XCHRX AST RESEARCH (FAR EAST) LTD. v. TREND NETWORK CO. LTD. and DALONG INUSTRIAL GROUP LTD. (Intended Intervener)

1998, HCA No. 7393

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 7393 OF 1998

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REASONS FOR ORDER

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1. Introduction

2. On 26 June, 1998 the parties appeared before me and I made a costs order that the costs of the application and those of the Plaintiff's summons dated 18 June, 1998 (for continuation of the injunction order), of paragraph 1 of the Defendant's summons dated 23 June, 1998 (for discharge of the injunction order) and those reserved by Mr. Recorder Kwok on 23 June, 1998 be paid by the Plaintiff to the Defendant forthwith to be taxed if not agreed on party-and party basis. I informed the parties that I will give my reasons for the order later and the following are my reasons.

3. The Intended Intervener was the purchaser of one of the real properties covered by the ex parte Injunction Order and applied to join in to vary that Order so as to be able to obtain title to that property. That application was dealt with by agreement and needs not be dealt with herein.

4. The Plaintiff used to supply computer products to the Defendant. By a Writ of Summons issued on 9 May, 1998, the Plaintiff claims that the Defendant failed to pay a sum of about US$4 million being the price of computer hardware supplied to the Defendant earlier.

5. On 18 June, 1998, the Plaintiff applied ex parte for a Mareva Injunction Order within jurisdiction against the Defendant ("the ex parte application"). The ex parte application was granted by the learned Judge hearing that application (this Order is called "the ex parte Order"). On 23 June, 1998, the parties appeared before Mr. Recorder Kwok on the Defendant's application to discharge the part of the ex parte Order requiring disclosure of the Defendant's assets. Mr. Recorder Kwok discharged that part of the Order and ordered the costs of that application to be paid to the Defendant forthwith ("the Discharge Order").

6. When the parties came before me on 26 June, it was agreed that the ex parte Order should be discharged and the Plaintiff's summons for continuation of the Mareva Injunction Order be dismissed. The Plaintiff also agreed to pay the costs of the ex parte Order and those of the inter partes summons ("the Costs"). The only issues between the Plaintiff and the Defendant are:-

(a) whether the Costs are taxable and payable forthwith;

(b) whether the Costs are taxable on party-and-party or indemnity basis.

7. Should the Costs be Taxed and Paid Forthwith?

8. Mr. Whitehead for the Plaintiff submitted that the Costs should only be taxable and payable in any event. He referred to para. 29/1/10 of The Supreme Court Practice 1997 where it was said:

"Where a plaintiff seeks an interlocutory injunction but decides, after seeing the defendant's evidence, not to proceed with the application for interlocutory relief, it may be a proper exercise of the court's discretion to award the defendant his costs of the application in any event and, in appropriate circumstances, to order taxation of the costs forthwith (Kickers International SA v. Paul Kettle Agencies Ltd. [1990] F.S.R. 436).".

On the other hand, Mr. Lau for the Defendant submitted that this is a case where the costs should be taxed and paid by the Plaintiff forthwith.

9. When the Plaintiff decided to, and did, appear before the ex parte Judge, the basis on which it applied for the ex parte Order was, in essence, that there was a risk of dissipation of the Defendant's assets because:-

(a) the Defendant was in the process of selling two real properties (para. 7 and 8 of the Plaintiff's Skeleton Submissions);

(b) the Defendant had cash deposits at a number of banks and theses could be easily transferred out of the Plaintiff's reach (para. 11 of the Plaintiff's Skeleton Submissions).

These two properties (together with two other real properties) were later specifically referred to in the ex parte Order.

10. Several matters clearly militated against the granting of the ex parte Order:-

(a) the ex parte Judge was not told that the Defendant was (and as at present still is) operating as a going concern, although as is common now in Hong Kong, its operation has been scaled down due to the financial difficulties prevalent in Hong Kong;

(b) the two properties were mortgaged to two respective financial institutions for all moneys general banking facilities (para. 7 and 8 of the Plaintiff's Skeleton Submissions);

(c) the ex parte Order would not only affect the Defendant, it would affect two sale and purchase contracts entered into with two purchasers. There was no allegation that either of these purchasers was colluding with the Defendant. In the ordinary course of things, these third party purchasers should be able to expect that the contracts would be duly performed by the Defendant, that is, to convey the respective properties to them. The ex parte Order would prohibit the Defendant from doing so;

(d) the cash deposits referred to in the records kept by the Companies Registry were pledged by the Defendant to various banking institutions. This was not expressly referred to in the Plaintiff's Skeleton Submissions, or affirmation in support of the ex parte application;

(e) in relation to one of the properties at the Dynasty Court, the asset held by the Defendant was not the real property but only the shares of another company. It is highly doubtful if a Mareva Order can be made against the assets of another company (not a party to the action) without showing materials which would enable the Court to lift the corporate veil.

11. In view of these matters, if the Plaintiff had insisted on the continuation of the ex parte Order (which the Plaintiff now fairly has not), I would have refused such application.

