FORTUNA INVESTMENTS LTD v. HOO TONY

HCA1384/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1384 OF 2004

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DECISION

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1.  Shortly after the issue of the Writ herein on 9 June 2004, the plaintiff applied by summons filed on 11 June 2004 for an interlocutory injunction to restrain the defendant from selling or disposing of his 51% shareholding in a company called Tiger Tech Holdings Limited (“the Company”). 

2.  The Company is a publicly listed company.  As a result of this action and the injunction application, the shares of the Company have since 10 June 2004 been suspended from trading pending the resolution of the injunction application.

3.  The injunction application came before Miss Recorder Leong SC on 29 July 2005.  In a decision handed down on 4 February 2005 (“the Decision”), the judge dismissed the application and made an order nisi that the costs of the application be reserved to the trial judge.

The applications

4.  By a summons filed on 16 February 2005 as amended by consent at the hearing, the defendant applies to vary the costs order nisi and seeks an order that the costs of the interlocutory application be paid by the plaintiff to the defendant, to be taxed and payable forthwith.  The defendant also seeks a certificate for counsel in the summons.  This part of the application is not necessary given that the application was heard by a judge in chambers.

5.  In the normal course, an application for variation should preferably be dealt with by the judge who made the order nisi.  In the present case, as Miss Recorder Leong SC is presently not sitting as a recorder, with the parties’ agreement, the application is listed before this court. 

6.  By another summons filed on 22 February 2005, the defendant applies under Practice Direction 25.1 for permission to publish the Decision.  Prior to that, the defendant’s solicitors had by letter dated 8 February 2005 sought permission from Miss Recorder Leong SC to disclose and publish the Decision to the Hong Kong Stock Exchange (“HKSE”) and the Securities and Futures Commission (“SFC”) in connection with the Company’s application to lift the suspension of the trading of its shares.  By a letter dated 15 February 2005 from its solicitors, the plaintiff opposed the disclosure and publication to the HKSE and SFC on the basis that it intended to appeal against the Decision and that the suspension should remain pending the resolution of the appeal. 

Application to disclose and publish the Decision

7.  As at the hearing, no appeal had been lodged by the plaintiff and the time for appeal had already expired.  Notwithstanding that, the plaintiff maintains its objection to the publication of the Decision.

8.  Although the summons is couched in general terms, Miss Koo confirmed at the hearing that the defendant only seeks permission to release the Decision to HKSE and SFC.

9.  Under Practice Direction 25.1, reporting and publication of the judgment of proceedings held in chambers is not allowed unless the master or the judge before whom the proceedings were conducted has given permission for the judgment to be released for publication.

10.  Given the terms of the Practice Direction, the defendant’s application and second summons have to be dealt with by Miss Recorder Leong SC.  I therefore adjourn the summons and refer the application to Miss Recorder Leong SC for determination.  Mr Wong indicates that the plaintiff wishes to make further submissions on the scope of the disclosure and publication, in addition to the solicitor’s letter and his written submission.  I therefore direct that the parties shall lodge and serve further submissions, if any, within 3 days.  I leave it to Miss Recorder Leong SC to decide whether she requires an oral hearing.

Application to vary the costs order nisi

11.  Costs is a matter of the court’s discretion.  As Mr Wong acknowledges in his submissions, it has been the normal practice for a successful plaintiff in an interlocutory injunction application to be granted his costs in the cause, and for a successful defendant to be granted his costs in the cause: Hong Kong Civil Procedure 2004 para. 29/1/44.  But this is not an inflexible rule.  

12.  In kickers International S.A. v. Paul Kettle Agencies Limited [1990] FSR 436 at 438, when dealing with a dispute over the costs of an abandoned application for interlocutory injunctions, Hoffmann J (as he then was) referred to the “in the cause” practice and observed:

“[T]he fact that the merits have not been investigated, or not fully investigated, does not necessarily mean that the court cannot dispose finally of interlocutory costs. The question of costs cannot be settled simply by reference to practice: it must be answered on the facts of the individual case.  …   Although I cannot decide the merits, I can form a view on whether the plaintiff, on the material it has produced and what it must have known about the defendants, was justified in launching the motion.”

