RE THE PRUDENTIAL ENTERPRISES LTD

HCCW594/1999

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING-UP PROCEEDINGS NO.594 OF 1999

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D E C I S I O N O N C O S T S

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1. On 2 April 2003, I handed down the decision on the petitioners' application for appointment of provisional liquidators. I dismissed the application and made an order nisi that the costs of the 1st, 2nd and 4th respondents be paid by the petitioners in any event, to be taxed if not agreed, together with a certificate for three counsel. Subsequently, the petitioners applied to vary the costs order. Hence today's hearing.

The arguments

2. The petitioners' primary position is that the costs of the provisional liquidators application should be made in the cause of the Petition. Alternatively, the petitioners ask that the costs of the application be reserved to the trial judge. As a second alternative, the petitioners seek an order that 50% of the costs be the respondents' costs in the cause with the remaining 50% of the costs to be in the cause.

3. The petitioners' principal arguments are these. Firstly, the interlocutory application only failed on the balance of convenience. It was not a case that it was wholly unjustified for the application to be made in the first instance. Secondly, it is said that the evidence for the provisional liquidators application will be re-used at the trial of the Petition so that there is no wasted expenditure in that regard. In arguing for the costs to be reserved to the trial judge, it is said that since the interlocutory judge will also be the trial judge and there is every likelihood that there would be a trial, the objections to reserving the costs to the trial judge do not exist in this case. As to the second alternative of ordering half of the costs be the respondents' costs in the cause and the remaining half be in the cause, the petitioners' argument is that the application was not an unjustified one so that they should not be penalized in costs for having made the interlocutory application.

4. Both the 1st and 4th respondents opposed the variation sought. In the case of the 1st respondent, it is argued that as a matter of general rule, costs should follow event. Since one of the two pre-requisites for appointment of provisional liquidators had not been made out and that the application should not have been made in the first instance, the respondents should be awarded the costs of the application in any event.

5. As for the 4th respondent, apart from adopting the arguments of the 1st respondent, it is said that the petitioners' application is a tactical move to advance the petitioners' case as opposed to the true interest of the Company. The application is unnecessary and the costs incurred are wasted expenditure. The 4th respondent asks for an interim payment of part of his costs with the balance to be taxed.

The relevant principles

6. Costs is a matter of court's discretion. The underlying principle is to indemnify the successful party and not to penalize an unsuccessful party. Hence the observations of Auld LJ in Bushbury Land Rover Limited v. Bushbury Limited [1997] FSR 709 that a party will only be penalized in costs for making an interlocutory application if there is a measure of unjustifiability in the application over and above the lack of success.

7. In terms of the exercise of the court's discretion, generally speaking, costs should follow the event, except where there are circumstances in the case justifying some other costs order. Order 62, rule 3(2), Rules of the High Court deals with the manner in which the court may exercise its discretion but not the time at which a discretion is to be exercised. The general rule does not cease to apply merely because the successful party has failed in some of his allegations or arguments unless he has thereby caused a significant increase in the length of court proceedings, in which case, he may be deprived of the whole or part of his costs : Re Elgindata Limited (No.2) [1992] 1 WLR 1207 and La Chemise Lacoste SA v. Crocodile Garments Limited [2000] 4 HKC 317. It has been pointed out that where the court considers that the merits and the balance of convenience are finely balanced, the proper costs order is for costs to be in the cause : Steepleglade Limited v. Stratford Investments Limited and Cornelis v. Tetrosyl Ltd [1976] FSR 3 at 5.

8. In the context of interlocutory application that aims at preserving the parties' position pending the final determination of the case, the approach has been to order costs in the cause where the defendant succeeds in opposing the application. In Kickers International SA v. Paul Kettle Agencies Limited [1990] FSR 436 in which the plaintiff abandoned a motion for interlocutory relief, Hoffmann J (as he then was) explained that a costs in the cause order is often made because at the interlocutory stage, the court does not investigate the merits and considers that it would not be fair for a defendant to recover the costs of an interlocutory application unless he succeeded at the trial. Hoffmann J further pointed out that each case has to be dealt with on its own facts and the important question to be asked is whether it would be unfair for the defendant to have the costs of the interlocutory application even if he were to lose at trial. In that particular case, Hoffmann J took into account two factors, namely, whether the plaintiff was justified in launching the motion and, secondly, whatever the outcome of the trial was, whether the motion has put the defendant to a great deal of unnecessary expense. In the end, he ordered the plaintiff to pay the defendant costs in any event.

9. Although an application for appointment for provisional liquidators does not necessarily in all aspects resemble an interlocutory injunction application, I consider the principles and approach as explained and adopted by Hoffmann J are sound and appropriate ones to be applied in the present case. The intrusive nature of a provisional liquidators application is also present in an interlocutory injunction application to hold the ring. In essence, the issue in this application is whether there ought to be a costs order in any event or whether the costs should be made in the cause.

