after the discovery stage personally.

(5)  The 3^rd Defendant do pay the costs of the 1^st and 2^nd Defendants to be indemnified by the estate by paying the exact same sum into the estate of the Deceased.

(6)  The 3^rd Defendant do pay the Plaintiff’s costs of the action (including the 3^rd Defendant’s counterclaim and the Plaintiff’s claims against the 1^st and 2^nd Defendants) to be taxed on a party to party basis if not agreed.

(7)  There be no order as to costs on the 1^st and 2^nd Defendants’ Summons.

28.  Finally, I thank counsel for their helpful assistance on this matter.