Melvin Waxman v. Li Fei Yu and Others

HCA 1973/2012

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

HIGH COURT ACTION NO 1973 OF 2012

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BETWEEN

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REASONS FOR DECISION

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INTRODUCTION

1.On 27 April 2016, Master H Au-Yeung made the following order (“the Wallersteiner Order”):-

“The 9^th Defendant shall indemnify the Plaintiff against all costs incurred by the Plaintiff in this action forthwith on common fund basis to be taxed if not agreed, subject to the setting-off of any costs to be paid by the 1^st, 2^nd, 4^th [to] 7^th Defendants to the Plaintiff save that as far as the Plaintiff’s costs on the director’s remuneration claim is concerned, the Wallersteiner order made herein only covers the time up to the consideration by the Plaintiff’s legal team (counsel and solicitors included) of the 1^st Defendant’s Defence and the giving of advice thereon to the Plaintiff”.

2.On 17 May 2016, the Master made the following further order (“the Retention Order”):-

(1) the 9^th Defendant’s summons dated 2 December 2015 (“the Payment Out Summons”) seeking payment out to it of the sum of HK$1,996,000 (“the Sum”) paid into court by the 1^st, 2^nd, 4^th to 7^th Defendants on 14 July 2015 as sanctioned payment (“the Sanctioned Payment”) be dismissed;

(2) the Sum should be retained in court until the Wallersteiner Order against the 9^th Defendant has been satisfied;

(3) the costs of the Payment Out Summons be paid by the 9^th Defendant to the Plaintiff, to be taxed on a common fund basis if not agreed, with certificate for counsel; and

(4) the costs of the 9^th Defendant’s summons dated 20 April 2016 (“the Strike Out Summons”) be paid by the 9^th Defendant to the Plaintiff, to be taxed on a common fund basis if not agreed, with certificate for counsel.

3.The 9^th Defendant appealed against the Wallersteiner Order and Retention Order by two notices of appeal dated 10 May 2016 and 27 May 2016 respectively (“the 1^st Notice of Appeal” and “the 2^nd Notice of Appeal”).

4.The 1^st and 2^nd Notices of Appeal came before me on 24 and 25 January 2017.  At the conclusion of the hearing, I informed the parties that:-

(1) in respect of the appeal under the 1^st Notice of Appeal, I would (i) vary the Wallersteiner Order such that the indemnity in the Plaintiff’s favour would be subject to a cap of 70% of the recovery made by the Plaintiff for the benefit of the 9^th Defendant in this action (ie, 70% of HK$3,108,234) and (ii) re‑cast the setting off provision in the Wallersteiner Order; and

(2) the 2^nd Notice of Appeal would be dismissed,

with reasons to be given later, which I now do.

5.I also dealt with the costs of the proceedings below and of the appeals, including the costs of the adjournment of the appeal hearing on 3 August 2016, and I summarily assessed those costs.  I do not propose to set out my reasons for making the various orders as to costs, or my summary assessment of those costs, here. If any parties require those reasons, they may apply for a transcript of the relevant part of the hearing on 25 January 2017.

Brief background facts

6.The 9^th Defendant was incorporated in Hong Kong under the Companies Ordinance on 22 November 2000. The 1^st Defendant, the Plaintiff and his son (Larry Waxman) were at all material times and are the shareholders of the Company, holding 60%, 30% and 10% respectively of all the issued share capital of the 9^th Defendant. The three of them together with one Mr Keith Ngai were, until 18 February 2015, the only directors of the Company.  The 1^st Defendant has also been the president of the 9^th Defendant since its incorporation.

7.This is a derivative action brought by the Plaintiff (suing on behalf of himself and all other shareholders of the 9^th Defendant except the 1^st Defendant) on 22 October 2012 against the 1^st Defendant and 7 other companies (namely, the 2^nd to 8^th Defendants) which the Plaintiff says are under the control of the 1^st Defendant for wrongdoings allegedly committed by the 1^st Defendant as director and president of the 9^th Defendant resulting in loss and damage to the 9^th Defendant.

8.The 9^th Defendant has been joined as a nominal party to this action.

