Waddington Ltd v. Chan Chun Hoo Thomas and Others

HCMP 1327/2017

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

MISCELLANEOUS PROCEEDINGS NO 1327 OF 2017

(ON AN INTENDED APPEAL FROM HCA NO 3291 OF 2003)

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BETWEEN

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J U D G M E N T

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Hon Kwan JA (giving the judgment of the Court):

1.This is a renewed application to appeal to the Court of Appeal against the decision of Chow J on 9 February 2017 (“the Decision”). The judge refused leave in a decision on 25 May 2017 (“the Leave Decision”). The plaintiff renewed its leave application by a summons issued on 8 June 2017. The grounds of appeal in the draft notice of appeal are the same as those considered by the judge.

2.We exercise our power under Order 59 rule 2A(5) to determine this application on the basis of written submissions only without an oral hearing.

3.Pursuant to Order 59 rule 2A(1) and (4), the plaintiff and the 5^th defendant have filed and served their statements in support and in opposition of this application.

4.On 4 July 2017, the plaintiff’s solicitors wrote to the court referring to the 5^th defendant’s statement of opposition and stating that in view of “factual errors” in the 5^th defendant’s statement, they found it necessary to “put on record the correct version of facts”.  They then proceeded to make five points, which are in the nature of submissions.

5.The 5^th defendant’s solicitors objected to this by their letter to the court dated 6 July 2017.  They requested the court to disregard the further submissions by letter of the plaintiff’s solicitors and reserved their right to respond to the same in the event the court is minded to take into account the plaintiff’s further submissions.

6.Under Practice Direction 4.1 §15, it is provided as follows:

“No further documents are to be filed by either party without the prior permission of the Court. A party seeking such permission must write to the Court and inform the other party or parties before filing any further documents. Without such permission, the Registry should refuse to accept such documents, and if lodged, the same will be returned unread.”

7.If a letter containing further submissions was sent to the court instead of filing a statement of further submissions in order to circumvent the necessity of seeking prior permission, we deprecate this practice.  The Court of Appeal has given fair warning to litigants in person and solicitors that the habit of writing to the court without regard to the proper procedure that should be followed is unacceptable and time has come for the court to reinstate firmly the proper procedural discipline (AXA China Region Insurance Company Limited v Leong Fong Cheng, CACV 113/2016, 28 October 2016, §§43 to 55).

8.For the above reason, we should decline to have regard to the further submissions in the letter of the plaintiff’s solicitors.  In any event, we do not consider the further submissions helpful and they would not have made any difference to the disposition of this application.

The principles

9.The applicable principles are well established.  Leave to appeal will not be granted unless the court is satisfied that the intended appeal has a “reasonable prospect of success”.  That means a prospect that is more than “fanciful” but without having to be “probable” (SMSE v KL [2009] 4 HKLRD 127, §17).  But even if the threshold test of reasonable prospect of success is satisfied, the court still retains a discretion whether to grant leave, although the fact there is, ex hypothesi, a reasonable prospect of success would heavily influence the court’s exercise of discretion.  The court may refuse leave to appeal in the interests of procedural economy and proportionality (Wong Kar Gee Mimi v Severn Villa Ltd [2012] 1 HKLRD 887, §30).

10.The Decision sought to be appealed from involved the exercise of discretion in various matters: whether to allow further interim payment of costs; the appropriate indemnity for costs that should be given; the appropriate costs order that should be made.  It is trite that an appeal against the exercise of discretion will not be entertained unless it is shown that the discretion was not exercised at all, or that the judge made some error of law or facts or was in disregard of principle, or that he took into account irrelevant matters, or that the decision was “plainly wrong” or was “outside the generous ambit within which a reasonable disagreement is possible” (Hong Kong Civil Procedure 2018, vol 1, §59/0/54).

