Kung Kwok Wai David, The Executor of the Last Will of Kung Wong Sau Hin, Deceased v. The Commissioner of Estate Duty

HCED 1/2011

[2022] HKCFI 333

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ESTATE DUTY APPEAL NO 1 OF 2011

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Before:  Hon Chow JA (sitting as an additional judge of the Court of First Instance) in Chambers (Open to Public)

Date of Hearing:  24 January 2022

Date of Decision:  7 February 2022

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D E C I S I O N

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INTRODUCTION

1.This is an application by the Defendant, by summons dated 5 August 2021 (“the Summons”), to vary the costs order (“the Order”) made by this court at §73 of the written judgment handed down on 22 July 2021 (“the Judgment”).

2.The basic facts of this case are fully set out in the Judgment and will not be repeated here. The expressions and abbreviations as defined in the Judgment shall, unless the context indicates otherwise, be used in this Decision. The Order appearing at §73 of the Judgment is as follows:

“[73] On the question of costs, there are two principal issues raised for determination: (i) whether the Loans qualified for allowance under s 13(1)(i), and (ii) what is the proper valuation of the Tin Ha Road Property.

(1) In respect of the first issue, the Plaintiff has been partially successful (in relation to the 2^nd, 3^rd and 8^th Loans). However, the court’s finding in the Plaintiff’s favour in relation to those loans is based primarily on documentary evidence which was disclosed by the Plaintiff only after years of delay, including documents which were only disclosed on 16 October 2020 (Day 9 of the hearing). As earlier mentioned, I have considerable reservation on the oral evidence of the Plaintiff. Also, I consider that the Plaintiff has substantially delayed and been evasive in responding to the EDO’s inquiries in respect of the Loans. In all the circumstances, I make no order as to the costs in relation to the first issue.

(2) In respect of the second issue, the Plaintiff has also been partially successful. Taking into the account the individual issues which I find in favour of the Defendant, I would order the Defendant to bear 50% of the Plaintiff’s costs in relation to the second issue, to be taxed if not agreed, with certificate for 2 counsel.

[74] For the benefit of the taxing master, I shall apportion 50% of the Plaintiff’s costs as being attributable to the first issue, and 50% to the second issue.”

3.In the Summons, the Defendant applies for a variation of the Order to the following extent:

(1)  in relation to §73(1), the costs of and incidental to the first issue (as defined and referred to in §§12 and 73 of the Judgment) be paid by the Plaintiff to the Defendant with certificate for two counsel; and

(2)  for the avoidance of doubt, the Order does not cover any costs incurred in relation to §§2(i) to (iv) and 2(v)(a), (b), (d) to (f) of the Originating Summons filed on 21 February 2011 (“the Remaining Items”).

4.Two bases are put forward by Ms Wong (on behalf of the Defendant) in support of the application. First, Ms Wong argues that the Order is an order nisi and thus may be varied upon application made within 14 days of the date of the order. Second, Ms Wong argues that the Order has not been sealed or perfected, and thus the court has an inherent jurisdiction to reconsider and vary the Order in view of exceptional circumstances and strong reasons to do so in the present case.

NATURE OF THE ORDER

5.As the court informed the parties by letter dated 6 August 2021, the Order is a final (or absolute) order, and not an order nisi.

6.Ms Wong submits otherwise. She argues that where a judgment or decision is reserved at the conclusion of a hearing and handed down at a later date, any order as to costs in the judgment or decision is by its nature an order nisi even if the judgment or order does not expressly so specify. Ms Wong goes so far as to say that in such circumstances, the court has no discretion to make a costs order absolute, and can only make an order nisi.

7.In support of her argument, Ms Wong relies on Order 42, r 5B(6) of the Rules of the High Court, Cap 4A, which states as follows: “Where a written decision is given pursuant to this rule the Court may make therein an order nisi as to costs and, unless an application has been made to vary that order, that order shall become absolute 14 days after the decision is pronounced.” Order 42, r 5B(1) permits a court to give reasons for any decision either at the time the judgment or order is pronounced or, where it is at that time announced that the reasons will be given at a later date, at such later date as may be fixed. In either case, Order 42, r 5B(6) relied upon by Ms Wong provides that the court may make a costs order nisi. It seems to me clear that under this rule, the court has a discretion, but is not bound, to make to make a costs order nisi. A costs order, like any order of the court, is prima facie an order absolute, and may only be challenged by way of an appeal but not an application to vary. There are of course exceptions to this general position, eg an ex parte order, or where the court indicates (either expressly or by necessary implication) at the time of the making of the order that it is provisional only. There may be other exceptions, but they are exceptions to the general rule. In my view, a simple order as to costs made by the court, without more, should be regarded as an order absolute, and not an order nisi.