9.In the Amended Statement of Claim, the Plaintiff raises (inter alia) the following grounds of complaint:-

(1) The 1^st Defendant misused or misapplied assets belonging to the 9^th Defendant amounting to HK$1,102,322.40 to meet the operating expenses of the 2^nd to 8^th Defendants (“the Operating Expenses Claim” – paragraph 12(1) of the Amended Statement of Claim).

(2) The 1^st Defendant misappropriated the sum of HK$235,528 from the 9^th Defendant (“the Misappropriation Claim” – paragraph 12(2) of the Amended Statement of Claim).

(3) The 1^st Defendant caused or permitted the 2^nd to 8^th Defendants to carry on their businesses at the registered office of the 9^th Defendant, and to use and benefit from the administrative and supporting services provided by the employees of the 9^th Defendant, without making any payment to the 9^th Defendant (“the Administrative Resources Claim” - paragraph 12(3) and (4) of the Amended Statement of Claim). The Plaintiff has quantified this claim in the amount of HK$4,666,548.

(4) The 1^st Defendant caused the 9^th Defendant to pay about HK$2,242,349 from 2003 to 2010 to himself purportedly as director’s remuneration (“the Director’s Remuneration Claim” – paragraphs 21 to 26 of the Amended Statement of Claim).

10.On 8 November 2012, the 5^th Defendant remitted the sum of HK$1,112,234 to the account of the 9^th Defendant in settlement of the payments, or part of the payments, made by the 9^th Defendant on behalf of the 2^nd and 4^th to 8^th Defendants (“the Corporate Defendants”).

11.On 7 December 2012, the Corporate Defendants issued a summons seeking to strike out the Statement of Claim.  Following amendments to the Statement of Claim made on 14 February 2013, the Corporate Defendants issued a further summons on 23 May 2013 seeking to strike out the Amended Statement of Claim.

12.On 23 August 2013, To J dismissed the Corporate Defendants’ strike out applications.

13.On 30 March 2015, the 1^st Defendant issued a summons seeking to strike out paragraphs 21 to 26 of the Amended Statement of Claim relating to the Director’s Remuneration Claim, on the ground that the relevant sums were in fact paid to Mr Keith Ngai.

14.On 14 July 2015, the 1^st, 2^nd and 4^th to 7^th Defendants made the Sanctioned Payment.  In the Notice of Sanctioned Payment, it was stated that:-

(1) the amount of HK$998,000 was paid into court in satisfaction of “All claims save and except the claim on the alleged wrongful or unlawful payments of sums totalling HK$2,243,349 as director’s remuneration …”; and

(2) an additional amount of HK$998,000 was offered for interest.

15.On 27 July 2015, the Director’s Remuneration Claim was struck out by consent, the Plaintiff accepting that the relevant sums were in fact paid to Mr Keith Ngai instead of to the 1^st Defendant.

16.On 10 August 2015, the Plaintiff gave notice of acceptance of the Sanctioned Payment.

17.Accordingly, all the Plaintiff’s claims in this action, save in relation to costs, have been resolved:-

(1) In so far as the Operating Expenses Claim, the Misappropriation Claim and the Administrative Resources Claim are concerned, they were satisfied by the remittance of HK$1,112,234 by the 5^th Defendant on 8 November 2012 together with the Sanctioned Payment in the total sum of HK$ HK$1,996,000 made on 14 July 2015.

(2) In so far as the Director’s Remuneration Claim is concerned, it was struck out by consent.

18.On 15 October 2015, the Plaintiff issued a summons (“the Indemnity Summons”) seeking an order that the 9^th Defendant shall indemnify him against all costs incurred by him in this action, subject to the setting-off of any costs to be paid by the 1^st, 2^nd, 4^th to 7^th Defendants to him in this action.

19.On 2 December 2015, the 9^th Defendant issued the Payment Out Summons seeking an order that the Sum in court be paid out to it.

20.On 20 April 2016, the Company issued the Strike Out Summons seeking to strike out various parts of the 7^th Affirmation of the Plaintiff filed on 5 April 2016 and the exhibits thereto on the ground that they consisted of, or related to, “without prejudice save as to costs” correspondence.