Reasons for decision

10. In the present case, I had concluded that the petitioners had made out a strong prima facie case for the purpose of a provisional liquidators application. The interlocutory relief was refused on the basis that there was on balance no present and urgent need for the court's intervention. Principally, I consider that most of the factual matters relied upon in support of the provisional liquidators application had occurred for some years and the provisional liquidators application was only taken out some 15 months after the presentation of the Petition. Additionally, the evidence of the 1st respondent's expert shows that the risk of dissipation of company assets cannot be said to be high or imminent.

11. In the course of arriving at the view that there is no present and urgent need to appoint provisional liquidators, I had noted that much of the relevant information were only disclosed after the presentation of the Petition and close to the hearing of the provisional liquidators application. I had also commented that the petitioners' desire to have the provisional liquidators appointed because of their lack of confidence in the present management of the Company is understandable. I accept, too, that the analysis on the cashflow and assets position of the Company by the 1st respondent's expert was only presented in the course of the hearing. In my view, viewing the matter objectively, it cannot be said that the petitioners are plainly unjustified in launching the provisional liquidators application or that the application should never have to be made at the first instance.

12. It cannot be disputed that the vast majority of the evidence, both factual and expert evidence, filed in or used at the provisional liquidators application hearing is to be re-used at the trial of the Petition. I accept the petitioners' submission that the costs incurred for the evidence and preparation of the provisional liquidators application cannot be said to be wasted expenditure. Mr Todd, QC, submits that this is relevant only in the context of taxation and assessment of costs, in other words, if there is any duplication of costs, that is a matter for the taxing master. In my view, the issue of whether the whole or part of the costs of an interlocutory application is unnecessary or wasted is relevant to the issue of whether it would be unfair for a successful defendant to have his costs of the interlocutory application even if he were to lose at the trial. The fact that the evidence for the provisional liquidators application is to form part of the evidence at the trial of the Petition suggests strongly that it will not be unfair for the respondents not to have the costs of the preparation for the provisional liquidators application if they were to lose on the Petition at trial.

13. That said, however, it does not mean that none of the costs the respondents were put to in defending the provisional liquidators application was unnecessarily incurred. Plainly, the costs of the 12-days hearing (i.e. excluding 13 December 2001) would not have been incurred but for the petitioners' application. The respondents ought to be able to recover this part of the costs of the application irrespective of the outcome of the trial. This is so even though a substantial part of the hearing was spent in arguments relating to the merits of the application. These arguments need not be ventilated at the interlocutory stage but should have been the proper subject matter at the trial but for the petitioners' interlocutory application.

14. As to the alternative of reserving the costs to the trial judge, this court presently can make a final costs order, hence there is no necessity to reserve it to the trial. Further for the reasons indicated above, there is no need to canvass the second alternative proposed by the petitioners.

Immediate payment of costs

15. The 4th respondent asks for an order of immediate payment of the counsel fee in the amount of $975,000 with the rest of his costs to be taxed, pursuant to Order 62, rule 9A, Rules of the High Court. I note as a starting point that the 4th respondent has not made a cross-application to vary the costs order nisi. An order for immediate payment of costs is the very opposite to an "in any event" costs order. The proper course is for the 4th respondent to apply to vary the costs order nisi instead of only raising it by way of submissions. Nevertheless, considering the fact that the entire costs order nisi is now being re-opened and have to be reconsidered, I will not say that I have no jurisdiction to deal with the 4th respondent's present application.

16. In seeking an interim costs order under Order 62, rule 9A, the 4th respondent has to demonstrate that :

(1) the interlocutory application is frivolous or vexatious; or

(2) for any other reason, it is just in the circumstances of the case to make the order.

Additionally, he will have to put before the court some materials, albeit not in great details, as to the level of costs as incurred by him in defending the application and the components thereof so as to justify the amount of interim payment sought. All that has been put forward in support of the 4th respondent's application is that the 4th respondent is not of unlimited resources and that the petitioners' provisional liquidators application is wholly unjustified. I have already dealt with the latter point in the earlier part of this Decision. As to the first point, there is plainly no evidence of that before the court. Neither is there any material to support the amount sought by way of interim payment.

Conclusion

17. For the reasons that I have indicated, I take the view that not all the 1st, 2nd and 4th respondents' costs for the provisional liquidators application should be recovered by them in any event. The 1st, 2nd and 4th respondents should have the costs of the 12-days hearing (i.e. excluding 13 December 2001) in any event. The rest of the costs on the provisional liquidators application should be in the cause of the Petition. I therefore allow the petitioners' application to vary the costs order nisi to the extent that I have indicated.

18. As to the costs of this application to vary the costs order nisi, the general rule is for costs to follow event unless it is appropriate for some other costs order to be made. The fact that a successful party fails with regard to some of the issues or arguments does not mean that the general rule ceases to apply. Applying these principles, the petitioners should have the costs of today as against the 1st and 4th respondents. Exceptions apply in the case of the 2nd respondent, being the Company and the 3rd respondent, being Mr Patrick Lee, because they have taken no part in opposing the application. In short, the petitioners' costs of this application to vary the costs order nisi is to be paid by the 1st and 4th respondents in any event. There is a certificate for two counsel.