ALLIED SUCCESS CREATION LTD v. CHEUNG HON KUEN AND OTHERS

HCA 451/2010

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO. 451 OF 2010

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DECISION

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1.  The plaintiff (“Allied Success”) discovered that it had been induced by the fraudulent scheme of its estate agent to sell its property to a purchaser, the 5^th defendant (“Join Forces”), which, unbeknown to Allied Success, was set up by the agent, and the agent resold the property within days at substantial profits. The 4^th defendant (“Keyfortune”) was the estate agent. The 1^st defendant (“Cheung”) and the 2^nd defendant (“Tse”) were at the material times its only directors and shareholders, who engineered the transaction. The 3^rd defendant (“Yeung”) was Cheung’s niece and an employee of Keyfortune at the material time. Allied Success claimed against the defendants for loss and damage as a result of the conspiracy. Keyfortune resisted the claim and counterclaimed for unpaid estate agent’s commission.

2.  After trial, I handed down judgment on 16 March 2015.  I gave judgment against Cheung, Tse, Keyfortune and Join Forces jointly and severally.  The claim against Yeung was dismissed.  The counterclaim by Keyfortune was dismissed.  Following the event, I made a nisi costs order that save that Yeung should have her costs of defending this action, Allied Success should have the costs of this action against the other defendants, including the costs of the defending the counterclaim against Keyfortune.  Costs should be taxed, if not agreed.  The parties had 14 days to apply for variation of the costs order.

3.  By summons filed on 30 March 2015, Allied Success applied for variation of the costs order as follows:

(1) Yeung shall bear her own costs of defending the action; and

(2) the other defendants shall pay Allied Success’ costs of this action including the costs of defending the counterclaim of Keyfortune, to be taxed on indemnity basis, if not agreed.

YEUNG’S COSTS

4.  The starting point is O,62, r.3(2) of the Rules of the High Court:

“If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings (other than interlocutory proceedings), the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.”

5.  Yeung succeeded in defending the claim against her, and reasonably expects to recover her costs of defence.  Allied Success is seeking to deprive her of that.

6.  Mr Lam for Allied Success cites Ritter v Godfrey [1920] 2 KB 47 at 60-61, per Atkin LJ and Edmund Kung Chiu Nam v The Insider Dealing Tribunal, CACV 176/2006 (23 January 2007) at §21.  Essentially he submits that the successful defendant may be deprived of his costs, if it was his conduct that led the plaintiff to believe that there was a good cause of action against the defendant.  In such a case, it was the defendant who brought upon himself the litigation.

7.  There is of course now O.62, r.5(1) which provides that the Court in exercising its discretion as to costs shall, to such extent, if any, as may be appropriate in the circumstances, take into account, among other things, the conduct of all the parties and whether a party has succeeded on part of his case (even if he has not been wholly successful).

8.  The conduct of the parties, according to r.5(2), includes:

(1)   whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(2)   the manner in which a party has pursued or defend his case or a particular allegation or issue;

(3)   whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(4)   conduct before, as well as during, the proceedings.

9.  The rule also reflects the pre-CJR approach: see for instance, Wang Din Shin v Nina Kung, CACV 460/2002 (19 April 2005) at §39, applying Re Elgindata Limited (No 2) [1992] 1 WLR 1207 at 1214B-C.

10.  Mr Lin for the defendants stresses that the discretion to deprive a successful party of whole or part of his costs has to be approached with due circumspection: see Commissioner of Inland Revenue v HIT Finance Limited, FACV 8/2007 (26 June 2008) at §7; Pony HK World Limited v Vand Petro-Chemicals (BVI) Company Limited, FACV 4/2013 (18 March 2014) at §4.

11.  I shall not repeat the discussion in respect of the claim against Yeung set out in the judgment (§§102-105).  Yeung’s involvement in connection with Join Forces was largely undisputed.  But that per se could not have fairly induced the belief that she was dishonest, bearing in mind the state of knowledge required to constitute the cause of action in dishonest assistance (see §103 of the judgment).

12.  Allied Success could not pinpoint any other conduct on the part of Yeung before the action, or any circumstances that became apparent since the commencement of the action, that could fairly be said to have induced such belief.  To say that she “allowed” herself to be put in the situation and therefore she had only herself to blame for being sued, Allied Success effectively seeks to absolve itself from the consequence of the risk of litigation in terms of costs, which it persisted in taking without concession until judgment.

13.  Mr Lam also refers to the fact that she was represented by the same legal team as the other defendants.  That is neither here nor there for the present purpose.  Still less is that suggestive of her endorsement of the conspiracy, if it is proved, and her dishonest assistance to it.

14.  Bearing in mind the abovementioned principles and considering the facts as found in this respect, I do not agree that Yeung by her own conduct brought the litigation upon herself.  I do not agree that this part of the nisi costs order should be disturbed.