21.The Indemnity Summons came before Master H Au-Yeung on 21 and 27 April 2016. The Master gave a decision in the Plaintiff’s favour on 27 April 2016, save that in so far as his costs relating to the “Director’s Remuneration Claim” were concerned, the indemnity would only cover his costs up to the consideration by his legal team of the 1^st Defendant’s defence and the giving of advice thereon to him.  The Master further ordered the 9^th Defendant to pay 97% of the costs of the Indemnity Summons to the Plaintiff, to be taxed on a common fund basis if not agreed with certificate for counsel.

22.The Payment Out Summons and Strike Out Summons came before Master H Au-Yeung on 3 and 17 May 2016.  Prior to the hearing, the parties had reached agreement that various parts of the 7^th Affirmation of the Plaintiff, as well as paragraph 12 of the Affirmation of the Mr Kok Lap Seng (“Mr Kok”), except the last sentence thereof, dated 2 December 2015 on behalf of the 9^th Defendant be removed, leaving the issue of the costs of the Strike Out Summons to be determined by the Master.  Eventually, the Master (i) dismissed the Payment Out Summons, and ordered the Sum to remain in court until the Wallersteiner Order had been satisfied, and (ii) ordered the 9^th Defendant to pay the costs of Payment Out Summons and the Strike Out Summons to the Plaintiff, both to be taxed on a common fund basis if not agreed with certificate for counsel.

23.As earlier mentioned, the 9^th Defendant lodged the 1^st and 2^nd Notices of Appeal against the Wallersteiner Order and the Retention Order on 10 May 2016 and 27 May 2016 respectively.

24.It is well established that an appeal to a judge in chambers against a decision of a master is by way of actual rehearing of the application.  Save in relation to a decision on costs, the court is generally not fettered by the master’s exercise of discretion, and treats the application as though it comes before the court for the first time.  However, the court may, if it thinks fit, have regard to or adopt the master’s reasoning.

The Wallersteiner Order

25.The test for deciding whether to grant an indemnity as to costs in favour of a minority shareholder in a derivative action commenced by him for the benefit of a company is whether an independent board, exercising the standard of care which a prudent businessman would exercise in his own affairs, would have decided to bring the action (Chung Sau Ling v Asia Woman’s League Ltd [2001] 3 HKC 410, at 415E per Chu J (as she then was)).

26.In determining whether the minority shareholder in a derivative action should be granted an indemnity of his costs, the court, apart from having regard to the merits of the case, may take into account a variety of other factors, including the wishes of the genuinely independent shareholders (if any), whether the action is brought for the benefit of the shareholders, and the impecuniosity or the financial strength of the minority shareholder (Chung Sau Ling at 415G-I), as well as the company’s ability to pay the costs of the proposed derivative action (Re F & S Express Ltd [2005] 4 HKLRD 743, at paragraph 28 per Kwan J (as she then was)).

27.In the present case, subject to the discussion below on the specific objections raised by Ms Lee on behalf of the 9^th Defendant, I consider that (i) the Plaintiff has acted fairly and reasonably in commencing and prosecuting the present action and in the conduct of the proceedings throughout, (ii) the Plaintiff has achieved a substantial recovery for the benefit of the 9^th Defendant, and (iii) it would be justifiable to order the 9^th Defendant to indemnity the Plaintiff as to the costs incurred by him in this action.

28.Ms Lee submits, however, that the Wallersteiner Order should be set aside on 3 grounds:-

(1) there is a justifiable concern that the amount of costs that the 9^th Defendant may be asked to indemnify the Plaintiff may well equal or exceed the amounts recovered by it from the other Defendants;

(2) the dispute in the present case is essentially between two camps of shareholders such that it is only fair that the Plaintiff should assume part of the litigation risk; and

(3) the 9^th Defendant does not have sufficient assets or cash to meet the Wallersteiner Order.

