CANADIAN INTERNATIONAL EDUCATION ORG CO., LTD AND ANOTHER v. KAREN TERESA FERRIS COLE AND OTHERS

CAMP 421/2022

[2023] HKCA 87

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 421 OF 2022

(ON AN INTENDED APPEAL FROM HCA NO 1683 OF 2020)

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(by Original Action)

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(by Counterclaim)

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J U D G M E N T

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Hon Chow JA (giving the Judgment of the Court):

INTRODUCTION

1.  This is an application for leave to appeal against a judge’s decision, upon the dismissal of an application for summary judgment by the plaintiff, to reserve the costs of the application to the trial of the action, instead of making an immediate order of costs in favour of the defendant (to be paid forthwith or in any event).

2.  Having considered the papers before us, we are of the view that it is appropriate to determine this application without a hearing on the basis of written submissions only under Order 59, rule 2A(5)(a) of the Rules of the High Court, Cap 4A.

BASIC FACTS

3.  In this action, the Plaintiffs (by original action) claim against the Defendants (by original action) for various sums of money based on restitution (unjust enrichment, failure of consideration, and money had and received) and/or for repayment of loans. For the purpose of disposing of the present appeal, it is not necessary to set out the underlying facts which give rise to the Plaintiffs’ claims against the Defendants.

4.  On 23 July 2021, the Plaintiffs issued a summons (“the Summons”) under Order 14/Order 29 of the Rules of the High Court, seeking summary judgment or, alternatively, an order for interim payment against the 1^st and 4^th Defendants for the amounts claimed in the Statement of Claim.

5.  The Summons was supported by an affirmation of the Plaintiffs’ solicitor, Leung Ka Ying, who exhibited “a copy of the affirmation signed by Mr. Howard Norman Sybe Stribbell (‘Howard’) in support of the summary judgment application” (“Stribbell’s 1^st Affirmation”). At §3 of Leung’s affirmation, it was stated that Howard was then in Guangzhou and it was impractical for him to come to Hong Kong and execute the affirmation due to the travel restrictions imposed during the COVID-19 pandemic, but he had confirmed the contents of his affirmation and had duly signed it to confirm the same.

6.  Stribbell’s 1^st Affirmation was apparently signed by Howard, but his signature was not witnessed, and it was not properly affirmed or notarised.

7.  On 8 June 2022, Mr Recorder Maurellet, SC dismissed the Summons on the ground that there was no properly sworn and notarised affidavit filed in support of the Order 14 application in accordance with Order 14, rule 2(1) of the Rules of the High Court, which provides that “[a]n application under rule 1 must be made by summons supported by an affidavit verifying the facts on which the claim, or the part of a claim, to which the application relates is based and stating that in the deponent’s belief there is no defence to that claim or part, as the case may be, or no defence except as to the amount of any damages claimed”. Pausing here, it may be noted an application for interim payment is likewise required to be supported by an affidavit which “shall verify the amount of the damages, debt or other sum to which the application relates and the grounds of the application” by virtue of Order 29, rule 10(3)(a) of the Rules of the High Court.

8.  It is clear that the Summons was not supported by any affidavit which met the requirements of Order 14, rule 2(1) or Order 29, rule 10(3)(a). That this was so was recognised by the Plaintiffs, who took out a summons on 11 May 2022 for leave to use (inter alia) Stribbell’s 1^st Affirmation as evidence at the hearing of the Summons “notwithstanding any irregularity in the form thereof”. It is not in dispute that the Summons was rightly dismissed by the Recorder. The Plaintiffs have not lodged any appeal against the Recorder’s decision to dismiss the Summons.

9.  Notwithstanding the dismissal of the Summons, the Recorder decided to reserve the costs of the Summons to the trial of the action (“the Costs Order”). The trial was subsequently fixed to commence at the end of April 2023 (with 5 days reserved). The Recorder’s reasons for taking this course of action were set out in his decision (“the Decision”) dated 28 September 2022 ([2022] HKCFI 2725) refusing to grant leave to the 1^st and 4^th Defendants to appeal against the Costs Order, as follows:

“[14] It is uncontroversial and I accept that on the dismissal of an O.14 application, the usual order would be for the plaintiff to pay for the costs of the summons to the defendant, either forthwith or in any event. As is evident from the above, the application was dismissed on the basis that there was an irregularity in terms of the lack of a properly sworn and admissible affidavit before me.

