Ip Pui Lam Arthur and Another v. Alan Chung Wah Tang and Another

HCB 3819/2011

[2020] HKCFI 1621

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

BANKRUPTCY PROCEEDINGS NO 3819 OF 2011

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D E C I S I O N  O N  C O S T S

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Introduction

1.This is an application to vary a costs order nisi.

2.By a decision dated 8 April 2020 (“the Decision”), this Court dismissed the Trustees’ application for discovery against the Liquidators and made a costs order nisi that costs be to the Liquidators on indemnity basis with certificate for one counsel (“the order nisi”).

3.The Trustees have since resigned (and referred to below as “Former Trustees”) but there is no dispute that they remain liable to pay costs under the Decision.  They applied by summons dated 22 April 2020 (sent to the court by fax) to vary the order nisi such that costs are to be assessed on party-and-party basis (“variation summons”).

4.The variation summons was not filed during the General Adjourned Period (“GAP”) when the Court Registry was closed due to COVID-19.  The Court gave directions for paper disposal of the variation application on the suggestion of solicitors for the Former Trustees (“LWL”) that they would “file the [variation] summons as soon as practicable when the High Court Registry re-opens after the General Adjourned Period.”.  The Former Trustees have not filed the summons on the day following re-opening of the Registry on 6 May 2020.  This court raised requisition as to filing on 23 June 2020.

5.The Former Trustees therefore applied by ex parte summons dated 2 July 2020 for retrospective leave to file the variation summons out of time.  The reason for the lateness was that since late April, LWL has had to attend to an unusually high volume of work, despite the pandemic.  Consequently, the staff at LWL has been stretched thin and they proceeded to continue with the preparation of written submissions and statement of costs on the mistaken assumption that the variation summons had already been filed.  LWL wholeheartedly apologized to the Court for the oversight.

6.The ex parte nature of the summons was of course wrong in procedure.  LWL by letter later “confirmed” that the Former Trustees were agreeable to the ex parte summons to be dealt with as if it were an inter partes summons.

7.In any case, when considering leave to file out of time, the Court has to consider the length of delay, the reasons for delay, the merits of the substantive application and the prejudice to the other party.

8.In the present case, the length of delay, up to filing of the wrong ex parte summons was 2 months.  The ground was oversight of the solicitors.  That was not a valid explanation; it virtually was breach of a promise to the Court. 

9.The use of electronic means during GAP was to facilitate the processing of cases with expedition.  It required good faith and industry of both the Court and the profession.  Solicitors who got the Court’s approval to dispose of a summons on paper must do their part to keep the Court record proper and complete as soon as possible after the GAP was over. 

10.In this case, LWL failed.  That is especially so since the directions for lodging submissions were given after the GAP.  LWL had had ample opportunity to review the papers and do the proper filing.

11.That said, the intention to vary costs was raised within time.  No prejudice has been caused to the Liquidators as both parties had argued fully in respect of the variation summons on the papers before the failure to file the summons was discovered. Any prejudice could be remedied by an appropriate costs order for the Liquidators.  Accordingly, I give leave to the Former Trustees to file the variation summons out of time.  The filing on 2 July 2020 shall stand.

Legal principles on ordering indemnity costs

12.The principles are well-established.  Costs are in the discretion of the Court.  In exercising its discretion, the Court should take into account, amongst others, the conduct of all parties and whether a party has succeeded on part of his case: Order 62, rule 5(1)(e) and (f) of the Rules of the High Court (“RHC”)

13.Under Order 62, rule 5(2) of RHC, the conduct of the parties includes:

(a)  whether it was reasonable for a party to raise, pursue or contest a particular allegation or issue;

(b)  the manner in which a party has pursued or defended his case or a particular allegation or issue;

(c)  whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and

(d)  conduct before, as well as during, the proceedings.

14.For costs on indemnity basis, the successful party should show that the case has some special or unusual feature.   The discretion is not to be fettered beyond the requirement that costs on indemnity basis must be “appropriate”: Town Planning Board v Society for Protection of the Harbour Ltd (2004) HKCFAR 114, at 123-124, Li CJ.

15.What constitute appropriate circumstances to award indemnity costs must be fact-sensitive.  The conduct of the party against whom indemnity costs are sought is cogently relevant.  Thus, where the proceedings in question should never have been brought or defended but the party nevertheless unreasonably and unjustifiably persisted, he may well be visited with indemnity costs.  See Huge Dragon Corporation Ltd v Incorporated Owners of Lung Mun Oasis [2014] 3 HKLRD 286, at §13, Poon J (as he then was).

The Court’s reasons for ordering indemnity costs

16.The reasons for which this Court ordered indemnity costs can be found in §85 of the Decision, ie the decision of Re Ho Yuk Wah David [2019] HKLRD 961 made clear that the affidavit sought in the underlying summons was not within the Court’s jurisdiction to order (“1^st reason”); and there was no evidence of any relationship between the Bankrupt and at least CNIL (“2^nd reason”). 

