China Medical Technologies, Inc. (in Liquidation) v. Bank of China (Hong Kong) Ltd

HCA 2448/2014

[2018] HKCFI 2007

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2448 OF 2014

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Before: Hon Au-Yeung J in Chambers

Closing Date for Submissions: 15 August 2018

Date of Decision on Costs: 29 August 2018

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DECISION  ON  COSTS

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Introduction

1.On 20 June 2018, this court gave a decision setting aside the order extending the validity of the writ and setting aside service of the writ (“the decision”).  An order nisi was made for costs of the action to be borne by the Liquidators personally.  The same abbreviations shall be used below.

2.The Company seeks a variation of the costs order so that costs are to be borne by the Company instead of the Liquidators personally.  On the other hand, BOC supports the order nisi.  BOC questions whether the Company has locus to make the application for variation (“the locus ground) and asserts that the Liquidators should bear costs personally because of their impropriety in conduct (“the impropriety ground”).

The ground for variation

3.The basis for the order nisi was Osman Mohammed Arab & anor v Cashbox Credit Services Ltd, CACV 67/2017, 13 November 2017, §45, Yuen JA. However, both parties are agreed that the Cashbox principle is not applicable.  The Company was itself the Plaintiff and the Liquidators were not parties to the action. 

4.If so, the order nisi had no legal basis and ought to be varied as a matter of principle so that the Company should bear the costs. 

The locus ground

5.Ms Ho, counsel for BOC, queries whether or not it should be the Liquidators who should take out this application because the variation is against the Plaintiff’s interest and is solely for the benefit of the Liquidators.  Strictly speaking, the Plaintiff has no locus to challenge the order nisi.

6.I agree with Lipman Karas that Ms Ho has mischaracterized the application. The basis of the order nisi was not the misconduct of the Liquidators but what is now agreed to be an erroneous application of the Cashbox principle.  The Company (apparently sharing the same view as the Liquidators) plainly has locus to challenge the order nisi.

The impropriety ground

7.This ground is not sustainable as a matter of procedure.  The Liquidators have not been personally joined as parties for the purpose of a costs order under section 52A(2) of the High Court Ordinance, Cap 4. This is not a mere technical default.  Order 62, rule 6A(1) of the Rules of the High Court have prescribed the proper procedure, which requires the taking out of a summons for the purpose of joining the Liquidators, supported by affidavit evidence.  The Liquidators are entitled to know the case on costs that they have to meet and to explain their conduct.

8.Ms Ho cited the case of Excellent Investment (Group) Ltd (in liquidation) v Sin Yuk Ling, HCCW 294/2012, 3 August 2016, Anthony Chan J, in support of the proposition that it is not an inflexible rule that there must be a formal joinder of Liquidators to make them personally liable for costs.  With respect, that was because no issue of joinder was taken before the learned judge; but the learned judge would have allowed such a joinder if the point were taken (at §§17-18).

9.On merits, the test for making an order for costs against a third party is eg where that third party was a real party in control of the litigation for his own benefit: Big Island Construction (HK) Ltd v Wu Yi Development Co Ltd [2018] 2 HKLRD 1145, §9(b), Au‑Yeung J.

10.Here, although the Liquidators were in control of the litigation, it cannot be said that they were running this action for their own selfish (as opposed to the creditors’) benefit.  In §39 of the decision, this court has expressly taken the view that the Liquidators wanted to be responsible in pleading a case of fraud against BOC with proper particulars and that they were aware of their duties as liquidators and the need to avoid incurring costs for the pursuit of an unmeritorious claim against BOC.

11.Further, there is an element of public interest in that liquidators should be able to perform their duties without being exposed to personal liability for costs: Excellent Investment (Group) Ltd (in liquidation) v Sin Yuk Ling, HCMP 292/2017, 28 March 2017, Kwan JA, §7.

12.Unreasonable behaviour was not sufficient to ground a non-party costs order against a liquidator, and it is necessary to show impropriety or bad faith on his part: Excellent Investment, Kwan JA, §§8 & 9; approving Super Speed Ltd (in liquidation) v Bank of Baroda, HCCW 273/2012, 11 November 2015, Anthony Chan J, §§29, 34 & 69.

13.The alleged impropriety was said to be non-disclosure of Harris J’s Decision to the Master when seeking extension of the validity of the writ. However, this court has found the non-disclosure to be innocent (§23 of the decision).  That non-disclosure could hardly be regarded as improper conduct.

14.Then it is said that the Liquidators had failed to make full and frank disclosure of the many limitation issues and positive misrepresentation of the position in Borrelli-1^st (§§96-99, 102-110 of the decision leading to the costs order nisi).  The misrepresentation and non-disclosure were serious and egregious (§113 of the decision), which led to discharge of the extension of the writ and consequent dismissal of the action.

15.In my view, it is not sufficient for an applicant for costs to merely show that the court eventually held a different view to that of the liquidator. Impropriety or bad faith has to be shown by the applicant.

16.This is not a plain and obvious case for the court to direct the Liquidators to show cause why a personal costs order should not be made against them, without BOC taking out a proper summons under Order 62, rule 6A(1).

17.For the reasons given, I reject the impropriety ground.

Conclusion

18.Having considered the submissions, I agree with the Company that it is appropriate to vary the costs order nisi so that costs should be borne by the Company.

19.Costs of this summons should follow the event and be to the Company.

20.I thank Ms Ho and Lipman Karas for their assistance.

Lipman Karas for the Plaintiff

Ms Janet Ho, instructed by K.W. Ng & Co, for the Defendant