HJ INNOXCELL LTD v. TEH BOON KHUAN

HCA 1707/2018

[2019] HKCFI 2448

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1707 OF 2018

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DECISION ON COSTS

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1.  On 18 March 2019, this court dismissed HJ InnoXcell Ltd’s (“the plaintiff”) application by summons dated 24 July 2018 (“the 2018 summons”) for delivery up of information and documents against Teh Boon Khuan (“the defendant”), its former director and CEO and made an order nisi of costs in the defendant’s favour (“the order nisi”).

2.  There are two variation applications before the court:

(A)  by summons dated 1 April 2019 (amended on 20 May 2019), the plaintiff sought to vary the order nisi to an order that there be no order as to costs (instead of an order that costs be in the cause as originally sought).

(B)  on the same day, the defendant also applied by summons to vary the order nisi to an order that the costs be payable forthwith and for such costs to be summarily assessed, but subject to the right of either party to have the costs taxed under Order 62, rule 9A(1)(b) of the Rules of the High Court.

3.  The plaintiff has filed two sets of written submissions dated 3 June 2019 (in support of its summons for no order as to costs) and 2 July 2019 (in opposition to the defendant’s summons).

4.  The defendant has also filed two sets of written submissions dated 3 June (in support of its summons) and 24 June 2019 (in opposition to the plaintiff’s application).

Background

5.  Reference should be made to the Decision dated 18 March 2019.  The relevant background and events that gave rise to the commencement of this action on 24 July 2018 and the 2018 summons can be found in §§2–15 of the Decision.  The reasons for dismissing the plaintiff’s case are set out in §§22 – 80.

The plaintiff’s variation application

6.  The plaintiff’s application is that there should be no order as to costs of 2018 summons including the hearing before DHCJ Leung on 27 July 2018 and the substantive hearing before this court on 23 January 2019.  The proposed variation rests on the contention that the plaintiff was the successful party insofar as the hearing before DHCJ Leung was concerned in that it resulted in the August delivery up pursuant to the defendant’s undertaking given on the return date of the inter partes summons on 27 July 2018.  It was put on the basis that at that first hearing the defendant “made a full concession” by providing the undertaking.

7.  That in interlocutory injunction applications a defendant should give an undertaking to do or not to do certain things pending substantive argument without prejudice to his contention that the application should not have been made is a common occurrence.  It does not, of itself, determine who the successful party is.

8.  Insofar as the plaintiff considered that the 2018 summons “served the function of case management for parties’ resolution of the substantive dispute”, it was not the position the plaintiff espoused throughout [1] which was that it would “finally” dispose of the dispute of the action in respect of the information/documents, in other words, the delivery up issue.  I am unable to discern any case management aspect arising out of the 2018 summons.

9.  Taking a holistic view of the entire delivery up saga, I have no difficulty in reaching the conclusion that the defendant was the successful party.  That should be apparent from the Decision which addressed and dismissed all of the plaintiff’s grounds for pursuing the 2018 summons.

10.  Accordingly, I do not consider “no order as to costs” an appropriate order to make in the circumstances.  The plaintiff’s variation application therefore must be dismissed.

The defendant’s variation application

11.  It is common ground that the relevant principles to be applied in determining whether immediate payment of costs in interlocutory proceedings should be ordered are to be found in Wing Fai Construction Co Ltd v Yip Kwong Robert (2012) 15 HKCFAR 454 at §§4 – 8 and Midland Business Management Ltd v Lo Man Kui (No 2) [2011] 2 HKLRD 667 at §§7 – 12.

12.  Relevant factors include the following although they are by no means exhaustive:

(i)  the extent to which the proceedings are from a taxation point of view separable and self-contained;

(ii)  the justice of making such an order having regard to the effect on the cash flow on the respective parties;

(iii)  whether the amount at stake on the taxation were sufficient to justify putting the parties to the expense of having a separate taxation; and

(iv)  the underlying objectives in Order 1A, rule 1 of the Rules of the High Court.

13.  As is apparent from the Decision, the plaintiff’s case failed on every front.  There was nothing “purely technical” in the court dismissing its application: the plaintiff failed to adduce the requisite evidence to establish its case, knowing full well the burden of proof it had to discharge. 

14.  I agree with the defendant’s submission that in the event of the plaintiff pursuing its claim for delivery up in the action [2], it is difficult to see how that can be done without the plaintiff putting its case on a totally different footing from that of the application.

