HO SHUK CHING PORTIA v. WONG MEI CHU AND OTHERS

HCA1213/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1213 OF 2003

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REASONS FOR DECISION

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1.  On 13 May 2005, I handed down my decision on the plaintiff’s summons filed on 2 April 2003 and re-amended by the Order of 5 May 2005 (“the plaintiff’s re-amended summons”).  Under the summons, the plaintiff applied for interlocutory orders that the 1^st and 2^nd defendants deliver up to the plaintiff or allow the plaintiff to inspect and take copies of the books, accounts, records and documents of the 2^nd and 3^rd defendants, and for an order that the 1^st defendant makes an affidavit verifying compliance with the order. 

2.  By the decision, I dismissed paragraphs 1,3 to 5 of the plaintiff’s re-amended summons and made no order on paragraph 2 of the same, upon the 1^st defendant’s undertaking to allow inspection of the 3^rd defendant’s books, accounts, records and documents.  I further made an order nisi that:

(1)	The costs of the application up to and including 31 January 2005 be in the cause.
(2)	The costs of the application after 31 January 2005 be to the 1st and 2nd defendants against the plaintiff in any event.

3.  By letter dated 26 May 2005, the 1^st and 2^nd defendants apply to vary the costs order nisi and seek an order that the plaintiff pays all the costs of and occasioned by the plaintiff’s re-amended summons (i.e. including costs incurred up to 31 January 2005), to be taxed and payable forthwith.

4.  There are two aspects to the 1^st and 2^nd defendants’ application to vary.  Firstly, they seek a final costs order in their favour in respect of the costs of the plaintiff’s application up to 31 January 2005.  Secondly, they seek immediate taxation and payment of their costs.    

5.  The plaintiff opposes the application.                                             

6.  After hearing counsel, I allowed the application to the extent that the plaintiff should also pay the 1^st and 2^nd defendants the costs of the application up to 31 January 2005.   My reasons appear below.

The 1^st and 2^nd defendants’ arguments

7.  The 1^st and 2^nd defendants’ arguments for variation are as follows:

(1)	In her application on 31 January 2005, the plaintiff had abandoned her initial application for prohibitory injunctions and sought mandatory orders of delivery up, which was not successful. Therefore, the work done before that to resist the prohibitory injunctions was wasted. The plaintiff should bear the costs involved. Additionally, even if the plaintiff had not abandoned the prohibitory injunction application, it would not have been appropriate to grant the delivery up and disclosure relief sought.
(2)	The plaintiff’s application as amended is wholly misconceived and should never have been brought. On the other hand, substantial evidence had been filed and the hearing lasted for two days. In the circumstances, it would be highly prejudicial to the 1st and 2nd defendants to be kept out of the money they spent on contesting the application until after the trial, which will be a considerable time away.
(3)	The 1st and 2nd defendants had by letter dated 30 April 2005 offered, on a without prejudice save as to costs basis, to allow the plaintiff to have inspection and take copies of the 3rd defendant’s documents and for paragraphs 1 and 3 of the plaintiff’s re-amended summons as amended to be withdrawn. The plaintiff rejected the offer. And despite the undertaking given by the plaintiff through counsel at the hearing to allow the plaintiff to inspect and take copies of the 3rd defendant’s documents, the plaintiff persisted in the application. In view of the plaintiff’s unreasonable conduct of the proceedings, immediate taxation is justified.

The plaintiff’s arguments

8.  In respect of the costs up to 31 January 2005, the plaintiff says that:

(1)	Production of the 3rd defendant’s documents has been a live issue throughout the proceedings.
(2)	The 1st and 2nd defendants had opposed the plaintiff’s application to re-amend the summons and it was only on the first day of the adjourned hearing in May 2005 that they withdrew the opposition.
(3)	It cannot be said that the plaintiff’s initial application for prohibitory injunctions and the ancillary relief has no prospect of success given that this is a derivative claim.