11.The Court of Appeal will not interfere with the exercise of a judge’s discretion in the award of costs unless it was shown that he failed to exercise the discretion, or exercised it upon a false principle, or did not exercise it judicially (Choy Yee Chun v Bond Star Development Ltd [1997] HKLRD 1327 at 1337A).

The background

12.The relevant background matters giving rise to the Decision may be stated as follows.

13.The action (HCA 3291/2003) is a multiple derivative action brought by the plaintiff for and on behalf of the 5^th defendant against one of its directors Chan Chun Hoo Thomas (the 1^st defendant) and other defendants.  On 18 December 2013, Recorder Patrick Fung, SC gave judgment in favour of the 5^th defendant against the 1^st defendant (“the Main Judgment”) in the sum of over $33 million.  On 10 March 2014, the Recorder ordered the 1^st defendant to pay the plaintiff the costs of the action, to be taxed on the common fund basis.  He also ordered the 5^th defendant to indemnify the plaintiff in respect of any costs incurred by the plaintiff which it will not have been able to recover from the 1^st defendant (“the March Indemnity”).

14.The 1^st defendant lodged an appeal against the Main Judgment (CACV 10/2014).  On 26 November 2014, the Recorder ordered the 5^th defendant to indemnify the plaintiff in relation to the costs of the appeal (“the Appeal Indemnity”).  He also ordered interim payment of $23 million to the plaintiff from the sum paid into court by the 1^st defendant, pursuant to the March Indemnity.

15.The 1^st defendant’s appeal in CACV 10/2014 was dismissed on 20 May 2016.  The Court of Appeal also dismissed the plaintiff’s cross-appeals save in relation to the issue of pre-judgment interest.  The court made an order nisi that the 1^st defendant was to pay the plaintiff 75% of its costs of the appeal and cross-appeals, to be taxed on a party and party basis.

16.On 14 October 2016, the Court of Appeal dismissed the 1^st defendant’s application for leave to appeal to the Court of Final Appeal with costs, which was assessed summarily at $149,585. The 1^st defendant renewed its leave application to the Court of Final Appeal.

17.On 30 November 2016, the plaintiff issued a summons seeking further interim payment of $10,200,379.28 pursuant to the March Indemnity, payment of $4,580,722.09 in respect of the Appeal Indemnity, an order for indemnity of costs in relation to the 1^st defendant’s applications to the Court of Appeal and the Court of Final Appeal for leave to appeal against the Court of Appeal judgment of 20 May 2016 (“the Leave Indemnity”) and an interim payment of $16,800 pursuant to the Leave Indemnity.  It was in respect of this summons that the Decision was given by Chow J on 9 February 2017 and this formed the subject of the present application for leave to appeal.

18.By the Decision, Chow J refused the reliefs sought in the plaintiff’s summons save that he granted the Leave Indemnity but only in respect of the 1^st defendant’s application to the Court of Final Appeal for leave to appeal and subject to a cap of $150,000.  He also refused the plaintiff’s application made orally at the hearing on 7 February 2017 for leave to amend the application for payment of $4,580,722.09 pursuant to the Appeal Indemnity by treating it as an application for interim payment only.

19.The plaintiff sought leave to appeal against the Decision.  As mentioned earlier, leave was refused on 25 May 2017 by the Leave Decision.

20.Four grounds of appeal were advanced in the draft notice of appeal.

Ground 1

21.The plaintiff submitted that the judge was wrong not to grant further interim payment pursuant to the March Indemnity in relation to additional costs of $2,916,984.40 which the plaintiff incurred since 16 May 2014 up to 30 September 2016.  The additional costs were not included in the first application for interim payment and primarily comprised the plaintiff’s costs of taxation proceedings against the 1^st defendant.  And albeit the plaintiff sought further interim payment of $10,200,379.28, the summons also stated it was for such other amount as the judge thinks fit.  It was submitted that the judge erred in declining to order any further interim payment, even to the limited extent of $1,074,000, which was the sum put forward by the 5^th defendant’s law costs draftsman as “proposed costs”.