15.  In those circumstances, I am satisfied from a taxation point of view the proceedings are separable and self-contained from the rest of the action.

16.  The defendant also submitted that the plaintiff had acted unfairly and unreasonably in its pursuit of the delivery up application. As appears from §4 of the Decision, the defendant remained a director and CEO until the first week of June 2018.  The events precipitating the 2018 summons relate to matters after he ceased office and which only commenced about a month before the 2018 summons with the seven-page letter of 22 June 2018 (described in §7 of the Decision) setting the scene.

17.  It will be apparent from the correspondence that followed (described in the Decision) that the defendant did not refuse to deliver up. Rather, on 13 July 2018, he unequivocally agreed to provide documents relating to the plaintiff as soon as practicable.  However, that was simply ignored in subsequent correspondence and, instead, the plaintiff threatened legal proceedings that were then commenced in short order.

18.  The proceedings would appear to have been brought in considerable haste.  There was no apparent urgency.  In my view, the sense of urgency was largely brought about by the plaintiff unilaterally imposing unrealistic deadlines.  Accordingly, in my view, there would appear to be some basis for questioning the plaintiff’s bona fides in issuing the 2018 summons when it did.

19.  That aside, at the time of his written submissions in support of his variation application, almost 11 months after the issuance of the writ, the statement of claim had still not been served on the defendant.  Not unreasonably, that caused the defendant to entertain the possibility that there may be no trial.

20.  The statement of claim has now been filed (on 17 June 2019). The plaintiff seeks the following relief:

(a)  an account of (i) “Outstanding Revenue”, (ii) purported director’s fees, and (iii) unjustified payments;

(b)  delivery up of fixed assets, or alternatively damages for conversion;

(c)  an account in respect of the Trade Mark;

(d)  damages for loss arising from the defendant’s unjustified dismissal of the plaintiff’s staff and diversion of business; and

(e)  the unlawful retention of the plaintiff’s documents and/or information.

21.  It is apparent that the unlawful retention claim is hardly at the forefront of the plaintiff’s claims.  The trial of the action (assuming it were to take place) would be quite a number of years off given the ground and issues that it will cover. Any taxation can only come at the end of that trial.  On any view,it will be a long wait. 

22.  A relevant and important consideration is that if there is no order for immediate payment, the defendant would be out of pocket for a substantial sum for a long period of time.  As noted in the Midland case(at §13), that constitutes a prejudice even though a defendant may be able to afford it in terms of cash flow [3].

23.  The amount claimed in the defendant’s statement of costs is sizeable, being just shy of $1 million.  In my view, the amount at stake is sufficient to warrant a separate taxation.  The fact that neither party has adduced evidence of cash flow is neutral, if not, irrelevant. 

24.  The Court of Final Appeal in the Wing Fai case approved the following passage in §9 of the judgment of Lam J (as he then was) in the Midland case on the approach mandated by the CJR:

“ Under the Civil Justice Reform, the court is encouraged to order immediate payment of costs of interlocutory proceedings and if possible by way of summary assessment of costs. The objective is to discourage unnecessary and disproportionate interlocutory applications. It is recognised that the lack of immediacy of orders to pay costs ‘in the cause’ or ‘in any event’ weakens costs as a sanction against unwarranted applications or resistance, see paras.529 – 536 of the Final Report of the Chief Justice’s Working Party on Civil Justice Reform.”

25.  For the foregoing reasons, I am persuaded that this is an appropriate case for costs to be made payable forthwith.

26.  That leaves the question whether summary assessment should be ordered. The defendant has attached a draft statement of costs to his submissions.  The plaintiff objects to summary assessment on the basis that the defendant’s costs are wholly disproportionate and/or exaggerated.  Apart from objections to quantum, the plaintiff also objects “in principle”,essentially harking back to its stance that it was the successful party at the hearing on 27 July 2018.  

27.  In all the circumstances, having regard to the volume of documents that were placed before the court at the hearing, I do not consider it appropriate to order that the costs be summarily assessed. 

Order

28.  Accordingly, it is ordered as follows:

(i)  costs of and occasioned by the plaintiff’s inter partes summons dated 24 July 2018, including the hearing before DHCJ Leung on 27 July 2018 and the hearing before this court, with certificate for counsel, be paid by the plaintiff to the defendant forthwith; and

(ii)  such costs, if not agreed, be taxed forthwith.