9.  As to immediate taxation and payment of costs, the plaintiff argues that:

(1)	Having regard to the undertaking given by the 1st defendant at the hearing, it is not open to the 1st and 2nd defendants to contend that the plaintiff’s application is wholly devoid of merits.
(2)	The argument that it is unjust to keep the 1st and 2nd defendants’ out of the funds spent on the legal costs has to be balanced against the fact that the plaintiff is making a derivative claim to safeguard not only her interests and that the assets of the 3rd defendant are controlled and used by the 1st and 2nd defendants.

The relevant legal principles

10.  Costs is a matter of judicial discretion.  In Golite International Limited v. Golden Power Industries Limited (unreported) HCA 2262/2004, I had summarised the relevant legal principles relating to costs of interlocutory injunction applications as follows:

“	Relevant legal principles on costs
	11.	Costs is a matter of the court’s discretion. 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 vol. 1 para.29/1/44. Primarily, this is because the merits of the case have yet to be investigated and determined. But this is not an inflexible rule.
	12.	In Kickers International S.A. v. Paul Kettle Agencies Limited [1990] FSR 436 at 438, Hoffmann J (as he then was) held that it was open to the judge dealing with the interlocutory application “to 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”. In Bushbury Land Rover Limited v. Bushbury Limited [1997] FSR 709 at 711-712, the Court of Appeal agreed with Hoffmann J and held that where the interlocutory application falls so far short of satisfying the criteria for the grant of interlocutory relief that the plaintiff should never have sought it, the court may penalise the plaintiff in costs.
	13.	In Wah Cheong Construction Co Ltd v. Super Bright Engineering Ltd (unreported) HCCT 10/2003, 6 June 2003, Deputy Judge To on concluding that the defendant’s case was not credible and the plaintiff was justified in applying for the interlocutory injunction, ordered that the costs of the interlocutory application be paid by the defendant. In deciding to make a final costs order, Deputy Judge To was of the view that it was doubtful whether the dispute would proceed to a full trial, having regard to the nature of the dispute involved, such that there was a risk of injustice to the plaintiff not being able to recover the interlocutory costs or in full.
	14.	The above authorities show that while the court will not investigate the merits of a case at the interlocutory application stage, it does not mean that the court cannot make a final costs order. Where it is plain that a plaintiff is not justified in bringing the application, he may be penalised in costs: see also Fortuna Investments Limited v. Hoo Tony (unreported) HCA1384/2004, 9 March 2005 at paras14-22. Similarly, where a defendant’s case in disputing the application is wholly unmeritorious, the court may make a final costs order against him.
	15.	That said, I agree that the court in exercising its discretion on costs at an interlocutory stage should bear closely in mind the need to balance the two risks of injustice referred to in Hoffmann J’s judgment in Kickers case (at p.438), namely,
		“	On the one hand, a final costs 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.”

Costs incurred up to 31 January 2005

11.  Several matters are relevant in determining whether there should be a final order on the costs up to 31 January 2005 when the plaintiff’s application assumed a different form with the abandonment of the prohibitory injunction application.   Firstly, a result of is abandonment, it has not been necessary to consider the merits of the prohibitory injunctions initially sought.  However, as indicated in paragraph 20 of my decision of 13 May 2005, the evidence filed shows there are serious issues to be tried with regard to whether there is any breach of director’s duty, which is one of the core complaints of the plaintiff.  It would not be right to say definitively that the plaintiff’s initial application for prohibitory injunctions was necessarily bound to fail such that she ought to be penalized in costs. 

12.  Secondly, although the plaintiff’s application took a different form as a result of the latest amendments, both sides continued to rely on the evidence filed prior to 31 January 2005.  It cannot be said that the work done prior to 31 January 2005 was solely to resist the prohibitory injunctions and had become wholly wasted as a result of the abandonment.  In this regard, the present case is different from the case of Kickers International S.A. in which the plaintiff, after seeing the defendant’s evidence, considered it would fail on the balance of convenience test and abandoned the interlocutory application.  Hoffmann J (as he then was) considered that because the defendant had been put to a great deal of unnecessary expenses, a final costs order against the plaintiff was warranted.