22.The judge declined to exercise his discretion to order any further interim payment pursuant to the March Indemnity for the reasons stated in §§6 to 13 of the Decision.  He regarded the bulk of the costs incurred by the plaintiff was considered by the Recorder in November 2014, and interim payment of $23 million was ordered.  The purpose of interim payment was to ameliorate the injustice to the plaintiff for being out of pocket through continuous funding of the litigation for the benefit of the 5^th defendant, and this injustice to the plaintiff has been substantially ameliorated by the previous interim payment of $23 million.  The judge did not think there is any impediment to the plaintiff seeking assessment of its costs vis-à-vis the 5^th defendant for the purpose of the indemnity and obtaining final payment under the indemnity.  He also saw, prima facie, considerable force in the objections of the 5^th defendant that some of the costs have been unreasonably or improperly incurred or relate to costs for which the 5^th defendant should not be held responsible.  There is also the issue of proportionality when assessing the plaintiff’s costs, having regard to the total costs incurred ($33,200,379.28) and the amount of recovery ($33,511,220.32 plus interest).

23.The judge had considered and rejected the arguments advanced in Ground 1, for the reasons given in §§9 to 11 of the Leave Decision.  The figure of $1,074,000 was based on some “preliminary objection” prepared by the 5^th defendant’s law costs draftsman and included costs which the 5^th defendant argued it should not be responsible for.  Further, this figure was put forward “without prejudice to the 5^th defendant’s right to make further objections and lower suggestions upon a full taxation”.

24.We see nothing to criticize in the judge’s reasoning.  It does not appear to us the plaintiff has overcome the high hurdle for obtaining leave to appeal against the judge’s exercise of discretion on this ground.

Ground 2

25.The plaintiff complained that the judge erred in refusing leave to amend the summons to seek interim payment instead of payment of $4,580,722.09 pursuant to the Appeal Indemnity.  It was submitted that the 5^th defendant was not prejudiced by the amendment; that the plaintiff had put forward all the relevant information (and it is not required to particularise a precise figure for interim payment) and it was up to the judge to decide the appropriate amount for interim payment under the Appeal Indemnity; and that the 5^th defendant’s law costs draftsman had prepared a table resulting in $2,189,699.59 in relation to the costs of the appeal.  So there is no reason for the judge not to order interim payment even to this limited extent.

26.The judge refused to exercise his discretion to grant leave to the plaintiff to amend the summons because even after the amendment, the plaintiff would still face considerable difficulties regarding the amount of the interim payment which may properly be ordered pursuant to the Appeal Indemnity.  The Appeal Indemnity only covers the plaintiff’s costs incurred in relation to the 1^st defendant’s appeal, not the plaintiff’s cross-appeals.  The judge was not prepared to make a further indemnity order to cover the costs of the plaintiff’s cross-appeals raised for the first time in the reply submission of the plaintiff shortly before the hearing.  He noted that three out of four grounds of the plaintiff’s cross-appeals were dismissed by the Court of Appeal, and did not consider that the plaintiff has put forward sufficient materials for him to consider whether it is proper to grant the further indemnity sought (Decision, §§18 and 19).  The judge also took into account the list of objections prepared by the 5^th defendant’s law costs draftsman, which suggested that on a proper assessment the costs of the appeal should be reduced from $4 million odd to slightly over $2 million.  The plaintiff has failed to put forward and justify a proper sum by way of interim payment.  The judge noted in passing that the plaintiff did not apply for interim payment more than six months after the Court of Appeal handed down its judgment (Decision, §§20 to 23).

27.We note also that the plaintiff has commenced taxation against the 1^st defendant in respect of the costs in the appeal on 13 January 2017.  If the plaintiff has acted expeditiously, there is no impediment to the plaintiff seeking assessment of its costs and obtaining final payment under the indemnity.

28.There is no valid basis to interfere with the exercise of the judge’s discretion in refusing leave to the plaintiff to amend its summons.