13.  Hoffmann J then went on to award costs in favour of the defendant and order an immediate taxation of the costs.  Hoffmann J’s judgment was considered in Bushbury Land Rover Limited v. Bushbury Limited [1997] FSR 709 at 711-712.  Auld LJ, with whom Mummery LJ agreed, was of the view that:

“[W]here a judge on an interlocutory application considers, in applying the American Cyanamid test, that it falls so far short of satisfying the criteria for the grant of interlocutory relief that the plaintiff should never have sought it, he may, in his discretion, penalise him in costs.” 

14.  In the present case, the defendant relies principally on the findings of Miss Recorder Leong SC that the plaintiff had failed to demonstrate that its case had a real prospect of success.  The defendant contends that the plaintiff should never have sought the injunction such that the court, in its discretion, may penalise it in costs.

15.  In the Decision, Miss Recorder Leong SC, after summarizing the parties’ case and evidence as appeared by the affidavits filed, commented in paragraph 15 as follows:

“15.  I have referred to the stark contrast between the parties’ respective cases but in an interlocutory application the Court should not weigh those differences.  The position with the plaintiff’s own case is however quite different, and it is appropriate and necessary to see whether it amounts to a serious issue to be tried.  The anomalies referred to above are serious.  They go to the heart of the plaintiff’s claim that a clear and detailed verbal agreement was reached and confirmed on 6^th and 7^th June which was being implemented in part by the plaintiff’s written general offer issued on 7^th June after the meeting earlier that day.” 

16.  In paragraphs 20 and 21 of the Decision, Miss Recorder Leong SC went on to hold that:

“20.  The plaintiff’s own case gives cause for concern; it is well endowed with contradictions and inconsistencies on issues that should be fundamental to the success of its action.  Those difficulties arose from its own evidence and from the independent evidence of tapes and documents.  When an application is founded upon such dubious material, particularly in the context of a defence that puts every pillar of the case in issue, the Court has to be satisfied not only that there is a serious issue to be tried but also that the claim has a realistic prospect of success.  The onus is upon the plaintiff to establish that fundamental plank of its case.

21.  I am not satisfied that the plaintiff has demonstrated to the necessary degree that its case has the strength and substance to demonstrate that it has a real prospect of success.  It follows that I am not satisfied that there is an appropriate case for the interlocutory injunction sought.” 

17.  It is evident from the above passages that the judge is of the view that the plaintiff’s application is based on dubious materials and fraught with serious difficulties.  Mr Wong argues that the judge had found there are serious issues to be tried such that the normal practice should apply.  I do not agree that the paragraphs in the Decision he had referred to can give rise to such inference.   On the contrary, it is apparent that the judge was critical about the strength and merits of the plaintiff’s case and evidence.  It is also to be noted in the Bushbury case, while the trial judge was of the view that there was a serious issue to be tried, he refused the grant of interlocutory relief on balance of convenience and ordered the plaintiff to pay the defendant’s costs.  On appeal, the Court of Appeal held that there was no error of principle and refused to interfere with the exercise of the discretion.

18.  Mr Wong also argues that Miss Recorder Leong SC had likewise entertained reservations over the defendant’s case and evidence.  It is correct that paragraph 18 of the Decision refers to the defendant’s case as presenting “a number of major issues that cast, at the very least, a shadow across his case”.   However, as Miss Recorder Leong SC rightly observed, the court was not dealing with an Order 14 application.  Weaknesses in the defendant’s do not mean that the plaintiff is justified in launching application for interlocutory injunction. 

19.  In the circumstances of the present case, I consider the defendant is entitled to rely on the findings in the Decision and contends that the interlocutory application should never have been sought.

20.  Mr Wong further refers to the part of Hoffmann J’s judgment (at p.438) where he said that:

“ In making a costs order at the interlocutory stage, there are two risks of injustice which have to be balanced against each other. On the one hand, a final order might award a party costs which, upon fuller consideration at the trial, he would not have been given.  On the other hand, failure to make a final order might have the practical effect of depriving a party of some or all of the costs which he should in fairness have recovered.” 

In the context, Hoffmann J was commenting on the disadvantages of reserving interlocutory costs to the trial judge or making the defendant’s costs in the cause.  One of the disadvantages he perceived is that very often there is no trial such that the interlocutory costs may be lost or that the defendant may be forced to accept substantial discount on the interlocutory costs in order not to run the trouble, expense and risk of a trial.  