(i)    Proportionality between costs incurred and amount recovered

29.In respect of Ms Lee’s first ground, the application for indemnity was made by the Plaintiff after the substantive issues in the action had been resolved. The Plaintiff was in a position to provide information on the amount of the costs that he had incurred in the action to the court.  However, he declined to do so despite this court’s invitation prior to the hearing of the appeal.  Ms Tong maintains that it is meaningless and misleading to compare the amount of recovery and the costs incurred.  She submits that the Plaintiff incurred significant costs to resist wholly unmeritorious applications made by the Defendants, that the Plaintiff did not have a “crystal ball” and it was impossible for the Plaintiff to predict whether the amount that might ultimately be recovered for the benefit of the 9^th Defendant would be disproportionate to the legal costs to be incurred, that the Plaintiff was forced in effect to accept the Sanctioned Payment (for lack of financial resources to continue the claims), and finally that the purported analysis provided in paragraph 14 of Mr Kok’s 2^nd Affirmation (on “rate of recovery”) is misleading in many respects.

30.Generally speaking, an application for an indemnity as to costs should be made by the minority shareholder in a derivative action soon after the issue of the writ (see Wallersteiner v Moir (No 2) [1975] QB 373, at 392D per Lord Denning MR), although it is well established that the application may be made at a later stage, even after the conclusion of the action.

31.If the application is made at an early stage of the proceedings, the minority shareholder is normally expected to provide an estimate of the likely costs to be incurred in prosecuting the action.  Having regard to the estimate of costs provided by the minority shareholder and such other factors as the court may consider to be relevant, the court will exercise its discretion on whether to grant to the minority shareholder an indemnity as to costs, and if so whether the indemnity should in the first instance be limited to a particular stage of the proceedings (eg, discovery, exchange of witness statements, advice on evidence, etc).  The estimated costs to be incurred and the size of the claim are plainly matters relevant to the court’s exercise of discretion in this regard.

32.If the application is made after the conclusion of the action, I am of the view that, in principle, the minority shareholder ought equally to inform the court of the costs that he has actually incurred in the action.  The proportionality between the costs incurred and the amount of recovery is, I believe, a factor relevant to the court’s exercise of discretion whether to grant an indemnity in favour of the minority shareholder and the extent of the indemnity to be granted.

33.While I accept Ms Tong’s submissions that the Plaintiff probably incurred substantial costs to resist unmeritorious applications made by the Defendants, that is something which the court can also take into account in the overall exercise of its discretion.  I do not consider the matters raised by Ms Tong, whether singularly or cumulatively, justify the Plaintiff’s wholesale failure or refusal to provide information to the court on the costs actually incurred by the him in this action. 

34.In the absence of such information and in order to maintain a degree of proportionality, I consider that it would be appropriate to limit the amount of the indemnity to 70% of the recovery made by the Plaintiff for the benefit of the 9^th Defendant in this action (ie, 70% of HK$3,108,234) in all the circumstances of this case.

(ii)   Nature of dispute

35.In respect of Ms Lee’s second ground, she relies on Bhullar v Bhullar [2016] 1 BCLC 106 and argues that the present case should properly be viewed as a dispute between two camps of shareholders such that they should be treated equally and no indemnity costs order should be made to give a shareholder an advantage at the expense of the other.

36.In my view, this case is far from being a mere dispute between two camps of shareholders of a private company.  The Plaintiff’s complaints here relate to misappropriation, misapplication and/or misuse of assets of the 9^th Defendant by the 1^st Defendant as the party in control of that company, and the action is brought to recover the misappropriated, misapplied or misused assets from the 1^st Defendant or his companies, or compensation for such misappropriation, misapplication or misuse of assets, for the benefit of the 9^th Defendant.  I see no reason why the Plaintiff should not be entitled to be indemnified by the 9^th Defendant in respect of his costs in the present case.

(iii)  9^th Defendant’s alleged inability to meet the Wallersteiner Order

37.In respect of Ms Lee’s third ground, the 9^th Defendant has failed to produce any credible evidence of its financial position, whether as at the date of commencement of the action (in 2012) or as at present.  In Mr Kok’s 2^nd Affirmation dated 23 December 2015, references were made to (i) the audited financial statements of the 9^th Defendant for the year ended 31 March 2010, (ii) an unaudited balance sheet of the 9^th Defendant “As of 31st Oct 2015” (“the Unaudited Balanced Sheet”), and (iii) a demand letter dated 23 December 2015 (“the Demand Letter”) issued by WDI Technology to the 9^th Defendant.