[15] At that hearing, I had already indicated that the matter would be tried before me in a matter of months and that some of the materials may well be re-used, for example the affirmations could be largely reused as witness statements for the trial.

[16] In terms of taxation if it had to be done it would not be obvious which costs would have been incurred in any event irrespective of whether or not an application for summary judgment had been taken out. Given the relatively modest size of the claim, I had also indicated to the parties that I would probably be dealing with the costs of the whole proceedings myself after trial and it would make sense for everything to be dealt with at one go and in one composite judgment.

[17] All in all, I accept it is perhaps possible that another order for costs could also reasonably have been made apart from the one that I made, namely, to decide not to decide immediately on costs, i.e. to reserve costs.

[18] I do not however, with respect, accept that this was a conclusion which was reached outside the ‘generous ambit within which a reasonable disagreement is possible’, given that I have only decided to reserve that decision to a date which was going to be a few months away.”

10.  The 1^st and 4^th Defendants were not satisfied with the Costs Order. They considered that they should be entitled to costs to be paid by the Plaintiff either forthwith or in any event, and took out a summons on 21 June 2022 in the court below seeking leave to appeal against the Costs Order. As noted above, the Recorder refused to grant leave to appeal on 28 September 2022.

THE PRESENT APPLICATION

11.  On 12 October 2022, the 1^st and 4^th Defendants issued a summons in the Court of Appeal seeking:

(1)  an order that the Recorder’s order dated 28 September 2022 refusing to grant leave to appeal be set aside (§1); and

(2)  leave to appeal the Costs Order, on the grounds set out in a draft Notice of Appeal appended to the summons (§2).

12.  Three intended grounds of appeal are raised in the 1^st and 4^th Defendant’s draft Notice of Appeal:

(1)  The Recorder erred in principle in making an order for the costs of the Summons to be reserved (“Ground 1”).

(2)  Further and/or alternatively, the Recorder failed to take into account the “special matters” in exercising his discretion under Order 62, rule 5 of the Rules of the High Court, and thus erred in the exercise of his discretion in departing from the normal costs order on dismissal of the Summons (“Ground 2”).

(3)  Further and/or alternatively, even if, which is denied, the materials for the Summons have not been wasted, the Recorder erred in making an order to reserve the costs of the Summons (“Ground 3”).

DISCUSSION

Applicable principles

13.  First, the test for granting leave to appeal under s 14AA of the High Court Ordinance, Cap 4, is well settled. Leave to appeal shall not be granted unless the intended appeal has a reasonable prospect of success, or there is some other reason in the interests of justice why the appeal shall be heard. For this purpose, reasonable prospect of success means that the prospect must be more than “fanciful”, but does not have to be “probable”.

14.  Second, costs are very much a matter of discretion for the first instance judge. The Court of Appeal will not lightly interfere with the judge’s exercise of discretion on costs unless it can clearly be demonstrated that the judge erred in principle or approach, or took into account irrelevant matters or failed to take into account relevant matters, or his decision was plainly wrong. The mere fact that the appellate judges might have exercised the discretion in a different manner is not a sufficient ground to warrant interference with the discretion of the judge.

15.  Third, upon the dismissal of an application for leave to appeal by a first instance judge under Order 59, rule 2B(1), it is not necessary for a party wishing to pursue his/her intended appeal to apply to set aside the judge’s order refusing to grant leave to appeal (cf §1 of the 1^st and 4^th Defendants’ summons dated 12 October 2022). The party wishing to pursue the intended appeal can make a further application for leave to appeal to the Court of Appeal within 14 days of the refusal under Order 59, rule 2B(3).

Ground 1

16.  Ground 1 contends that the Recorder erred in principle in making the Costs Order. The particular principle relied upon by the 1^st and 4^th Defendants is Order 14, rule 7(1) of the Rules of the High Court, which states as follows:

“If the plaintiff makes an application under rule 1 where the case is not within this Order or if it appears to the Court that the plaintiff knew that the defendant relied on a contention which would entitle him to unconditional leave to defend, then, without prejudice to Order 62 and in particular to rule 4(1) thereof, the Court may dismiss the application with costs and may require the costs to be paid by him forthwith.”

17.  The 1^st and 4^th Defendants submit that under this rule, on the dismissal of an Order 14 application, the normal costs order should be for the plaintiff to pay the costs of the summons to the defendant forthwith or in any event.

