Power Securities Co Ltd (Formerly Known As Jun Yang Securities Co Ltd v. Sin Kwok Lam and Others

HCA 1719/2018

[2020] HKCFI 344

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1719 OF 2018

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(By Original Action)

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(By Counterclaim)

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AND

HCA 1071/2019

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1071 OF 2019

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(Heard together)

Before:  Hon Coleman J in Chambers (Open to Public)

Date of Submissions:  2, 3, 17, 24 and 29 January 2020

Date of Costs Ruling: 11 March 2020

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C O S T S   R U L I N G

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Introduction

1.By my Judgment dated 5 December 2019, [2019] HKCFI 2920, I acceded to the applications by Power Securities, Sit, Ng and Tang to strike out the RADCC in the 2018 Action and the SOC in the 2019 Action, and to dismiss Sin’s claims in both actions (all definitions adopted from the Judgment).  On that basis, I made no order on the alternative consolidation or hearing together applications.

2.I made no order as to costs on those alternate summonses.  But I made a costs order nisi that the costs of the various strike out applications would be borne by Sin, to be taxed if not agreed on the party and party basis, payable forthwith.  I directed that should any party wish to seek to vary that costs order nisi, application should be made within 14 days, and I would deal with that application on the papers. Otherwise, the nisi order would become absolute after the expiry of that 14-day period.

3.By summonses dated 13 and 17 December 2019, the successful parties have sought to vary the costs order nisi, and for the costs to be payable by Sin on the indemnity basis and, where applicable, with certificate for two counsel.  As directed, I can and will decide the matter on the basis of the written submissions exchanged and filed.

Variation Applications – Indemnity Costs

4.Tang made his application in the 2019 Action by summons dated 17 December 2019.  In submissions provided by Mr Victor Lui of Counsel, a summary of the general principles for an award of costs on an indemnity basis was provided as being:

(a)  Taxation of a successful party’s costs on an indemnity basis may be ordered where the proceedings were scandalous or vexatious, or had been initiated or prosecuted maliciously, or for an ulterior motive, or in an oppressive manner.  Any proceedings instituted or prosecuted in such circumstances as to constitute an affront to the court could properly be the subject of a direction for taxation on an indemnity basis.

(b) The principle for an award of costs on an indemnity basis applied equally to those who not only instituted proceedings but who defended them.  If the pursuit of a defence constituted conduct which was part of an oppressive game plan, then it might well be justified to award costs on an indemnity basis.

(c)  The court may have regard to events prior to the institution of the proceedings and is not merely confined to the way the litigation was contested by the losing party.

5.These principles are set out for example in the Hong Kong Civil Procedure 2020 (“HKCP”) at §§62/28/2 and 62/App/12, and I accept them as correct.

6.Mr Lui also specifically referred to the decision of the Court of Appeal in Huge Dragon Corp Ltd v Lung Man Oasis (IO) [2014] 3 HKLRD 286, in which the point was made that the visitation of an indemnity costs order may well be made where the proceedings in question should never have been brought or defended but the party nevertheless unreasonably and unjustifiably persisted.  Mr Lui also provided an example of ordering costs on an indemnity basis upon a claim being struck out for a Henderson abuse.

7.In this case, Mr Lui relied on the fact that not only were Sin’s claims struck out because they violated the principle against recovery of reflective loss and because Sin was bound by issue estoppel arising from the 2017 Action, but also because they amounted to an abuse of process in the Henderson sense.  On that basis, it was an essential part of the reasoning in the Judgment that the RADCC in the 2018 Action and the SOC in the 2019 Action were vexatious attempts to litigate matters which ought to have been raised in the 2017 Action; the claims amounted to an abuse of process by way of a collateral attack, merely recasting allegations in a different form of proceedings; and in any event there was no reason for Sin to have commenced the 2019 Action, because issues could perfectly readily have been canvassed in the 2018 Action.

8.Mr Lui also relied on the fact that Sin must have known that his claims violated the principle against recovery of reflective loss, as the green amendments were made after the strike out summonses were issued, as a specific attempt to get around the problem of reflective loss; this was the first time Sin alleged that he personally suffered loss as a result of the Alleged Conspiracy; the amendments were internally contradictory with other aspects of the RADCC (as was pointed out in the Judgment); and there was no factual basis at all to support the amendments.  Those matters all point to the abuse of the court process.