38.The reliability of the audited financial statements of the 9^th Defendant made up to 31 March 2010 was questioned by Master K Lo when dealing with the Corporate Defendants’ previous application for security for costs against the Plaintiff.

39.The Unaudited Balance Sheet and the Demand Letter are, to say the least, highly suspicious or dubious, for the following reasons:-

(1) The Demand Letter was issued by WDI Technology, a company that was 70% owned by the 1^st Defendant.

(2) On the face of the Demand Letter, it was sent by airmail and courier from Xiamen to the 9^th Defendant’s address in Hong Kong, and bore the date of 23 December 2015.

(3) However, it was included as an exhibit to Mr Kok’s 2^nd Affirmation which, according to the court’s record, was filed in court at 9:44 am on 23 December 2015.

(4) If the Demand Letter was indeed sent by airmail/courier on 23 December 2015 from Xiamen to Hong Kong, it was practically impossible for the letter to be included as an exhibit to Mr Kok’s 2^nd Affirmation filed in the early morning of 23 December 2015.

(5) Furthermore, the Demand Letter states that, as at 31 October 2015, the 9^th Defendant was indebted to WDI Technology in the amount of HK$26,133,192.66.

(6) This exact amount of indebtedness also appears in the Unaudited Balance Sheet of the 9^th Defendant which, as earlier mentioned, purports to show the financial position of the 9^th Defendant as at 31 October 2015.

(7) On the other hand, it would appear that the 9^th Defendant’s financial year end date for 2015 was 31 March 2015.  There was no apparent reason as to why the 9^th Defendant would prepare an unaudited balance sheet to show its financial position on the particular date of 31 October 2015.

(8) The 9^th Defendant did not offer any explanation for the above abnormalities to Master Au-Yeung, or to this court (notwithstanding the adverse comments made by the Master in paragraph 55 of his decision). 

(9) The clear inference, in my view, is that both the Unaudited Balance Sheet and the Demand Letter were prepared for the purpose of resisting the Plaintiff’s Indemnity Summons and the Payment Out Summons.  I am not prepared to give any weight to those documents.

40.On the other hand, there is evidence that: (i) the 9^th Defendant’s two subsidiaries in the PRC (Voreto and WDI Precision) made substantial profits before taxation for the years from 2006 to 2009, (ii) for the financial years of 2011 and 2012, they declared dividends of nearly US$2 million, and (iii) for the financial years 2010 to 2012, the 9^th Defendant declared and paid dividends of over US$2.38 million to its shareholders.  As earlier mentioned, the latest audited financial statements of the 9^th Defendant produced by it were made up to 31 March 2010 only.  In the absence of more updated and reliable audited financial statements of the 9^th Defendant and taking into account the historical financial information mentioned above, I do not accept Ms Lee’s argument that the 9^th Defendant does not have sufficient assets or cash to meet the Wallersteiner Order.

(iv)  9^th Defendant’s alternative arguments

41.Ms Lee submits, in the alternative, that:-

(1) no indemnity should be given in respect of the Director’s Remuneration Claim or it should be limited to shortly after December 2013 or 21 October 2014; and

(2) the remaining claims should have been discontinued earlier, ie, after the payment by the 5^th Defendant in November 2012 or after the decision of To J on 23 August 2013.

42.In respect of Ms Lee’s first alternative argument, I accept Ms Tong’s submission that there were initially proper grounds for the Plaintiff to make the Director’s Remuneration Claim for the benefit of the 9^th Defendant and he should, prima facie, be indemnified by the 9^th Defendant in respect of the costs that he has incurred in relation to that claim.

43.Ms Lee argues, nevertheless, that the Plaintiff ought, in view of subsequent disclosure or information provided by the Defendants, discontinued or withdrew that claim prior to July 2015.

44.First, Ms Lee says that the Plaintiff should have realised, from various tax returns for the years of 2002/2003 to 2009/2010 of the 9^th Defendant disclosed by it in December 2013, that the relevant sums were paid to Mr Keith Ngai.  However, those returns did not show that Mr Ngai was paid any director’s remuneration.  He was referred to as a “manager” or “chief representative” and the sums received by him were listed as “Salary/Wages” instead of as “Director’s Fee”.  In the absence of evidence or explanation that the payments to Mr Ngai made in those years were the same director’s remuneration complained of by the Plaintiff, I consider that it was reasonable for the Plaintiff not to discontinue or withdraw the Director’s Remuneration Claim at that stage.