13.   In my view, the core question relating to the costs incurred before 31 January 2005 is whether it should be treated differently from the costs incurred after the plaintiff had applied to re-amend her summons to concentrate on delivery up or inspection of documents.  To the extent that I disagree with the submission that the evidence filed before 31 January 2005 had been wasted by the abandonment of the prohibitory injunction application because the parties had relied extensively on it at the hearing of the plaintiff’s re-amended summons, it must follow that the costs incurred before 31 January 2005 ought to be regarded as part of the costs of the re-amended application for discovery or inspection of documents.  That being the case, it should be treated in the same way as the costs incurred after 31 January 2005.   Accordingly, the 1^st and 2^nd defendants should also be awarded the costs incurred before 31 January 2005.     

Immediate taxation and payment of costs

14.  As for immediate taxation order, while it is true that the plaintiff had largely failed on her application for discovery or inspection of documents, she had succeeded in extracting an undertaking from the 1^st defendant to allow her to access and inspect the 3^rd defendant’s documents.  It is therefore not correct to say that the plaintiff should never have brought her application. 

15.  It is said that the 1^st and 2^nd defendants have always accepted that the plaintiff, as a director, has a right to inspect the documents of the 3^rd defendant.  However, that does not mean that the plaintiff has no necessity to come to court in order that she can exercise her right to access and inspect the company documents.  As Mr Wong put it, access to the 3^rd defendant’s documents has been a contentious issue right from the beginning of the proceedings.  The 1^st defendant’s without prejudice offer to allow inspection only came about on 30 April 2005, five days before the substantive hearing of the application.  By then, nearly all the costs for the application would have been incurred and counsel’s brief should, in the normal course, have been delivered.  In the circumstances, the plaintiff’s refusal to accept the offer to back off and to pay half of the 1^st and 2^nd defendant’s costs (not on an “in any event” basis) cannot be said to be so unreasonable as to attract an immediate costs order.     

16.  It should also be noted that the 1^st defendant’s undertaking was only offered on the second day of the substantive hearing and upon my enquiry with Mr Khaw.  The plaintiff accepted the undertaking and did not press further with the application insofar as it relates to the 3^rd defendant’s documents. 

17.  A further point to note is that even with the undertaking, inspection could not be carried out due to disagreements over the logistics and the plaintiff had to resort to an application for directions.  It just shows that it is not a case where the plaintiff has no business or need to come to court for interlocutory orders.

18.  True it is that the plaintiff’s application had been wider than necessary and she had failed in seeking any relief in relation to the 3^rd defendant’s documents.  But for that, the plaintiff has been visited with an adverse costs order.  There is nothing exceptional in the merits and conduct of the plaintiff’s application that call for an immediate costs order.

19.  Additionally, unlike intellectual property cases where it is generally accepted that not many actions will proceed to full trial, it cannot be assumed that the present case is unlikely to proceed to trial.  The materials before me also do not suggest there is a high probability of there being no trial.  It is not a case where there is an obvious or high risk of the defendants being deprived of some or all of their interlocutory costs as to necessitate the costs being paid forthwith. 

20.  In short, I am not persuaded that my discretion should be exercised in favour of a forthwith costs order. 

Conclusion

21.  For the above reasons, the 1^st and 2^nd defendants’ application to vary the costs order nisi insofar as it seeks to extend the final costs order to cover also the costs incurred up to 31 January 2005 should be allowed.   The part of the application seeking immediate taxation and payment of the 1^st and 2^nd defendants’ costs is refused.

22.  The 1^st and 2nd defendants have to come to court to obtain the variation to the costs order nisi. The normal rule of costs follows event should be applied even though the 1^st and 2^nd defendants have only succeeded partially.  Accordingly, I make the following order:

(1)	The costs of the plaintiff’s summons as re-amended, including the costs incurred up to 31 January 2005, be paid by the plaintiff to the 1st and 2nd defendants in any event, to be taxed if not agreed.
(2)	The costs of the application to vary the costs order nisi be paid by the plaintiff to the 1st and 2nd defendants in any event, to be taxed if not agreed.