WILLWIN DEVELOPMENT (ASIA) CO LTD v. WEI XING AND OTHERS

HCMP 3256/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 3256OF 2013

(On an intended Appeal from HCA No. 797 of 2012)

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BETWEEN

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JUDGMENT

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Hon Lam VP (giving the Judgment of the Court):

1.  HCA 797 of 2012 is a company dispute involving primarily two brothers who are shareholders of a company. The 1^st Defendant is a 30% shareholder and director of the Plaintiff Company. The 2^nd Defendant is another company controlled by the 1^st Defendant and his wife, the 3^rd Defendant. The other shareholder of the Plaintiff is Wen, also a director, who holds 70% of the shareholding.

2.  On 14 May 2012, the Company commenced proceedings against the defendants in respect of alleged misappropriation of funds, diversion of business, breach of confidence and other breaches of fiduciary duties.  

3.  The defence challenged the action on the ground that it was commenced without proper authority of the Plaintiff and issued an application for striking out the action on 10 and 12 September 2012 respectively.

4.  On 26 September 2012, Wen issued an originating summons in HCMP 2076 of 2012 seeking an order to convene an extraordinary general meeting of the Plaintiff to ratify these proceedings.  Before the determination of HCMP 2076 of 2012, the Plaintiff held an EGM on 26 October 2012 and the proceedings were ratified.  When HCMP 2076 of 2012 came before the court on 5 November 2012, the court ordered the 1^st Defendant to pay the costs of HCMP 2076 of 2012.

5.  The striking out application became unnecessary.  The court gave directions for the costs of the striking out application to be determined on paper.

6.  Since Wen was the shareholder who procured the commencement of the action in the name of the Plaintiff before it was properly authorized, he was joined by consent as a party to these proceedings only for the purpose of costs.

7.  After considering submissions of the parties (including Wen’s submissions), M Chan J concluded that all the parties should bear some of the blame for the costs incurred in respect of the striking out proceedings.  Whilst Wen had been dilatory in taking steps to procure ratification of the proceedings, the defendants were also at fault in not complaining about the irregularity of the proceedings earlier.  The judge also considered the defendants to be acting unreasonably in pursuing the striking out application after 26 September 2012 when HCMP 2076 was commenced.

8.  Mindful of the objectives of the CJR and the manner in which these proceedings had been conducted, the judge took account of the proliferation of interlocutory applications without regard to procedural economy.  In the end, the judge made the order of costs as mentioned above. We would repeat what the judge said at paras 17 and 18 of her judgment,

“17. The parties should not have to be reminded of the objectives of the Civil Justice Reform. The manner in which these proceedings have been conducted by the parties cannot in any way be said to have given effect to the underlying objectives, of increasing the cost effectiveness of the practice and procedures before the court, in reasonable proportion, and with procedural economy. There has been a proliferation of interlocutory applications since May 2012, fought out with a degree of vengeance not conducive to the saving of unnecessary costs and the facilitation of the settlement of disputes. If the parties and their legal advisers had made some real and genuine efforts in identifying and resolving disputes at an early stage, and had focused on bringing the core issues which are the subject of these proceedings to an early trial, much of the time and costs spent between September 2012 and now would have been saved, and the parties might have been much closer to a trial.

18. To discourage the protraction of interlocutory skirmishes and unco-operation in the resolution of disputes, and further to ensure that parties and their legal advisers pay due heed to their duties under Order 1A r 3 RHC and focus on effective and speedy resolution of disputes, I refuse to order any costs to any party in relation to the striking out Application.  If a litigant chooses for its own reasons to prolong the action and to incur unnecessary legal costs unreasonably, it cannot expect the court to condone, or to order the other side to pay such costs.”

9.  Neither the Plaintiff nor the defendants seek to appeal against the judge’s decision on costs. However, Wen applied for leave to appeal against such costs order.

10.  The issue of costs is a matter which is in the discretion of the judge. Mr Pao (representing Wen together with Mr Ng) acknowledged that the court of appeal would only interfere when the judge failed to exercise the discretion or exercised it upon the wrong principle or did not exercise it judicially.  He criticized the judge for failing to have regard to the distinction between costs incurred prior to the joinder of Wen and costs incurred after the joinder.  He also contended that the blame of the late ratification of the proceedings should not lie at Wen’s door since at that stage he had not been a party to the proceedings.  After the joinder, counsel said, Wen successfully resisted an order of costs against him and he should therefore be awarded with his costs.  Counsel also submitted that before the joinder, Wen only acted as an agent of the Plaintiff and any costs consequences stemming from pre-joinder conducts should be borne by the Plaintiff.  He also said that the judge should have found that Wen had not acted contrary to the underlying objectives in Order 1A as he did what he could reasonably have done.

11.  The application for leave is opposed by the defendants and two sets of submissions, one by the 1st Defendant and another set by the 2nd and 3rd Defendants were lodged.

12.  With respect, we are of the view that the proposed appeal is wholly unarguable.  On the facts of the present case, we do not accept that the judge should have drawn a distinction between pre-joiner and post-joinder costs and conducts.  It is quite plain that as a matter of reality the main protagonists in these disputes are Wen and the 1st Defendant.  We do not think it is remotely arguable that Wen acted as agent for the Plaintiff in respect of the pre-joinder conducts.  Wen has always been the majority shareholder and, as the judge found, it was always within his power to seek a ratification of the proceedings by convening an EGM.  Far from it being wrong, we are of the view that the judge’s deprivation of Wen of his costs is plainly right.

13.  This is an application which should never have been made.  We echo the judge’s observations on the duties of the parties to pay regard to procedural economy and proportionality. Regrettably, Wen did not pay heed to such observations.

14.  For these reasons, we refuse to grant leave to appeal. We are also of the view that the application is totally without merit. Pursuant to Order 59 Rule 2A(8), we make an order that no party may request this determination to be reconsidered at an oral hearing inter partes.

15.  We also order Wen to pay the defendants their respective costs of this application. We direct the defendants to lodge and serve their skeleton statement of costs within 7 days and Wen may lodge and serve his reply within 7 days thereafter. We would then make a gross sum assessment on paper.