45.Second, Ms Lee says that the position was made plain in the Amended Defence of the 2^nd and 4^th to 7^th Defendants filed on 21 October 2014. However, the plea that the director’s remuneration was paid to Mr Ngai was, it would appear, based on the same tax returns disclosed in December 2013. I consider that the Plaintiff was entitled not to accept such plea at face value until at least the same plea was also made in the Defence of the 1^st Defendant filed on 6 January 2015 and the Plaintiff had a reasonable time to consider the 1^st Defendant’s Defence and obtained legal advice on it.

46.Ms Lee’s second alternative argument that the Plaintiff should have discontinued the remaining claims either after the payment by the 5^th Defendant in November 2012 or after the decision of To J on 23 August 2013 is plainly without merit having regard to the fact that a substantial sanctioned payment was made by the 1^st, 2^nd and 4^th to 7^th Defendant in July 2015.

47.Lastly, I consider it to be correct, in principle, for the Plaintiff’s costs to be taxed on a common fund basis, if not agreed, for the purpose of the indemnity (see Wallersteiner v Moir (No 2), at 392A per Lord Denning MR and 405B per Buckley LJ).

The Retention Order

48.There are three aspects of the Retention Order which require consideration:-

(1) whether the Sum paid into court by the 1^st, 2^nd, 4^th to 7^th Defendants on 14 July 2015 should be paid out to the 9^th Defendant, or should remain in court until the Wallersteiner Order in favour of the Plaintiff has been satisfied;

(2) whether the costs of the Payment Out Summons ordered to be paid by the 9^th Defendant to the Plaintiff should be taxed on a common fund basis if not agreed, with certificate for counsel; and

(3) whether the costs of the Strike Out Summons should be paid by the 9^th Defendant to the Plaintiff, to be taxed on a common fund basis if not agreed, with certificate for counsel.

49.In respect of the first matter, it is clear that the court has a discretion on whether to permit payment out of the Sum in court under Order 22A, rule 1(1) of the Rules of the High Court, in order to achieve justice between the parties (see Ng Chi Kwan, Danny Summer v Yeung Yiu Kwai [2015] 1 HKC 348, at paragraph 29 per Deputy High Court Judge Marlene Ng).  In the present case, I consider the following considerations to be relevant in the exercise of my discretion:-

(1) The 9^th Defendant has made it clear that, if the Sum in court is paid out to it, it intends to use the money to repay the alleged indebtedness of HK$26.1 million owing to WDI Technology (see paragraph 11(8) of Mr Kok’s 3^rd Affirmation). However, as earlier mentioned, I consider the documentation produced by the 9^th Defendant regarding the alleged indebtedness to WDI Technology to be highly suspicious or dubious.  On the basis of the existing materials before me, I am by no means satisfied that the alleged current indebtedness of HK$26.1 million owing to WDI Technology is genuine. There is thus clearly a risk of improper dissipation by the 9^th Defendant if the Sum is paid out to it.

(2) The 9^th Defendant is currently still under the control of the 1^st Defendant, whose wrongdoings have given rise to the present derivative action brought by the Plaintiff.

(3) It is though the Plaintiff’s effort in this action that the 9^th Defendant has been able to recover the Sum from the 1^st, 2^nd, 4^th to 7^th Defendants.

(4) As mentioned by the Master in his decision on 17 May 2016 which I agree with, there is every reason to believe that the 9^th Defendant will not be forthcoming when being asked by the Plaintiff to meet its obligation under the Wallersteiner Order.

50.In these circumstances, notwithstanding the fact that the 9^th Defendant is prima facie entitled to the Sum in court, I consider it to be plainly correct that the Sum ought not to be paid out the 9^th Defendant, but should remain in court until the Wallersteiner Order in favour of the Plaintiff has been satisfied.

