Perfect Direct Ltd and Another v. Dejin Resources Group Co Ltd

HCCW 76/2014

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING‑UP) NO 76 OF 2014

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DECISION

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1.By a judgment dated 19 June, 2015 the court dismissed the petition for the winding up of the Company and made an order nisi that the petitioner should pay the costs of the Company, to be taxed if not agreed.

2.The petitioner seeks to vary the costs order as follows:

(a) As between the petitioner and the Company, there should be no order as to costs.

(b) Alternatively, the petitioner should pay only 40% of the Company’s costs.

3.The gravamen of the petitioner’s argument is that:

(a) The Company was unsuccessful on many of the arguments which it had raised, including jurisdiction, and therefore issue-based costs is an appropriate approach.

(b) The court decided that “this is, at best for the Company, a borderline case as to the establishment of a dispute” and that in the circumstances the Company should not be successful in recovering its costs.

4.As to the applicable principles, it is clear that the court has a fairly broad discretion in determining the costs.  The Company contends that the starting point is the underlying principle that “costs follow the event”, although the court can depart from that starting point and is nowadays more ready to take an issue‑based approach.  The petitioner agrees with that approach although it places a greater emphasis on the departure from the starting point than the Company does. 

5.The parties have referred the court to four cases in which these principles are discussed:

(a) Pfeiffer v Cheung Hay Kit, CACV 245/2013, 29 October 2014;

(b) KJ v KMLM, HCMC 4/2010, 21 May 2014;

(c) Re Estate of Nina Kung, HCAP 8/2007, 16 April 2010 and

(d) Pony HK World Ltd v Vand Petro‑Chamicals (BVI) Co Ltd, FACV 4/2013, 18 March 2014.

6.I do not find it necessary to analyse these cases in any great detail.  The petitioner suggests that there is a degree of inconsistency between the first two, but I do not think it is necessary for me to decide whether there is any such inconsistency, or if there is to resolve it.  I am satisfied that on any view of the principles, I should not alter the order nisi that I made.

7.It is inevitable when assessing whether the court should wind up a company that the court must assess jurisdiction.  It is entirely appropriate that if there is any question as to the existence of the jurisdiction then that matter should be properly argued before the court so that it may make a fully informed decision.  The fact that the Company was not successful in its argument does not mean that the argument was unnecessary or was unreasonably brought.

8.In relation to the fact that this court has found that the dispute demonstrated was borderline, that in itself does not in my view justify a departure from the ordinary starting point that costs follow the event.  As is clear from the judgment, the Company was justified in contending that there was a dispute which should preclude making of a winding up order.  The fact that the Company may subsequently lose any argument is not strictly relevant.  The position is clear that the companies court is not the place to resolve disputes between a petitioner and a company. 

9.Further it seems to me that in circumstances where there is a difficult question as to whether or not the dispute which has been raised is sufficient to preclude a winding up order it is almost inevitable that the parties will take different views of the likely outcome and that consequently a court will be asked to make a decision.  If the point was clear then the matter should never come to court.  Therefore, that the court described the case as “borderline” is simply a reflection of the proposition that the court is often required to make difficult decisions and assess finely balanced arguments. That is the role of the court.  That the court described the case as borderline is, at least in this instance, merely reflective of the proposition that the court recognised the fine balance between success and failure, and recognised that a different decision on the facts might well have been possible.  But as I have said it is the role of the court to make the decision and to decide upon that fine balance.  That the court goes one way rather than another in such circumstances does not in itself justify a departure from the normal rule on costs.

10.I should also add that in any event I do not consider that an issue‑based cost approach is appropriate to questions such as this.  Ultimately there was only one issue in the case and that was whether the Company should be wound up.  The question of jurisdiction was an inevitable part of the decision‑making of the court, as was the question of the nature of the dispute.  Issue‑based costs is, in my view, more appropriate where there is a multifaceted dispute in which there are substantial issues which were brought to court, but lost.  To use the words in the cases, the issues would normally increase the length or the costs of the proceedings.  The issues which the petitioner has identified did not increase the length or cost of the proceedings because they were an inevitable part of resolving the central question before the court.

11.In all the circumstances I decline to vary the costs order nisi, and I now make it absolute.

Mr Laurence Li and Mr Wilson Leung, instructed by DLA Piper Hong Kong, for the 1^st petitioner

Ms Eva Sit and Mr James Man, instructed by Michael Li & Co, for the respondent