18.  This principle is not controversial. The Recorder was well aware of and accepted this principle (see §14 of the Decision). He decided, nevertheless, not to make an immediate order of costs in the circumstances of the present case, but to reserve the matter to the trial of the action. If the Recorder made any error, it would not be an error of principle, but an error in the exercise of his discretion on costs, which we shall consider under Grounds 2 and 3 below.

19.  There are two other matters that we should mention in passing. First, the 1^st and 4^th Defendants have argued that not only was the Plaintiffs’ application within the first limb of Order 14, rule 7(1) (“the case is not within this Order”), it was also within the second limb of that rule (“it appears to the Court that the plaintiff knew that the defendant relied on a contention which would entitle him to unconditional leave to defend”)[1]. There is, however, no finding by the Recorder that the Plaintiffs knew that the 1^st and 4^th Defendants relied on a contention which would entitle them to unconditional leave to defend. The 1^st and 4^th Defendants have also not raised as a ground of appeal that the Recorder erred in failing to make such a finding.

20.  Second, the 1^st and 4^th Defendants rely on Order 62, rule 3(2A) of the Rules of the High Court[2], which provides that:

“If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any interlocutory proceedings, it may, subject to this Order, order the costs to follow the event or make such other order as it sees fit.”

21.  This rule has application if the Court decides in its discretion to make an order as to the costs of or incidental to any interlocutory proceedings. Since the Recorder decided to defer the exercise of his discretion on the costs of the Summons to the trial of the action, the rule has no relevant application in the present case.

Ground 2

22.  Under this ground, the 1^st and 4^th Defendants argue that the Recorder failed to take into account the following “special matters” in making the Costs Order, and thus erred in exercising his discretion in departing from the normal costs order on dismissal of the Summons:

“(1) While the learned Judge has unfettered discretion in making costs order, such discretion must be exercised judicially, seeking to achieve practice justice in the particular circumstances of the case.

(2) In light of the matters stated in paragraphs 1(3) to 1(7) above, a costs order other than a costs order in favour of the Plaintiffs would lead to procedural laxity and a damaging proliferation of the interlocutory or satellite litigation.

(3) Moreover, there is no reason, factor or material in the present case which entitles the learned judge to exercise his discretion in depriving the 1^st and 4^th Defendants who were the wholly successful parties of their costs.

(4) Accordingly, the learned judge ought to have awarded costs in favour of the 1^st and 4^th Defendants.”

23.  In respect of §2(2) of the draft Notice of Appeal, the matters relied upon by the 1^st and 4^th Defendants as set out in §1(3) to 1(7) of the draft Notice of Appeal are the following:

“(3) Instead of falling under either one of the limbs, the present case falls under both limbs under Order 14, rule 7 of the RHC, namely, (i) the case is not within Order 14 and (ii) the plaintiff knew that the defendant was relying on an arguable defence.

(4) Under the first limb, the Plaintiffs failed to properly invoke the Order 14 process as the Plaintiffs have failed to file any affidavit evidence which complies with the requirements of Order 14, rule 2 of the RHC. In the adjourned hearing on 8 June 2022, the Plaintiff still failed to rectify the procedural irregularity.

(5) Under the second limb, the Plaintiffs knew the arguable defence put forward by the 1^st and 4^th Defendants as their Defence and Counterclaim were already filed and served. Though it was filed shortly after the Plaintiffs’ Summons was taken out, the Plaintiffs ought to have withdrawn the Plaintiffs’ Summons upon knowing the defence of the 1^st and 4^th Defendants; however, they failed to do so.

(6) In the morning on 16 May 2022, the Plaintiffs’ Summons was not disposed of. The learned judge directed a case management summons hearing to be fixed for 8 June 2022.

(7) Before the adjourned hearing on 8 June 2022, instead of withdrawing the Plaintiffs’ Summons, the Plaintiffs asked for no order to be made in respect of the Plaintiffs’ Summons.”

24.  The matters referred to in §1(3) to 1(5) of the draft Notice of Appeal have already been dealt with under Ground 1 above, while the matters referred to in §1(6) to 1(7) of the draft Notice of Appeal are merely part of the background and peripheral to the issue of how the discretion on costs in relation to the Summons ought to be exercised in the present case.