51.In respect of the second matter, I accept Ms Lee’s submission that the Plaintiff’s opposition to the Payment Out Summons cannot be regarded as steps taken for the benefit of the 9^th Defendant, and therefore the Wallersteiner Order, including the basis for assessment of the Plaintiff’s costs, should not apply to the Plaintiff’s opposition to the Payment Out Summons (see Waddington Limited v Chan Chun Hoo Thomas, CACV 142/2015 (17 February 2016), at paragraphs 28 and 29).  Nevertheless, in view of the fact that the Plaintiff is the successful party in relation to the Payment Out Summons, in the absence of any good reason to the contrary, the Plaintiff ought to be entitled to the costs of that summons.  Further, having regard to the 9^th Defendant’s conduct in pursuing the Payment Out Summons, including the preparation and/or reliance of suspicious or dubious documents in support of the application, as well as the obvious lack of merits of the 9^th Defendant’s application, I consider that the Master’s order to award costs to the Plaintiff to be taxed a common fund basis to be correct.

52.In respect of the third matter, Ms Lee’s principal argument is that the Master failed to give any reason for awarding the Plaintiff the costs of the Struck Out Summons.  However, Ms Tong has informed the court that the Master actually gave the following reasons at the hearing on 17 May 2016 for the making the costs order in favour of the Plaintiff:-

(1) it was the 9^th Defendant who had waived privilege in the first place by referring to “without prejudice” matters in paragraph 12 of Mr Kok’s Affirmation dated 2 December 2015;

(2) the 9^th Defendant acted unreasonably in issuing the Strike Out Summons notwithstanding the fact that the matters in the Plaintiff’s 7^th Affirmation caused the 9^th Defendant no prejudice at all;

(3) the 9^th Defendant had no useful objective in pursuing the strike out application;

(4) the 9^th Defendant unreasonably refused to agree to the Plaintiff’s proposal made on 27 April 2016 to resolve the strike out application, including that there be no order as to the costs of the Strike Out Summons;

(5) the 9^th Defendant’s unreasonably insistence in seeking costs against the Plaintiff necessitated the hearing, which was disproportionate to the relatively minimal costs involved; and

(6) the 9^th Defendant’s unreasonable conduct justified making a costs order against it.

53.Ms Lee accepted at the hearing before this court that she was not in a position to dispute that the Master did give the above reasons orally for the costs order.

54.In general, a judge in chambers will not allow an appeal from a master’s order on costs unless it is unreasonable or the master erred in law.   Having regard to the reasons given by the Master, I consider the order made by him to be neither unreasonable nor erroneous in law.

DISPOSITION

55.For the forgoing reasons, in respect of the 1^st Notice of Appeal, I would vary the order made by the learned Master by substituting the following:-

(1) the 9^th Defendant shall indemnify the Plaintiff against all costs incurred by the Plaintiff in this action, to be taxed on a common fund basis if not agreed, subject to the setting-off of any costs payable and paid by the 1^st, 2^nd, 4^th to 7^th Defendants (or any of them) to the Plaintiff in this action, save that as far as the Plaintiff’s costs on the Director’s Remuneration Claim is concerned, the indemnity herein shall only cover the costs incurred by the Plaintiff up to the consideration by the Plaintiff’s legal team (counsel and solicitors included) of the 1^st Defendant’s Defence and the giving of advice thereon to the Plaintiff;

(2) the Plaintiff shall be entitled to enforce the indemnity herein against the 9^th Defendant upon the expiry of 14 days after both (i) the Plaintiff’s costs have been assessed by a taxing master on a common fund basis (if not agreed), and (ii) the costs payable by 1^st, 2^nd, 4^th to 7^th Defendants (or any of them) to the Plaintiff in this action have been assessed by a taxing master (if any agreed);

(3) the Plaintiff shall immediately repay to the 9^th Defendant any costs that it may subsequently recover from the 1^st, 2^nd, 4^th to 7^th Defendants (or any of them) after satisfaction of the indemnity herein; and

(4) liberty to apply.

56.The 2^nd Notice of Appeal is dismissed in its entirety.

Ms Sara Tong, instructed by Oldham, Li & Nie, for the Plaintiff

Ms Connie Lee, instructed by Kok & Ha, for the 9^th Defendant