MAN SUN FINANCE (HOLDINGS) LTD v. FOO SAU CHUN, RICHARD AND ANOTHER

HCA 1297/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1297 of 2002

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COSTS RULING

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1.  Man Sun Finance failed in its action in this matter against both Defendants.  They now seek their costs.

2.  The 1^st Defendant, Richard Foo, (Richard), seeks costs on the usual party and party basis.  For Man Sun Finance, now unrepresented by solicitors or counsel, a director, Raymond Fu, (Mr Fu), opposes the order for costs.  The basis of his opposition amounted to an attack on the findings made at trial that Richard was acting without authority.  In addition the argument was made that Richard’s actions were not in the best interests of the plaintiff company.

3.  Neither are a proper basis upon which an order for costs may be resisted.  There is no suggestion that Man Sun Finance is impecunious and unable to meet an order for costs.  There will be an order that the Man Sun Finance must pay Richard’s costs on the Action to be taxed on a party and party basis.

4.  The situation of the 2^nd Defendant, (David Chan), is somewhat different.  David Chan was a long-time employee of Man Sun Finance.  In the course of its business dealings in Canada, Man Sun Finance required David Chan, in his capacity as an employee of Man Sun Finance, to enter into certain agreements for sale and purchase, in which he acquired certain properties from a joint-venture in which Man Sun Finance were involved.  He acquired those properties not in his own personal capacity, but as a trustee for Man Sun Finance.  The Declaration of Trust made between Man Sun Finance as Principal, and David Chan as Agent contained the following provision:

“The Principal hereby agrees to indemnify and save harmless the Agent from all claims, demands, damages, loss and expenses whatsoever arising out of the performance of the duties hereinbefore provided.”

5.  David Chan seeks costs at an indemnity basis.  I have found in the course of the trial that David Chan acted perfectly reasonably and appropriately in the steps he took that gave rise to these proceedings (see judgement para 84).  The only argument mounted by Mr Fu against costs is that Richard was acting without authority in giving instructions and that neither Richard nor David Chan acted in the best interests of the company.  It is not now open to Mr Fu to challenge the findings made at trial.

6.  Were it not for the particular provision in the Declaration of Trust, David Chan, seeking indemnity costs, would be in the position of having to persuade the court to exercise a discretion in costs on the grounds that the costs were incurred as a result of scandalous oppressive or vexatious behaviour on the part of Man Sun Finance.  It is not necessary to consider those issues.  David Chan’s involvement in the litigation arises plainly from Man Sun Finance’s original requirement of him that he act as their Agent in the transactions.  By the clear terms of the Declaration of Trust they have agreed to indemnify him from all claims or losses arising out of his actions pursuant to the Declaration of Trust.

7.  Costs are a matter which is in the discretion of the court, but the usual rule is that where there is a contractual entitlement for costs the discretion should be exercised according to the contractual arrangement.  There is nothing in the circumstances of this case to persuade me to depart from that usual rule.  Indeed, it would be unconscionable for David Chan to be out of pocket as a result of this ill-advised litigation.  There will accordingly be an order that David Chan’s costs on the Action must be paid by Man Sun Finance to be taxed if not agreed on an indemnity basis, and to be taxed on Legal Aid Regulations.

8.  Upon Man Sun Finance joining David Chan as a 2^nd Defendant in the proceedings he joined Richard seeking an indemnity by way of Third Party Notice.  That was a perfectly proper step for him to take.  He had received his instructions from Richard and had to look directly to Richard, immediately, to justify the steps he took.  I am satisfied that his expenses in that respect are expenses arising out of the performance of his duties under the Declaration of Trust.  Accordingly Man Sun Finance must pay David Chan’s costs on the Third Party Notice, to be taxed if not agreed on an indemnity basis, and to be taxed on Legal Aid Regulations.

9.  Having regard to the existence of the Declaration of Trust, the relationship of Man Sun Finance with David Chan, not only as their declared agent, but also his nearly 30 years of employment with them, the joinder of David Chan as a 2^nd Defendant was an entirely unnecessary step in this litigation.  It was inevitable once he was joined that he would be obliged to issue a Third Party Notice against Richard.  Richard was therefore quite unnecessarily put to the expense of having to deal with that aspect of the proceedings.

10.  Mr Soo sought costs in relation to the Third Party Notice on Richard’s behalf against Man Sun Finance on an indemnity basis.  The joinder of David Chan meant inevitably that a Third Party Notice would be against Richard.  In the circumstances of this case that joinder was an unnecessary and ill-advised step.  However it was not in my view a step which can be classified as “oppressive and with base of ulterior motive” see Stock J in Choy Yee Chun v Bond star Development Ltd [1997] HKLRD 1327 at 1335.  I am accordingly not satisfied that Richard should have indemnity costs against Man Sun Finance on the Third Party Notice.

11.  However I accept Mr Soo’s submission that it is well established that the Court may order an unsuccessful plaintiff to pay the costs of third or fourth parties whose joinder was made in inevitable by the plaintiffs claim: see Nam Kwong Medicines & Health Product Co Ltd v China Insurance & Anor [2003] 2 HKLRD 345, per Stone J at 349-350.  There will be an order that Man Sun Finance must pay Richard’s costs on the Third Party Notice, to be taxed on a party and party basis.

12.  On the argument for costs Man Sun Finance must pay the costs of Richard, on a party and party basis, and David Chan, on an indemnity basis, with David Chan’s costs being taxed on Legal Aid Regulations.