9.For Power Securities and Sit, their solicitors DLA Piper Hong Kong (“DLAP”) adopted the written submissions made for Tang, and also specifically referred me to the provisions of RHC Order 62 rule 5 which sets out the matters which the Court should take into consideration when exercising the discretion on costs, including the conduct of the parties.  DLAP also emphasised that costs orders on an indemnity basis are generally allowed where there is an abuse of process, including in cases where claims had been struck out as offending the reflective loss principle or because of a Henderson abuse.  Abuses of process are a “special feature” that warrant imposition of costs on an indemnity basis, where “special feature” is a reference back to the decision in Town Planning Board v Society for Protection of the Harbour Ltd [2004] 2 HKLRD 95.

10.For Ng, his solicitors Gallant also adopted the written submissions made for Tang, and invited the Court to read them with all references to Tang to be modified to read as references to Ng.

11.In opposition to the variation application, Sin’s solicitors K&L Gates (“KLG”) agreed that the legal principles on indemnity costs are well-established, and referred me to HKCP §§62/2/5-8, and 62/2/28 as well as the Town Planning Board decision.

12.Reference was also made to the case of Huinong Delta Investments Ltd v CCCC Financial Ltd [2018] HKCFI 952, in which the Court rejected the application for the order of costs on an indemnity basis, notwithstanding striking out the action as amounting to an abuse of process, because there was no finding that the case was bought by the plaintiffs with an ulterior motive or for an improper purpose or that there had been some deception or underhand conduct on the part of the plaintiffs, the losing party.  Hence, KLG submitted that even if Sin’s claims amount to an abuse of process, the applicants still have to show that his claims were brought with an ulterior motive or for an improper purpose or that there had been some deception or underhand conduct on his part.

13.KLG suggest that DLAP’s submissions made no submissions at all on Sin’s alleged ulterior motive or improper purpose.  But I am not sure that is correct; the whole thrust of the submissions was that it was an improper purpose to bring proceedings which were bound to be struck out as being abusive in at least the Henderson sense.  As to Mr Lui’s submissions, KLG suggested that the allegations of bad faith made in the context of seeking indemnity costs are inconsistent with the recognition of the complexity of the case in the context of seeking certificate for two Counsel.

14.It was also asserted that there was no finding in the Judgment that the case was brought by Sin with an ulterior motive or for an improper purpose, or that there had been some deception or underhand conduct on his part.  Rather, it is suggested that the Judgment showed understanding as to why Sin initiated the actions.  However, I think that misunderstands that part of the Judgment, which merely identified that there may be circumstances in which it would be ordinarily appropriate to start new proceedings where an application is made to set aside a judgment, where it is said that the judgment was obtained by fraud, but this was not one of those cases (as the Judgment as a whole makes plain).

15.In any event, I do not think that one reads the wording of any previous case as though it sets the precise circumstances within which an indemnity costs order might be felt appropriate.  Indeed, the very words from the Huinong case relied upon are merely examples of when an indemnity costs order might be appropriate, and the case makes it express that those examples are not exhaustive of the situations in which such an order might be appropriate.

16.In this case, against the background, it seems to me that this is a case in which it is entirely appropriate for the costs to be awarded on an indemnity basis.  The background and my findings in the Judgment identify repeated attempts to get around what was recognised to be a problem, and which ultimately was held to be an insurmountable problem.  The Judgment found Sin’s conduct to have been abusive in a number of respects.  If “special or unusual features” are required before the Court thinks fit to order costs to be taxed on an indemnity basis, I am wholly satisfied in the exercise of my discretion that such features exist in this case.

Variation Applications – Certificate for Two Counsel

17.For Tang, Mr Lui reminded me of the principles applicable on determining whether to allow a certificate for two counsel.  The first question is whether it was necessary or proper to instruct a leading counsel, having regard to various factors including (but not limited to) the nature, difficulty, complexity or novelty of the case, specialised knowledge required, importance to the client and generally, and whether the other side has instructed a leader.  The second question is whether it was necessary or proper for a junior counsel also to be instructed, for reasons which might include assisting in the proper preparation of the case, with court proceedings, and with carrying out legal research on difficult or novel questions of law.