29.As for the amount of $2 million put forward by the 5^th defendant’s law costs draftsman, this only represented the preliminary opinion of the law costs draftsman and the objections stated were made “without prejudice to 5^th defendant’s right to make further objections and lower suggestions upon a full taxation.” (Leave Decision, §14)

30.The judge also rejected the contention there was a “general rule” that two-thirds of the amount sought is considered an appropriate starting point for the interim payment, if the court decides to order interim payment (Leave Decision, §§15 to 17).  We think that must be right.

31.We do not think there is any substance in the arguments in Ground 2.  There is no reasonable prospect for the appeal court to interfere with the judge’s exercise of discretion to refuse to order interim payment under the Appeal Indemnity.

Ground 3

32.The plaintiff contended the judge erred in refusing to order interim payment pursuant to the Leave Indemnity in the sum of $16,800 for the plaintiff’s costs incurred in relation to the 1^st defendant’s application to the Court of Appeal for leave to appeal to the Court of Final Appeal.  It is not in dispute that of the total costs of $166,285 allegedly incurred, the plaintiff has already been paid $149,585 as ordered by the Court of Appeal, leaving a shortfall of $16,800.  It has not been suggested that the plaintiff has encountered or will encounter any difficulty in recovering this sum.  The judge declined to exercise his discretion to order interim payment as the injustice to the plaintiff for being out of pocket has been substantially ameliorated by the payment of 89.9% of its costs (Decision, §§25 and 26).  He refused to give leave to appeal as the remaining minor sum cannot justify granting leave (Leave Decision, §20).

33.We do not think the judge’s reasoning can be faulted. Regardless of whether the plaintiff has demonstrated a reasonable prospect of success for this complaint, this court would have exercised its residual discretion to refuse leave to appeal in the interests of procedural economy and proportionality.

34.The plaintiff complained that the judge erred in law and in principle in imposing a final cap of $150,000 under the Leave Indemnity in respect of the costs incurred in the application of the 1^st defendant to the Court of Final Appeal for leave to appeal.  The plaintiff asserted the costs involved would obviously be greater than $150,000.

35.It was further submitted that the judge erred in law and in principle in requiring taxation, whether on a common fund basis or otherwise.  The plaintiff’s right to an indemnity is akin to that of a trustee from a trust fund or an agent from his principal.  A trustee is entitled to retain out of the trust fund such of the costs which he actually and properly incurred.  Likewise, a principal is under a duty to reimburse and indemnify the agent against all expenses and liabilities incurred in the execution of his authority.  Costs should only be disallowed if there was improper conduct or breach of trust. Wallersteiner v Moir (No 2) [1975] 1 QB 373, in which the requirement for taxation was mentioned at 391G to 392C, should not be followed on this point.  Taxation, whether on a common fund or indemnity basis, means that the minority shareholder is required to personally bear part of the costs spent for the benefit of the company.

36.We do not think the judge can be rightly criticized for imposing a cap of $150,000 under the Leave Indemnity in respect of the costs in the 1^st defendant’s application to the Court of Final Appeal for leave to appeal.

37.The judge had, at the hearing on 7 February 2017, pointed out to the plaintiff’s counsel Mr Justin Lam that the plaintiff had not provided any estimate of the likely costs which it may incur[1].  Mr Lam maintained it is not necessary for the plaintiff to produce a draft bill or any information regarding its likely costs.  The judge held that the applicant ought to provide the court with a reasonable estimate of his likely costs so that the court can exercise a proper and reasonable control over the costs that may be incurred and decided to impose a cap of $150,000 on the Leave Indemnity in the circumstances (Decision, §§27 and 28).

38.Even at the hearing of the leave application before the judge on 27 April 2017, no evidence was adduced that the sum of $150,000 is not sufficient to cover any shortfall of the actual costs incurred by the plaintiff after taking into account the costs recoverable from the 1^st defendant.  And there has never been any suggestion that the 1^st defendant will not pay, or will not be able to pay, any amount which he is adjudged liable to pay to the plaintiff (Leave Decision, §21).