ALLIED SUCCESS’ COSTS

15.  The starting point is that costs in favour of a successful party are usually awarded on a party and party basis.  O.62, r.28(3) provides that the court may in its discretion order that the costs shall be taxed on the common fund or indemnity basis (which are more generous).

16.  Mr Lam cites the Court of Final Appeal decision in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114, while Mr Lin cites Libertarian Investments Limited v Thomas Alexej Hall, FACV 14 & 16/2012 (11 March 2014).  The final court set out the following principles:

(1)   An award of indemnity costs is a more generous basis, and in that sense is perceived as achieving a fairer result for the successful party, because it avoids the successful party having to pay part of his costs out of his own pocket.  However, the successful party must show that the case has some special or unusual feature before warranting the consideration of costs on the indemnity basis instead of the usual party and party basis.

(2)   The court’s discretion may be exercised in relation to, but not limited to, cases brought with an ulterior motive or for an improper purpose or where there is some deception or underhand conduct on the part of the losing party.  However such improper conduct generally relates to the conduct of the litigation rather than conduct which constituted the cause or matter giving rise to the litigation.

(3)   The discretion of the court is unfettered, and it is undesirable to attempt to define the circumstances in which indemnity costs order would be made.  The appropriateness of such an order depends on all the circumstances of the case. The attributes of the parties and the character of the proceedings are not irrelevant.  The grounds for making such an order must be connected with the case and might extend to any matter relating to the litigation and the parties’ conduct in it as well as the circumstances leading to the litigation.

(4)   Even in contempt cases, there is no general rule that indemnity costs will be ordered against the contemnor.  Where the contemnor’s conduct has resulted in a separate penalty that sufficiently expresses the court’s disapproval, indemnity costs as an additional penalty may not be justified.

17.  In Town Planning Board, the judicial review proceedings were commenced to protect a public asset which was a central element of Hong Kong’s heritage rather than to assert a private right.  The manifest public importance and the applicant’s limited finances, which depended on public donations, were among the relevant considerations taken into account in line with the principles.  Obviously the context and character of the litigation in that case bore a significant part in the court’s consideration that that was an appropriate case for making an indemnity costs order in favour of the successful applying society.

18.  The context and character of the litigation in Libertarian Investments Limited materially differed from those in the above case.  There the claim was against the defendant for breach of fiduciary duties, fraudulent misrepresentation, misappropriation of funds entrusted to him for specific purpose by the plaintiff company and the making of secret profits.  The court made severe adverse findings against the defendant, including the observation that he could not even “keep track of his own lies”.  The plaintiff succeeded in its claim and sought indemnity costs against the defendant on the basis of such findings.  This, I think, was precisely why the final court found it necessary to explain further that improper conduct, which might warrant consideration of an indemnity costs order, generally relates to the conduct of the litigation rather than conduct which constituted the cause or matter giving rise to the litigation.

19.  In the present case, I find the claim against the defendants (except for Yeung) for the scheme involving misrepresentation and non-disclosure to Allied Success for their own benefit and thus liable on all counts of breach in contract, tort and equity.  All those constituted the cause of the litigation.  Yet the context and character of the litigation are similar to those in Libertarian Investments Limited.  As in that case, I agree with Mr Lin that the severely adverse findings against the defendants here on credibility and in facts per se would not suffice to justify an indemnity costs order.  Apart from that, other improper conduct of the litigation that might have caused unnecessary litigation and costs is neither suggested nor established.

20.  In addition, in Libertarian Investments Limited (at §§7-8), equitable compensation has been ordered on the basis of the court’s findings to place the plaintiff in a position which it would have enjoyed if the defendant had duly performed his duty.  Compensation so assessed with the full benefit of hindsight also served to neutralise the effect of the defendant’s breach of duties, treating the defendant as if he had not told lies about his management of the finds entrusted to him.  The final court therefore found it unnecessary and inappropriate to order indemnity costs in addition for the purpose of marking the court’s disapproval of his behaviour as the dishonest and wrongful party.

21.  In the present case, Join Forces gained profits from the sub-sale in the sum of HK$4,500,000.  However, Allied Success claimed damages in the sum of HK$8,400,000 on the basis of the market value of the property in question with a secured tenancy as at the date of sale to Join Forces.  I allowed such claim, and thus putting Allied Success in the position, which it would have enjoyed, had the defendants not conducted the malpractice on it.  That effectively neutralises the effect of the defendants’ breach on Allied Success.  I agree with Mr Lin that this adds to the consideration against exercising discretion to order, in addition, indemnity costs against the defendants to manifest the court’s disapproval of their wrong on Allied Success.

ORDER

22.  The nisi costs is made absolute.  Following this event, Allied Success shall pay the costs of and occasioned by this application to the defendants, to be taxed if not agreed.  Again, the parties have 14 days to apply to vary this very costs order or the same will become absolute.

23.  I thank counsel for their assistance.