17.The same legal team appeared for the Former Trustees in that decision.  Further, by 2 letters before the underlying summons, ONC had drawn the Former Trustees’ attention to the Recorder’s decision but the Former Trustees had not responded to it.  Eventually the Former Trustees wholly failed in the underlying summons.

18.Mr David Chen, counsel for the Former Trustees, submits that neither ground justified the unusual indemnity costs order.

The Former Trustees’ reasons for contesting indemnity costs

19.With regard to the 1^st reason, Mr Chen submits that whilst Recorder Eugene Fung SC held that the Court had no express power under section 29(1A) of the Ordinance to make such an order, Madam Recorder Linda Chan SC (as she then was) clarified in another Decision within the present case [2019] HKCFI 1398, §30, that the Court had inherent jurisdiction to make an ancillary order for the filing of such an affidavit to ensure that the exercise of its jurisdiction or the remedies it granted were effective.

20.With respect, the decision of Recorder Linda Chan SC was made after the hearing of the underlying summons in this case and it was never brought to the attention of this Court before the Decision was handed down.  In fact, Mr Chen has conceded that the Court had no jurisdiction to order the filing of the affidavit sought: §25 of the Decision.  This line of submission does not assist the Former Trustees.

21.Then Mr Chen submits that this part of the underlying summons did not generate any evidence, nor substantial submission from the parties or detailed consideration by the Court.  It did not materially add to the length or complexity of the hearing before the Court.

22.Mr Chen is correct but it only affects the quantum of costs and not the basis of assessment for costs.

23.Accordingly, the 1^st reason holds good.

24.With regard to the 2^nd reason, Mr Chen distinguishes the factual scenario between Recorder Fung’s decision in Re Ho Yuk Wah David and the present case:

(1)     Alan Tang and Hou Chung Man were involved in both cases in different capacities – as trustees in bankruptcy of Lee Siu Fung Siegfried in that case;and as liquidators of APIDL in the present case.

(2)     The 2 cases involved different funders and funding agreements although the Bankrupt was allegedly involved in both cases.  It just so happened that CNIL was a common funder.

25.Mr Chen also points out that the evidence in support of each application was different.  In Re Ho Yuk Wah David, the evidence of the Former Trustees did not mention CNIL at all, which led to the learned Recorder’s observation that “no evidence has been adduced by the applicants to assert that they believe, or have any reasonable suspicion, that the Bankrupt is related to or connected with [CNIL].”

26.By contrast, in the underlying summons in the present case, the Former Trustees have set out the evidential basis for and expressly stated their belief that “the Funders are associated with the Bankrupt”.  Yu Yang’s statement explaining the funding arrangement and distribution agreement with the Bankrupt in respect of the 806 Action, the 3 Deeds of Assignment and Hou’s evidence that the Funders provided funding to APIDL were not before the learned Recorder.

27.Accordingly, the underlying summons was a different application to that in Re Ho Yuk Wah David, with more extensive evidence, although the Former Trustees failed in the end.  Mr Chen submits that there is nothing unusual in a failed application to justify indemnity costs.

28.Mr Chen is correct in principle.  The fact that the Former Trustees took a bold application with weak evidence and failed on a low standard of proof would not in itself justify costs on indemnity basis.

29.However, the fact was that the Liquidators had on 2 occasions by letter and by affirmation informed the Former Trustees of the Liquidators’ position, with reasons that were eventually accepted by this Court: §§37, 38, 64, 67, 68 & 73 of the Decision.  In drawing attention to Re Ho Yuk Wah David, ONC specifically pointed out that the Former Trustees had failed to provide any evidence to suggest and/or prove that the Funders in 806 Action were related to the Bankrupt. 

30.The purpose of this Court’s reference to Re Ho Yuk Wah David was to illustrate that the Former Trustees, as parties to a similar application in that case and represented by the same lawyers in the present case, should not have missed the principle therein.  The differences in factual background and capacities of the Former Trustees were not truly distinguishing factors from the present case.

31.The Liquidators’ statement that they were not in a position to provide any information or documents on any funding arrangements that APIDL might have prior to its winding-up was a particularly weighty statement to show that the Former Trustees were bound to fail.  It was unreasonable for the Former Trustees to disregard that statement and pursue the underlying summons (§§41-42 of the Decision). 

32.For all the reasons given above, I am of the view that the order for indemnity costs was appropriate.  The variation summons is thus dismissed.

Summary Assessment

33.On quantum, with certificate for one counsel, I summarily assess the Liquidators’ costs on indemnity basis to be $400,000.

34.Costs of this variation summons should also be to the Liquidators on indemnity basis, summarily assessed at $40,000. 

35.On a nisi basis and unless LWL shows cause to the contrary, they should bear the Liquidators’ costs on the ex parte summons on indemnity basis, which I assess to be $11,600.