CAO SHUHUI v. DACHENG GROUP HOLDINGS (HONG KONG) CO LTD AND ANOTHER

HCMP 587/2023

[2024] HKCFI 1787

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

MISCELLANEOUS PROCEEDINGS NO 587 OF 2023

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DECISION ON COSTS

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1.  On 20 February 2024, this Court handed down its decision (the “Decision”) and granted:

(1)  Granted leave for the Plaintiff to commence a derivative action on behalf of the Company against Mr Gao;

(2)  Refused to grant leave for the Plaintiff to commence proceedings on behalf of the Company against Henan Shi Shang as the Company has no jurisdiction to make the claim in Hong Kong; and

(3)  Deferred the consideration of the indemnification issue until the outcome of the derivative action is known.

2.  This Court made a costs order nisi to which both the Plaintiff and the 2^nd Defendant took out summonses dated 27 February 2024 and 4 March 2024 respectively to vary the same. Directions were given by this Court to dispose of both applications on paper. Parties have since filed their respective skeleton submissions with schedule of costs.

3.  First, I am of the view that the Plaintiff as the successful party should not be ordered to pay costs to the 2^nd Defendant. The Plaintiff’s application to commence a derivative action on behalf of the Company against the 2^nd Defendant is successful.

4.  Although the Plaintiff failed to obtain a leave to commence a derivative action against Henan Shi Shang, it does not necessarily mean that the Plaintiff should be ordered to pay costs to the Plaintiff. It is true that the Plaintiff was not totally successful, but a party who is not totally successful in any application does not ipso facto has to pay for the costs of the losing party in respect of the items, claims or issues that it did not prevail. On the facts of the present case, the Plaintiff applied for leave to commence one derivative action against both the 2^nd Defendant and Henan Shi Shang. This Court does not allow the Plaintiff to commence the derivative action against Henan Shi Shang on jurisdiction ground.

5.  Hence, I am of the view that there are only two issues to be resolved, namely, the issue of apportionment and the issue of whether costs should be reserved or paid forthwith.

6.  On the issue of apportionment, in exercising its discretion on costs, the Court should take into account, inter alia, the following matters:

(1)  Whether a party has succeeded on part of his case, even if he has not been wholly successful.

(2)  The conduct of all parties, which includes (1) whether it was reasonable for a party to raise, pursue or contest a particular issue; (2) whether the party who succeeded in his claim, in whole or in part, exaggerated his claim, (3) the manner in which a party has pursued his case or a particular issue.

(3)  The underlying objectives set out in Order 1A, rule 1 of the Rules of the High Court, which includes the objective to ensure fairness between the parties.

7.  Applying the above principles to the facts of the present case, I am of the view that the Plaintiff should be entitled to 70% of its costs of the application. Mr Fong is correct that objectively the Plaintiff is the successful party for the reasons he set out in his written submissions.

8.  The 30% reduction in costs is to fairly take into account the incurred costs (including expert evidence and submissions) relating to the intended claim against Henan Shi Shang. Such costs should not be incurred given the inherent jurisdictional problem.

9.  On the issue of whether the 70% of the Plaintiff’s costs should be reserved or to be paid forthwith, Ms Ho for the 2^nd Defendant submitted that the 70% costs should be costs in the cause of the intended derivative action or, alternatively, be reserved.

10.  Ms Ho submitted that the Court is entitled to order costs in the cause if it is of the view that the justice of the case demands that the question of costs to be decided by reference to the ultimate merits of the case even if the application fails and/or there are proper justifications as to why it would be more appropriate to make an order “in the cause” or to reserve costs. (See Midland Business Management Ltd v Lo Man Kui [2011] 2 HKLRD 667 at §11 per Lam J (as Lam PJ then was).

11.  Ms Ho also referred this Court to the cases of Chu Kong v Up Profit Ltd HCMP 305/2016, 23 December 2016, Harris J and Chu Kong v Up Profit Ltd HCMP 305/2016, 22 February 2016 at §§6 to 7 and 10, per Harris J.

12.  However, each case depends on its own facts. This is a self-contained application. Application of this nature is to be dealt with on a summary and efficient manner. It is never supposed to be blossomed into a full enquiry into the merits of the intended claims. Save in exceptional and special circumstances, normally, the application is to be decided by applying the relevant test to the facts of a particular case.

13.  It does not matter that a respondent has put forward respectable grounds to oppose the application. The key issue is whether the applicant has satisfied the relevant legal test.

14.  In the present case, in relation to the intended claims against the 2^nd Defendant, the Plaintiff does satisfy the relevant test. She comes to this Court and she prevails in her application. I am of the view that she should be entitled to the costs of this application.

15.  Finally, I also accede to the application to make a gross sum assessment of the Plaintiff’s costs. Doing the best I can, I summarily assess the Plaintiff’s entitlement to costs at HK$550,000.

16.  The 2^nd Defendant is hereby ordered to pay the sum of HK$550,000 to the Plaintiff forthwith.

17.  Finally, it remains for this Court to thank Mr Fong for the Plaintiff and Ms Ho and Ms Chan for their helpful written submissions to which this Court has taken into consideration.