18.In this case, Mr Lui submitted the case was of sufficient complexity to warrant two counsel having regard to the complex procedural history, the volume of documents and authorities and the number of parties before the court.  Mr Lui also submitted that some of the legal principles, in particular that against the recovery of reflective loss, was not a straightforward point of law even though it might lead to a plain and obvious outcome (as it did); that Sin similarly was represented by leading and junior counsel; and that the allegations against Tang were serious, involving conspiracy, market manipulation, misconduct and dishonesty.

19.DLAP also adopted Mr Lui’s submissions on this point.  They made similar points for Power Securities and Sit as to the seriousness and importance of the allegations made against them, against the necessary dealing with the complex procedural history.

20.Again, I am satisfied that the circumstances make it appropriate in the exercise of my discretion to award a certificate for two Counsel.

21.Ng was represented by only one Counsel at the hearing on 27 November 2019, so obviously he does not seek any certificate for two Counsel.  Insofar as Gallant made an application that there should be a certificate for Counsel to attend the hearing on 27 November 2019, I do not think any such certificate is necessary for the purposes of recovering Counsel’s fees on taxation, but insofar is it may be helpful to me to say so I take the view that it was entirely appropriate for Ng to be represented by Counsel, and that her fees ought to be recoverable on taxation.

Unless Order /Relief Summons

22.Specific to the position of Power Securities and Sit is the application to recover the costs occasioned by Sin’s failure in complying with the unless order made by Master Kot on 30 October 2019, on an indemnity basis to be paid forthwith.

23.DLAP identified the legal position as being that the court may exercise discretion to cure any real irregularity of breaching an unless order, but when doing so the relevant question is whether the breaching party’s failure to comply with an unless order could be regarded as intentional and contumelious.  Here, DLAP submitted, Sin clearly breached the unless order, and then refused to accept his default.  Even the summons seeking relief was taken out five days after the deadline, and was then fixed to be heard only together with the substantive strike out applications, 28 days after the deadline.

24.Where no explanation was given by Sin for his failure fully to comply with the unless order and why the relief summons was taken out only late, DLAP asserted that it should be concluded that Sin’s breach was intentional and contumelious and not due to extraneous circumstances, so that he should be visited with indemnity costs.

25.I disagree, and I think that approach risks eliding the principles as to whether or not to grant relief, with the principles applicable on indemnity costs.  I have already granted the relief, in part because it seemed to me that the failure to comply was minor and was the fault of the lawyers, and where I saw no real prejudice flowing.  That is not in any way to condone the failure to comply with the unless order.  But I do not think the particular circumstances of this case warrant costs on a higher basis.  I do, however, accept that the grant of relief was the kind of indulgence which warrants Sin paying for such costs as were incurred by the relief summons, albeit on a party and party basis.

Result

26.In the circumstances, I make the following costs orders, in variation from my original nisi order:

(a) Sin will pay the costs of the strike out applications on an indemnity basis, with certificate for two Counsel where applicable, to be taxed if not agreed and paid forthwith.

(b) Sin will pay the costs of the Relief Summons on a party and party basis, to be taxed if not agreed and paid forthwith.

(c) In the light of my conclusions, Sin will also pay the costs of the costs variation applications on a party and party basis, to be taxed if not agreed and paid forthwith.  (For the avoidance of doubt, I do not think awarding the costs of the variation applications on an indemnity basis is appropriate.)

K & L Gates, for the 1^st defendant (by Original Action) and the 2^nd plaintiff (by Counterclaim) in HCA 1719/2018; and for the 2^nd plaintiff in HCA 1071/2019

DLA Piper Hong Kong, for the plaintiff (by Original Action) and the 1^st and 4^th defendants (by Counterclaim); and for the 1^st defendant in HCA 1071/2019

Gallant, for the 2^nd defendant (by Counterclaim) in HCA 1719/2018

Mr Victor Lui, instructed by King & Wood Mallesons, for the 3^rd defendant (by Counterclaim) in HCA 1719/2018; and for the 2^nd defendant in HCA 1071/2019