Waddington Ltd v. Chan Chun Hoo Thomas and Others

CACV 142/2015

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO. 142 OF 2015

(ON APPEAL FROM HCA NO. 3291 OF 2003)

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J U D G M E N T

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Hon Yuen JA:

Background

1.1.On 17 February 2016 we handed down judgment in respect of:

(1)  an appeal of the Company (the 5^th defendant) from an order of Recorder Patrick Fung SC made on 26 November 2014 that Waddington (the plaintiff) receive an interim payment of $23 million from the sum in court (“the sum in court”) paid by Thomas Chan (the 1^st defendant) in favour of the Company in the derivative action successfully undertaken by Waddington on behalf of the Company against Mr Chan and others;

(2)  an appeal of Waddington from the learned recorder’s order made on 17 December 2014 that the its costs in respect of the interim payment application should be taxed on a party and party basis (and not on an indemnity basis as Waddington sought in an application made on 3 December 2014) and that Waddington should pay the Company the costs of its December application.

1.2.Waddington was successful in respect of (1).  My reasons have been set out in detail in the judgment which I will not repeat here.

2.In para. 23 of the Judgment, I gave an order nisi that the Company pay Waddington’s costs, together with costs reserved on 5 December 2014 and the costs of the application for leave to appeal.  Directions were given for written submissions to be lodged on the basis of those costs.

Waddington’s submissions

3.1.On 2 March 2016 Waddington provided written submissions asking that those costs be taxed on an indemnity basis with certificate for two counsel, and further sought to vary the order nisi such that the costs would be paid out from the sum in court. 

3.2.It argued that the indemnity basis was justified on an analogy with Beddoe applications, likening a shareholder undertaking a derivative action on behalf of a company to a trustee undertaking an action on behalf of the beneficiaries to a trust. 

3.3.Waddington also submitted that it was impossible to distinguish between Thomas Chan and the Company, that Thomas Chan was funding the Company’s litigation, and that this accounted for the Company’s “change of stance” in opposing the interim payment application when it had previously been neutral in the derivative action.

The Company’s submissions

4.1.On 16 March 2016 the Company provided written submissions in opposition.  It did not object to certificate for two counsel but argued that the indemnity basis was not justified, because in the interim payment application, Waddington was acting for its own benefit, and not for the benefit of the Company.   

4.2.The Company also submitted that Waddington’s assertion that it (the Company) was controlled by Thomas Chan was a bare allegation.  Whatever was the historical situation, Mr Chan had ceased to be a director of the Company from 23 September 2015. 

4.3.The Company also sought to justify its opposition to the interim payment application on the bases that (1) it had considered the recorder was acting functus officio (see paras. 19-22 of this court’s judgment) and (2) Waddington was a foreign company with no or no substantial assets in Hong Kong and it was only at the hearing before the recorder in November 2015 that Albert Chan had offered a personal undertaking “to account to the Company and pay back into court such amount of costs as actually recovered by Waddington from Thomas following actual payment thereof by Thomas”.

4.4.As to how the costs are to be paid (ie whether from the sum in court), the Company submitted that directions were not necessary and the matter could be resolved between the parties.

Discussion

5.In my view, the interim payment application was clearly for the benefit of Waddington and not of the Company and I do not see that application (unlike the derivative action itself) as being similar to Beddoe applications.  It has not been suggested that if the interim payment application had been unsuccessful, that Thomas Chan’s appeal against the main judgment in the derivative action would have gone undefended.  Accordingly, I do not consider that the indemnity basis is justified on that ground. 

6.The allegations that the Company was still controlled by Thomas Chan after his departure from the board were not supported by evidence before us and I do not say anything more on this issue.

7.However as to Waddington’s application that the costs be paid out of the sum in court, I think that it may be unduly optimistic (or at least time- and cost-consuming) to hope that the parties would be able to resolve the matter between themselves.  I would therefore order that the costs be paid out of the sum in court. Obviously in quantifying the amount of costs to be paid out, the parties would have to take into account the costs which we have ordered Waddington to pay the Company in respect of Waddington’s unsuccessful cross-appeal which was heard at the same time.     

Order

8.I would therefore vary the costs order nisi only to the extent as shown below:

“the 5^th defendant do pay the plaintiff’s costs of the appeal, together with costs reserved on 5 December 2014 and the costs of the application for leave to appeal, with certificate for two counsel, to be paid out of the sum paid into court by the 1^st defendant on 21 March 2014 in respect of the judgment sum and interest thereon in favour of the 5^th defendant”.

9.As for the costs of the written submissions, they are to be included in the costs of the appeal.   

Hon Poon JA:

10.I agree.