Read the full judgment text of CACV 466/2018 on BabelCite. This Court of Appeal judgment was delivered on 29 May 2019 before Hon Lam VP and Barma JA.
Civil procedure – costs – derivative action – multiple derivative action by minority shareholder – indemnity for costs granted to plaintiff by company – implementation of indemnities – scope of court scrutiny – proper basis for taxation – common fund basis versus indemnity basis – section 52A(1) of the High Court Ordinance – Order 62 of the Rules of the High Court – Wallersteiner v Moir (No 2) – Wishart v Castlecroft Securities Ltd – EMI Records v Ian Cameron Wallace – Re Wing Fai Construction Co Ltd (Costs: Taxation). In a multiple derivative action concerning the indemnity for the costs of the plaintiff by the company for whose benefit the action was brought, the Recorder had found the derivative claims established and entered judgment against the 1st defendant in favour of the 5th defendant. The Recorder granted the First Instance Indemnity (costs not recoverable from the 1st defendant to be indemnified by the 5th defendant) and the CA Indemnity (indemnity in relation to costs of the appeal). Disputes arose as to how the indemnities should be implemented: whether the costs should be taxed on a party-and-party, common fund or indemnity basis. Chow J held that the indemnities were part of the court's jurisdiction over costs under section 52A(1) of the High Court Ordinance though equitable principles would govern its exercise, and ordered the plaintiff's costs to be taxed on the common fund basis. The plaintiff appealed. Held, allowing the appeal to the limited extent of substituting indemnity basis for common fund basis: (1) The court's power to scrutinise the costs incurred by a plaintiff in a derivative action is incidental to its jurisdiction to grant an indemnity to a minority shareholder plaintiff; the two are different sides of the same coin. (2) Section 52A(1) of the High Court Ordinance covers costs matters generally, and is not restricted to inter partes costs orders; construed with Order 62 of the Rules of the High Court (including Order 62 Rule 6(2) and Order 62 Rule 31(2)), it covers the liabilities of a company under an indemnity as to litigation costs in favour of a minority shareholder plaintiff in a derivative action. (3) The principle underlying the grant of such indemnities is better described as the indemnity principle rather than the equitable principle; the position of a minority shareholder plaintiff is sui generis. (4) The grant of indemnity, the setting of its terms and the scrutiny of the plaintiff's costs in its implementation all involve the exercise of judicial discretion, though of a different kind from the discretion in inter partes costs orders. (5) Since the grant of indemnity to a plaintiff is a common law extension of the principle in Order 62 Rule 6(2), the proper basis for taxation of a plaintiff's costs under such indemnity should normally be the indemnity basis, not the common fund basis, to give full effect to that principle; however, a judge may depart from this normal position in special circumstances. The plaintiff is not entitled to a full indemnity on a solicitor and own client basis, as the analogy with a trustee is not exact – a minority shareholder plaintiff does not owe duties to the company in the prosecution of the action. The Recorder had not exhausted the court's jurisdiction in making the indemnities, and the Judge was entitled to fill the gap. The judgment in Wallersteiner v Moir (No 2) was decided before EMI Records v Ian Cameron Wallace and did not examine the proper basis for taxation at length. Appeal allowed to the limited extent of substituting indemnity basis for common fund basis; costs of the appeal and below to be determined on written submissions.
Legal issues: Whether the court has power to scrutinise the costs of a minority shareholder plaintiff under an indemnity in a derivative action · Whether Section 52A(1) of the High Court Ordinance covers indemnities for costs of a minority shareholder plaintiff in a derivative action · The proper basis for taxation of plaintiff's costs under an indemnity in a derivative action
Outcome: Appeal allowed to the limited extent of substituting indemnity basis for common fund basis as the basis for taxation in the order of 21 March 2018; question of costs to be determined on written submissions.
Cited by 2 cases · Cites 3 cases