39.As for the argument that the judge was in error in requiring taxation of the plaintiff’s costs, the judge is of the view that it cannot seriously be argued that for the purpose of assessing the amount of the indemnity, the plaintiff is entitled to be paid whatever costs it has incurred without any form of scrutiny or assessment, whether it should be called taxation or some other name.  The judge accepted that the standard to be applied in assessing the plaintiff’s costs is a matter of principle which may merit further consideration.  But that is not an issue which requires determination in the application for interim payment or indemnity, it will arise when the court comes to actually assess the plaintiff’s costs for the purpose of the indemnity.

40.We agree with the judge’s approach.  There is no error in law or principle to warrant interference with his exercise of discretion.

Ground 4

41.The plaintiff complained that the judge erred in law and in principle in ordering the plaintiff to pay costs to the 5^th defendant for opposing the plaintiff’s summons resulting in the Decision, on a party and party basis, with certificate for one counsel.  The judge ordered costs against the plaintiff because it had substantially failed in its application and there is no good reason why costs should not follow the event (Decision, §30; Leave Decision, §23).

42.Similar arguments were advanced as in the plaintiff’s other application seeking leave to appeal against the judge’s order of costs made on 5 April 2017, which is the subject of our judgment in HCMP 1326/2017.  For the reasons given in our judgment in HCMP 1326/2017, we do not think there are reasonable prospects of success to interfere with the judge’s exercise of discretion in awarding costs.

Orders

43.As the threshold requirements for granting leave to appeal are plainly not met, we dismiss the plaintiff’s application.  And as the application is wholly without merit, we make a further order pursuant to Order 59 rule 2A(8) that no party may under rule 2A(7) request the determination to be considered at an oral hearing inter partes.

44.We see no reason why costs of this application should not follow the event.

45.In refusing to grant leave to appeal, the judge awarded costs to the 5^th defendant on a party and party basis with certificate for two counsel.

46.The 5^th defendant seeks costs on an indemnity basis, making the points that the plaintiff is not entitled as of right to interim payment and the intended appeal is against the judge’s exercise of discretion; that the proper forum for any argument on the basis of assessment of the quantum of indemnity is at the time of the application for payment of the indemnity or the application for ascertaining the quantum, and not at the time of the application for interim payment.  The main action has been concluded when the Court of Final Appeal dismissed the 1^st defendant’s application for leave to appeal.  The plaintiff is not entitled to make one application after another for interim payment when it could well have made proceeded with taxation of the indemnity to determine the amount payable, instead of wasting time and resources on seeking further interim payments.

47.We think there is substance in the above submissions.  The judge has given clear, thorough and cogent reasons in refusing leave to appeal.  Essentially, the arguments rejected by the judge were run before us.  They are devoid of merits.  Given the particular circumstances, we agree with the 5^th defendant that it is a waste of time and resources to seek further interim payments.  We think it appropriate to order costs on an indemnity basis in these circumstances, with a certificate for two counsel.

48.The 5^th defendant submitted a statement of costs for summary assessment in the sum of $263,200.  We bear in mind that the same grounds of appeal argued before the judge are relied on in the present application.  We regard the costs claimed as excessive, even on an indemnity basis.  The costs for preparation of a statement of costs are generally not allowed in a summary assessment (Practice Direction 14.3, §13).  The amount of costs we allow on the basis as indicated is $171,600.

49.The costs order and gross sum assessment are orders nisi.  Any party seeking to vary the orders nisi shall lodge a written submission within seven days hereof, failing which the orders shall become absolute.

Written submissions by Ms Audrey Eu SC and Mr Justin Lam, instructed by Kao, Lee & Yip, for the Plaintiff (Applicant)

Written submissions by Mr Edward Chan SC and Mr Law Man Chung, instructed by ONC Lawyers, for the 5^th Defendant (Respondent)