TONGCHENG TRAVEL HOLDINGS LTD (formerly known as TONGCHENG-ELONG HOLDINGS LTD) v. OOO SECURITIES (HK) GROUP LTD (formerly known as ORIENTIERT XYZ SECURITIES LTD and AMTD GLOBAL MARKETS LTD)

HCA 1258/2022

[2025] HKCFI 248

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1258 OF 2022

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BETWEEN

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D E C I S I O N

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Background

1.  On 3 September 2024, I handed down a decision (with reasons on 8 October 2024) in which I granted leave to the Defendant to set aside the Judgment of 22 January 2024 (“Judgment”) and the Garnishee Order to show cause made on 22 February 2024 (“Garnishee Order Nisi”), and I stayed the underlying proceedings for reference to arbitration (“Decision”).

2.  The Judgment was on the basis of the Defendant’s application made by summons issued on 2 April 2024 (“Summons”).

3.  The underlying proceedings were instituted by the Plaintiff against the Defendant on 27 September 2022, seeking a declaration that an investment management agreement made between the Plaintiff and the Defendant on 27 November 2018 (“IMA”) has been terminated, a declaration that the Plaintiff is entitled to terminate the trust in relation to all assets managed by the Defendant for it and held in a discretionary account, return of the amount of the assets managed under the IMA, and damages. In the underlying proceedings, the Plaintiff argued that the arbitration clause contained in the IMA was pathological, and thus incapable of being performed.

4.  The Defendant did not participate in the proceedings commenced by the Plaintiff, and the Judgment was entered against it. In seeking to set aside the Judgment so entered, the Defendant relied on the fact that there is a valid arbitration agreement contained in the IMA, such that the proceedings should never have been commenced in court.

5.  In my reasons for the Decision, I found that it was the Defendant who sought the indulgence of the Court to set aside the regular Judgment, after a delay of 1.5 years. I considered that the fair order to be made was for the Defendant to pay the Plaintiff’s costs of and incidental to the Summons, with certificate for counsel. I made no order for costs on the Plaintiff’s summons of 5 August 2024 to adduce evidence (“New Evidence Summons”), and in my Decision, I found that the Plaintiff’s Summons to adduce new evidence did not satisfy the Ladd v Marshall test and rejected it (“Costs Order”). I made the Costs Order on nisi basis, with the order becoming absolute unless application for variation was made within 14 days.

6.  On 21 October 2024, the Defendant filed its summons to vary the Costs Order (“Variation Summons”). In its Variation Summons, the Defendant proposes to split the costs using 16 April 2024 (14 days after the Summons was issued on 2 April 2024) as the cut-off date; costs of the Summons and the Garnishee Order Nisi before then should be to the Plaintiff, whilst costs thereafter should be (i) to the Defendant, (ii) on indemnity basis, and (iii) with certificate for two counsel. The Defendant also seeks in its Variation Summons that the costs of the New Evidence Summons be to the Defendant in any event.

7.  In its Variation Summons, Defendant argues that the Plaintiff should have agreed to the Defendant’s Summons, having had a reasonable time by 16 April 2024 to consider the Defendant’s basis for setting aside the Judgment, and that any costs incurred after the Summons “due to its unreasonable opposition” should be borne by the Plaintiff. In support of its proposition, the Defendant relies on Welson International Ltd v Jebson Investment Ltd (HCA 2620/2008, 29 June 2010) at 13-26.

8.  The Defendant further argues that its seeking indulgence of the Court after a delay of 1.5 years is adequately addressed by awarding the Plaintiff costs up to 16 April 2024.

9.  The Defendant argues that costs of the Summons (after 16 April 2024) should be on indemnity basis, with reliance on Leung Kwok Hung v Johnson Controls Hong Kong Ltd [2018] HKCFI 1500 at 9, since cases of unsuccessfully resisting enforcement of arbitration agreements will usually be met by such an order.

10.  Finally, the Defendant argues that with respect to the New Evidence Summons, the Plaintiff should be ordered to pay costs because the New Evidence Summons “was without merit because the evidence is inadmissible, unhelpful and unnecessary”, and because it was “part and parcel” of the Plaintiff’s wider unsuccessful opposition to the Summons. The Defendant also seeks a certificate for two counsel “given the significant amount at stake, the importance of the matter, and the complexity and breadth of the issues involved”.