12. Mr. Whitehead submitted, and I agree, that if I refused the continuation of the ex parte Order, it does not necessarily follow that costs should be payable by the Plaintiff forthwith. He submitted, and I also agree, it is a matter of discretion as to whether that should be the case or whether costs are only payable in any event.

13. In the Kickers International case, the court made the following observations in relation to this issue:-

"The next question is whether they should be taxed and paid at once or only after the conclusion of the trial. There are several reasons why the court might not think it right to order immediate taxation. The amount involved might be too small .... or it might be unfair to order immediate payment by a party who might .... be entitled to set off an award for costs in his favour. Such unfairness may arise either from the effect upon his cash flow .... or he might find that the opposing party does not have the means to repay the money if there should be a subsequent order against him. These reasons are not intended to be exhaustive. .... even if such reasons exist, they must be balanced against the prejudice which may be caused to the successful party if he is kept out of his money until the trial. .... Some of the reasons for making a final rather than a contingent or postponed costs order are equally good reasons for an immediate taxation. I therefore do not think that it would be right to reserve an order for immediate taxation only for cases in which the court wishes to show disapproval of the way in which the proceedings have been conducted." (p. 439 per Hoffmann J. (as he then was)).

14. I agree with these observations. In the present case, the parties have apparently incurred quite some expenses in preparing for the hearing before me. There was also already a costs order made by Mr. Recorder Kwok that certain costs should be payable. It has not been suggested that paying the costs now would cause any undue prejudice to the Plaintiff, for example, the Plaintiff cannot afford to do so, or that there would be any difficulties in seeking to enforce any court order against the Defendant (if any be made).

15. For these reasons, I find that it is appropriate to order that the costs should be payable and taxable (if not agreed) forthwith.

16. Should the Costs be on Indemnity Basis?

17. When the Defendant was served with the ex parte Order, legal advice was sought. According to Mr. Lau, a detailed letter enclosing relevant documents was sent to the Plaintiff's solicitors on 22 June, 1998. Mr. Lau said that if the Plaintiff had consented to the discharge of the ex parte Order and the withdrawal of the inter partes summons on that day, he would have agreed that the Costs should be taxed on party-and-party basis. However, the Plaintiff only agreed to do so on 24 June, 1998. Further, when the Defendant asked the Plaintiff to agree to the discharge of the part of the ex parte Order requiring disclosure of assets, the Plaintiff refused to do so. This resulted in the hearing before Mr. Recorder Kwok. The Plaintiff still opposed the Defendant's application even at this hearing. Mr. Lau submitted that the aforesaid matters showed that the Plaintiff was acting "oppressively" and "amounted to an affront to the court" as defined in Sung Fook Kee v. Pak Lik Co. (A Firm) [1996] 1 HKC 570.

18. Mr. Whitehead explained that the time lapse referred to by Mr. Lau was required by the Plaintiff's solicitors to take instructions from their client's insurers in London. Further, the general tenure of the correspondence passing between the respective solicitors showed that the Plaintiff's solicitors were trying to elicit further information in order to properly advise their client and/or to enable their client to properly instruct them.

19. Mr. Lau referred to a letter dated 23 June, 1998 from the Plaintiff's solicitors, in particular to references made therein that "This is a crucial piece of information which ... should be put before the Judge deciding on the continuation of the Mareva Order" and "could you obtain from [the bank] a written confirmation of their previous oral request for the benefit of us and the Court" (underline and italics supplied) (p. 26, exhibit "MLY-1" to the affirmation of Ma Lai Yuk dated 26 June, 1998.

20. This letter has to be understood in context. The parts referred to by Mr. Lau were followed by the following concluding remark:-

"As we have not been furnished with sufficient information, it is impossible for us to take instruction within the unreasonable time deadline you set out in your letter [referring to the Defendant's letter dated 22 June, 1998] (pp. 21-2, exhibit "MLY-1")]".

The deadline referred to the part of the Defendant's letter dated 22 June which said "We are awaiting your reply as to whether your client will take steps to discharge the Mareva Injunction and our client's offer will stand good until 9:00 a.m. tomorrow morning.". The parts referred to by Mr. Lau were quite obviously part of the "information" asked for by the Plaintiff's solicitors in the said concluding remark. At that time, the correspondence was presumably conducted on a without prejudice basis. The Plaintiff's solicitors would not know what the outcome of the discussion would be. It would be natural for them to reserve the Plaintiff's position in the event no settlement was reached. Thus, although it was not expressly stated, I consider that their references to "the Judge" and "the Court" only meant that such information might be brought to the Court's attention if there was a need to do so.

21. For these reasons, I do not consider that the Plaintiff has acted unreasonably in withholding its consent to the discharge of the ex parte Order from 22 June to 24 June. I therefore do not find that the Plaintiff has acted in such a way as to justify a departure from the normal basis of taxation.

(Andrew Chung)
Deputy Judge of the Court of First Instance