8.Ms Wong refers the court to a number of cases in support of her proposition mentioned in §6 above. In two of the cases relied upon by Ms Wong, namely, (i) Chan Shun Kei v Hong Kong Construction (Hong Kong) Limited, HCCT 2/2011, 21 August 2014 (Mimmie Chan J), and (ii) Lau Wing Yan v Owners of BBG Glory, HCAJ 77/2017, 24 November 2017 (Anthony Chan J), it was clear that the judge intended to make an order nisi, instead of an order absolute. In the former case, immediately after Mimmie Chan J made the costs order orally at the conclusion of a hearing, in response to an application by counsel for the defendant for costs on an indemnity basis, the judge indicated to counsel that a separate application for variation could be made (§§3 and 7 of Chan Shun Kei). This plainly shows that the judge’s intention was to make a provisional order. In the latter case, it appears that Anthony Chan J had expressly explained to the parties that the costs order was intended to be an order nisi (see §3 of Lau Wing Yan).

9.The third case that Ms Wong relies upon is the decision of Mimmie Chan J in Re Leung Yat Tung, HCB 2019/2000, 15 November 2017. In that case, the judge handed down a written decision on 29 August 2017 dismissing a creditor’s application to reverse or vary the decision of the Official Receiver rejecting the creditor’s proof of debt after a hearing which took place on 10 August 2017. At the end of the decision, the judge stated: “For all the above reasons, I dismiss the Creditor’s application, with costs to be paid to the OR”. Subsequently, the creditor applied, out of time, for extension of the period of 14 days specified under Order 42, r 5B(6) to vary the “costs order nisi”. At §3 of the decision dated 15 November 2017 on the creditor’s application for extension of time, the judge stated: “I agree with the OR, that the costs order in the Decision is an order nisi by virtue of the provisions of O 42 r 5B, without the need for express specification.” It seems clear that both the creditor and the Official Receiver considered the costs order to be an order nisi, and no argument to the contrary was addressed to the judge. It is not clear whether there was any indication by the judge at the hearing on 10 August 2017 that she intended to make a costs order nisi or absolute.

10.At §6.3.4 of Ms Wong’s Skeleton for the Commissioner dated 19 January 2022, she puts forward a slightly different proposition, namely, that as a general principle, “where the court makes a costs order in a decision handed down after the hearing, and before the issue of costs has been fully addressed, such an order is by nature provisional and subject to an application for variation within 14 days”. I have italicised the words “and before the issue of costs has been fully addressed” because whether the parties have been given an opportunity to address the court on the issue of costs goes primarily to the question of whether it would be appropriate for the court to make a costs order absolute or a costs order nisi. If the court has not heard the parties at all on the issue of costs but proceeds to make an order which on its face is absolute, it may be that the court’s true intention is to make an order nisi, but whether that is so depends on the facts and circumstances of the case. I should also add that the extent of arguments which may properly be entertained by a court on an issue of costs is a case management matter. In many cases, it should be possible for counsel to address the court on the issue of costs briefly. Extensive citation of authorities or elaborate arguments on the facts or conduct of the parties to the litigation would normally not be necessary. The court, having read the papers and heard the case, should already have a fairly good grasp of where the justice lies in relation to the issue of costs.

11.In the present case, it is clear that this court did not intend the Order to be an order nisi. At the conclusion of counsel’s submissions on 5 November 2020, the court expressly said to counsel the following:

“… Do you have any special things you want to say about costs? Otherwise, I’ll just simply deal with it in a way I see appropriate. Of course, I’ll take into account questions like delay, that there are separate issues to be argued. I think the obvious things, maybe how one should take into account, well, the late discovery of documents, the credibility of witnesses, etc. I’ll of course bear all of that in mind.”

12.Neither counsel made any submissions in response to the court’s invitation, or suggested that the court should make a costs order on a nisi basis. This is not meant to be any criticism of counsel. Very often, there may not be much that needs to be said on the issue of costs, particularly in cases where the parties have fully argued their cases including the history of litigation (as here). The position is different where there are relevant matters which the court is unaware of, eg without prejudice save as to costs negotiation, sanctioned offers, etc, but there are no such matters in this case.