21.  Mr Wong contends that in the present case, the court should be mindful of Miss Recorder Leong SC’s  findings that there is a stark contrast between the parties’ respective cases and that the parties are in direct conflict on every important issue.  It is said that they throw light on the likelihood of settlement negotiations or of the plaintiff withdrawing the claim.   Mr Wong also points out that both the decisions in Kickers case and the Bushbury case should be read against the fact that they are intellectual property claims and the usual pattern of litigations in these cases.  

22.  In my view, interlocutory relief invariably involves grave and drastic consequences to the defendant.  It should only be sought in appropriate cases and where it is necessary to do justice.   Where it is plain that the plaintiff should never have made the application in that it has failed to even cross the first threshold of making out a serious issue to be tried, there is much force in the argument that the defendant’s entitlement to the interlocutory costs should not be made dependent on his success at the trial.  Generally speaking, the defendant should not be made to incur the costs of defending an unjustified interlocutory application.  Accordingly, it matters not that the claim is unlikely to be compromised and have to be fought.  In any case, it is impossible to predict with any precision how the dispute between the parties will eventually be resolved.   

23.  In this connection, Miss Koo points to the fact that the defendant had been put to considerable costs and expenses in defending the application.  It is also said that the interlocutory application has prevented the defendant from dealing or disposing with his majority shareholding in the Company for some seven or eight months.  Although there is no direct evidence, it is not difficult to see the prejudice occasioned to the defendant by the plaintiff’s application, bearing in mind that the Company is a public company and the trading of the shares is still being suspended. 

24.  In making the order nisi, Miss Recorder Leong SC stated in paragraph 25 of the Decision that costs should be reserved to the trial judge who would be in a position to judge the merits of the plaintiff’s actions in the full context of all the facts after trial.   It would appear that the Kickers case and the Bushbury case were not then cited to her and she also did not have the benefit of full submissions on the issue.

25.  Having regard to all the submissions and the findings in the Decision, I am persuaded that the order nisi should be varied and be substituted by an order that the plaintiff pays the defendant the costs of the interlocutory application.

26.  The defendant also seeks immediate taxation of his costs.  As held in the Kickers case (at p.439), an order for immediate taxation is not restricted to cases where the court wishes to show disapproval of the way in which the proceedings have been conducted.   In that case, Hoffmann J considered that the costs involved justified a separate taxation.  He also took into account the respective means of the parties and the risk of no trial in the end.  

27.  In the present case, in addition to the prejudice occasioned to the defendant by the inability to sell his majority shareholding, Miss Koo also submits that the defendant is of limited means and as a result of the interlocutory application and the costs incurred for it, he may not be in a position to finance the future proceedings.  Again, there is no direct evidence on these matters.  However, I have no reason to doubt Miss Koo’s indication that the interlocutory costs are substantial, noting that not insubstantial evidence had been filed by both sides and that the defendant had appeared by senior counsel at the hearing of the interlocutory application.  It is not difficult to appreciate the impact on the defendant of being kept out of the interlocutory costs he has incurred until after the trial.  It is to be noted that there is no order for speedy trial and in the normal course the trial will not take place until at least a year later.  It is further to be noted that Miss Recorder Leong SC had found that the financial position of the plaintiff, who is a BVI company, to be less than clear: see paragraph 23 of the Decision.

28.  In all the circumstances, I accept that an order for immediate taxation and payment of the defendant’s costs is appropriate.

Costs of the application to vary

29.  As to the costs of the application to vary the order nisi, Mr Wong asks that the costs be reserved to the trial judge.  Given that I have allowed the application and for the reasons indicated above, it is inappropriate to reserve the costs.  I am of the view that the normal rule of costs follow event should apply.  The defendant has succeeded in his application, he should be awarded the costs of the application.

Conclusion

30.  For the above reasons, I make the following order on the defendant’s application to vary the costs order nisi:

(1)	The costs order nisi is substituted by an order that the plaintiff pays the defendant the costs of the application for interlocutory injunction to be taxed and payable forthwith.
(2)	The costs of the application to vary the costs order nisi be to the defendant against the plaintiff, to be taxed and payable forthwith.