11.  In opposing the Defendant’s Variation Summons, the Plaintiff argues that the Costs Order nisi is correct and should be absolute, “with only one clarification that such costs be summarily assessed and payable forthwith”.

12.  In support of its arguments, the Plaintiff also relies on Welson International Ltd v Jebson Investment Ltd, where, at 20, Chung J held that “a deliberate decision to ignore the court process or undue delay should generally be regarded as clear “fault”. Here, the Plaintiff argues that the Defendant’s delay of 1.5 years and its knowledge of the proceedings constitute such clear “fault” that justify the Costs Order, and that the splitting of the costs does not adequately address the fault.

13.  The Plaintiff otherwise and further argues that indemnity basis on which resistance to enforcement of arbitration agreements is typically met with must not apply here, because “arbitration clause merely informed the Court that merits are irrelevant”, and that it does not change the nature of the setting aside application, and the Court’s approach to costs, in attempting to dislodge the Defendant’s reliance on Leung Kwok Hung and on A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389 at 68-72 (Reyes J).

14.  Ultimately, the Plaintiff argues that “the injustice of this case does not demand the Plaintiff to pay the Defendant’s costs”, and requests that “senior counsel’s costs should be limited to one set only”. The Plaintiff invites the Court to dismiss the Variation Summons with costs to the Plaintiff and a certificate for counsel to be summarily assessed and payable forthwith.

Issues for the Court

15.  In disposing of the Defendant’s Variation Summons, the Court is to resolve the following issues:

(i) Should costs be cut off at 16 April 2024, by which time the Plaintiff had been made aware of the Defendant’s setting aside grounds;

(ii) If so, should costs be assessed on indemnity basis following 16 April 2024 in light of the arbitration agreement requiring the Court to refer the parties to arbitration;

(iii) Whether the Plaintiff should bear the costs of its New Evidence Summons; and

(iv) Whether in light of the nature and complexity of the parties’ arguments, certificate for two counsel should be allowed.

Legal Principles and Reasoning

16.  The parties do not dispute the Court’s unfettered discretion to allocate costs.

17.  On the first issue, while relying on the various elements of Chung J’s reasoning, the parties do not dispute the principles set out in Welson International Ltd v Jebson Investment Ltd, where Chung J finds that:

“16. What the defendant effectively contends should be the approach in this cross-appeal is this. The defendant accepts it should bear the costs of the setting aside application (because the judgment was regular). But there is no valid reason for the plaintiff not to bear the costs incurred by the parties to tackle the various matters raised by the plaintiff in relation to the merits of the defence. Hence, once the basis of the defendant’s defence has been disclosed, the costs for resisting the setting aside application ought to follow the event.

17. The above approach is similar to the court’s usual approach in contested applications for leave to amend pleadings:-

‘… the usual order for cases where an application for leave to amend has been resisted but is allowed is that there be two sets of costs: namely, costs of and occasioned by the amendment shall be to the other side in any event [that is, to the opposing party] but costs of the hearing before the court shall be to the party who is successful in the argument as to whether leave to amend ought to be granted …’: Hong Kong Civil Procedure 2010 , Vol. 1, para. 20/8/51.

18. In this cross-appeal, since the defendant was the successful party, it ought to be awarded the costs of the contested proceedings. In the present factual context, the defendant says it should be entitled to the costs since 24 July 2009, the date of the defendant’s affirmation (the affirmation was filed on 27 July 2009).”

18.  I found in my Reasons for Decision (at paragraph 31) that: -

“In the present case, the parties have clearly expressed an intention to submit disputes arising out of the IMA to arbitration in Hong Kong. I do not accept that HKIAC cannot be a ‘relevant’ and ‘legally authorized’ body for arbitration in Hong Kong. The HKIAC has wide powers under the Ordinance to manage disputes. Even if it were not the ‘relevant and legally authorized body’ referred to in the Arbitration Clause, I find that the parties have clearly expressed the intention to arbitrate in Hong Kong, which is sufficient and adequate for there to be a valid and operable arbitration agreement which can be performed in Hong Kong. If necessary, applications can be made to the HKIAC under the Ordinance, for example, to decide the number of arbitrators (under section 23(3) of the Ordinance), and for the appointment of arbitrators (under section 24 of the Ordinance).”