25.  In respect of §2(3) of the draft Notice of Appeal, it is incorrect to say that the Recorder made an order which “deprived” the 1^st and 4^th Defendants of their costs of the Summons. By making the Costs Order, what the Recorder did was merely to defer consideration of the issue of costs to the trial of the action. The Recorder’s reasons for taking this course of action were set out at §§15 to 16 of the Decision. The Recorder considered that the costs of the Summons should be reserved for consideration at the trial having regard to the following circumstances of the case:

(1)  The trial would take place shortly before him (as earlier mentioned, it has been fixed to take place in April 2023).

(2)  Some of the materials prepared by the parties for use in the Summons might well be re-used (eg the affirmations could be largely re-used as witness statements for the trial).

(3)  If an immediate order for costs was made and those costs were to be taxed, it would not be obvious which costs would have been incurred in any event irrespective of whether or not an application for summary judgment had been taken out.

(4)  Given the modest size of the claim, the Recorder intended to deal with the costs of the whole proceedings himself after trial, and he considered that it would make sense for everything to be dealt with at one go in a composite judgment.

26.  In our view, in the circumstances of the present case as outlined above, the Costs Order was one which was reasonably open to the Recorder to make. Ground 2 is, in substance, nothing more than a disagreement with the way in which the Recorder exercised his discretion on costs. This cannot constitute a valid ground of appeal against the Recorder’s exercise of discretion on costs.

Ground 3

27.  Under this ground, the 1^st and 4^th Defendants contend that even if the materials prepared for the Summons have not been wasted, the Recorder erred in making an order to reserve the costs of the Summons. Two principal arguments are advanced by the 1^st and 4^th Defendants in support of this ground.

28.  First, it is argued that “[o]n a proper construction of a ‘costs reserved’ order, the costs will be lost and not be allowed on taxation unless the court makes a specific order dealing with them at the conclusion of the proceedings. These costs are not included in the costs of the action”[3]. While it is correct to say that costs which have been reserved will not be allowed on taxation unless and until the court makes a specific order dealing with them at the conclusion of the proceedings, it is incorrect to say that such costs will be, or are, “lost”. The issue of the 1^st and 4^th Defendants’ entitlement to the costs of the Summons has yet to be determined by the Recorder at the trial.

29.  Second, it is argued that “even if a costs order was eventually made in favour of the 1^st and 4^th Defendants in respect of the Plaintiffs’ Summons at the conclusion of these proceedings, it is against the normal principle that the winning party of an interlocutory application should be entitled to the costs forthwith”[4]. Reliance is placed on the following observation of Johnson Lam J (as he then was) in Midland Business Management Ltd v Lo Man Kui (No 2) [2011] 2 HKLRD 667, at §9:

“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 recognized that the lack of immediacy of orders to pays costs ‘in the cause’ or ‘in any event’ weakens costs as a sanction against unwarranted applications or resistance, see paras.529 to 536 of the Final Report of the Chief Justice’s Working Party on Civil Justice Reform.”

30.  It is important to appreciate that His Lordship was not laying down any inflexible rule that the court must make an immediate order of costs upon the conclusion of interlocutory proceedings, as made plain by His Lordship at §11 of his judgment:

“In so saying, I must not be taken as saying that an immediate costs order should be made against every unsuccessful party in interlocutory application. I can readily see that there are cases where such party may have a proper justification for making an interlocutory application even though he fails at the end of the day. There could also be cases where the court considers that it would be more appropriate to make an order ‘in any event’ or ‘in the cause’ or to reserve costs.”

31.  It may be appropriate to make an immediate order of interlocutory costs in many cases, but it remains a matter of discretion for the judge who hears and disposes of an interlocutory application to decide whether to make an immediate order of costs. For the reasons given under Ground 2 above, we do not consider that there is any sufficient ground to justify intervening in the Recorder’s exercise of discretion in the present case.

32.  Ground 3 has no merit, and is rejected.

33.  Overall, we are not satisfied that the 1^st and 4^th Defendants’ intended appeal has a reasonable prospect of success. We also do not see any other reason in the interests of justice why the appeal shall be heard.

DISPOSITION

34.  The 1^st and 4^th Defendants’ summons dated 12 October 2022 is dismissed with costs to the Plaintiffs, which we summarily assess in the sum HK$80,000. This assessment is an order nisi, which will become an order absolute unless an application is made to vary it within 14 days from the date of this order.

35.  We consider the 1^st and 4^th Defendants’ application for leave to appeal to be totally without merit. Accordingly, we make an order that no party may request the present determination to be reconsidered at an oral hearing inter partes under Order 59, rule 2A(8) of the Rules of the High Court.