19.  I also observed (at paragraph 39) that: -

“Consistent with the decided cases, I find that there is a prima facie case of the existence of an arbitration agreement in this case, which agreement is not null and void, inoperable or incapable of being performed. More detailed reasons for finding that the arbitration agreement is not inoperable are also set out under the next heading.”

20.  Indeed, given the sophistication and arbitration experience of counsel on both sides, I see merit in the Defendant’s argument that by 16 April 2024, upon having a fair opportunity to consider the basis for the Defendant’s setting aside application, the Plaintiff should have agreed to the Summons. It is for that reason that I accept the Defendant’s submission that costs should be cut at 16 April 2024, namely the date of the Summons plus two weeks, and I so order. This is in line with the Court’s approach of discouraging unreasonable opposition to applications made in the Arbitration Court.

21.  I agree with Counsel for the Defendant, that the order on costs made in DCH is distinguishable for the important reason that the plaintiff in that case accepted that the default judgment should be set aside and did not advance any unreasonable objection.

22.  On the second issue, the parties do differ on whether costs should be awarded on indemnity basis following the cut-off date, in the context of the Plaintiff’s “unreasonable” resistance to enforcement of an arbitration agreement. There, the Defendant relies on A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389 at 68-72 (Reyes J), while the Plaintiff argues that “arbitration clause merely informed the Court that merits are irrelevant”, and that it does not change the nature of the setting aside application, and the Court’s approach to costs, in attempting to dislodge the Defendant’s reliance on Leung Kwok Hung and on A v R (Arbitration: Enforcement) [2009] 3 HKLRD 389 at 68-72 (Reyes J).

23.  I disagree with the Plaintiff. It has been a consistent position of this Court that a party seeking to resist enforcement of arbitration agreements should do so on the assumption that it will be ordered costs on indemnity basis. This is to discourage unmeritorious oppositions to arbitration agreements. Nothing in the Plaintiff’s submissions allows me to dislodge the Court’s pro-arbitration stance. I therefore order that costs shall be assessed on indemnity basis post the cut-off date of 16 April 2024.

24.  On the third issue, it is trite that a party should bear the costs of its unsuccessful application.

25.  In the Reasons for Decision, I found (at paragraph 72) that: -

“As can be seen from the above, nothing turns on the evidence sought to be introduced by the Plaintiff, as to whether the identity of the person to the telephone conversations was IS, or someone else of the Defendant. The conversation was without prejudice and inadmissible in evidence. In my judgment, the further evidence is unhelpful and unnecessary, and does not satisfy the conditions set out in Ladd v Marshall [1954] 1 WLR 1489. There is no satisfactory reason why the evidence could not have been obtained with reasonable diligence when the Plaintiff’s evidence was first filed, and pertinently, the evidence does not have any important influence on the outcome of the decision of this Court.”

26.  In other words, the Plaintiff should never have attempted to introduce the New Evidence, and I agree that it should bear the costs of its application.

27.  Finally, on the fourth issue, where the Defendant seeks certificate for two counsel on the basis of the importance, scope, and complexity of the arguments, I find it difficult to accept that trite issues of arbitration law that are all too well familiar to the experienced counsel on both sides must be perceived as “complex” or excessive in scope and thus necessitating two senior counsel involvement. I therefore accept the Plaintiff’s argument for certificate for one counsel only, and so order.

The Variation

28.  The Order Nisi will accordingly be varied to provide that:

(1) the costs shall be split using 16 April 2024 as the cut-off date; costs of the Summons and the Garnishee Order Nisi before then should be to the Plaintiff, whilst costs thereafter should be (i) to the Defendant, (ii) on indemnity basis, and (iii) with certificate for one counsel; and

(2) the Plaintiff shall bear the costs of the New Evidence Summons.

29.  The costs of the Variation Summons are to be paid by the Plaintiff to the Defendant forthwith, to be taxed if not agreed.