13.Further, the court confirmed in its letter dated 6 August 2021 that the Order was not an order nisi, but a final order. There could thus be no proper basis to contend that the Order is an order nisi.

14.Ms Wong submits that the Defendant was not in a position to make proper submissions in relation to costs prior to reviewing the court’s specific reasoning, assessment of various aspects of the Plaintiff’s evidence, evaluation of the Plaintiff’s conduct in these proceedings, and the precise basis on which the Plaintiff’s claims partially succeeded. I do not consider these matters affect the true nature of the Order, but I shall consider them further under the Defendant’s alternative basis of the application to vary the Order.

COURT’S POWER TO VARY AN ORDER WHICH HAS NOT BEEN SEALED OR PERFECTED

15.It is not in dispute that the court has power to alter an order which has not yet been drawn up, entered or perfected. Whether the court should exercise such power involves an exercise of discretion. Ms Wong accepts that the power should only be exercised in exceptional circumstances or where there are strong reasons to do so. Ms Wong has also drawn my attention to a decision of Kwan JA (as she then was) in CEP Limited v Wuxi Jiacheng Solar Energy Technology Co Ltd, CACV 97/2014 (29 October 2014), where the judge said “I am satisfied I have inherent jurisdiction to entertain the application to vary the costs order where the plaintiff had omitted to ask the court to reserve its decision on costs or to make an order nisi, as the order has not been drawn up, entered or otherwise perfected and I am not functus officio”. I do not read this passage to mean that the failure or omission of a party to ask the court to reserve its decision on costs or to make an order nisi is by itself sufficient to justify the court invoking the jurisdiction to vary an order which has not yet been sealed or perfected.

16.As earlier noted, Ms Wong submits that the Defendant was not in a position to make proper submissions in the present case prior to reviewing the court’s specific reasoning, assessment of various aspects of the Plaintiff’s evidence, evaluation of the Plaintiff’s conduct in these proceedings, and the precise basis on which the Plaintiff’s claims partially succeeded in relation to costs. However, the matters which could properly be relied upon by the Defendant to ask the court to depart from the prima facie rule that costs should follow the event are, I consider, reasonably obvious in this case. Nevertheless, taking into account the long history of this litigation (which was commenced more than 10 years ago) and the fact that the hearing itself spread over 11 days in 3 tranches in January, October and November 2020, I am prepared to exceptionally consider the issue of costs afresh as if I were considering an application to vary a costs order nisi.

17.Ms Wong argues that there are exceptional circumstances to justify the Plaintiff being required to pay the costs in relation to the issue of the Loans, in particular:

(1)  The Plaintiff has been guilty of extraordinary and inexplicable delay over the years, and been persistently evasive to inquires of the Estate Duty Office since 1993 (see §§21, 25, 26, 28, 30(16), 31(1)-(5), 38 and 73(1) of the Judgment).

(2)  The Plaintiff’s highly deficient and protracted process of “piecemeal disclosure” was particularly unsatisfactory, and betrayed a “cavalier attitude” to discovery (see §§8, 25 and 26 of the Judgment). Whether such conduct was deliberately evasive or simply neglectful, it plainly ought to be discouraged and reflected in a suitable costs order.

(3)  Further, the court, after a full trial, expressed “considerable reservation” regarding the Plaintiff’s oral evidence, and found many of the Defendant’s criticisms of the Plaintiff’s case “unanswered or unanswerable” with a lot of “significant inconsistencies, illogicalities, and inherent improbabilities” in the Plaintiff’s evidence, and was not prepared to give weight on the oral evidence of the Plaintiff or Ms Fenn on matters which were controversial.

(4)  Thus, it was wholly proper and justified for the Defendant not to have accepted at face value the Plaintiff’s bare assertions regarding the purported Loans over the years, and to reasonably have required production of adequate documentary proof before deciding whether proper allowance could be made for those Loans under s 13(1) of the Estate Duty Ordinance, Cap 111.

(5)  Even after trial, the court held that the Plaintiff had failed to adduce evidence or sufficient evidence to qualify for allowance in respect of Loans 1, 4, 5, 6 and 7. The Defendant was therefore entirely successful on those issues.

(6)  Whilst the Plaintiff partially succeeded in establishing 3 of the 8 Loans, this was based on inexcusably late discovery, and there remain exceptional and unexplained features about the Plaintiff’s case which justify costs to be awarded to the Defendant (as elaborated in §11.6 of the Skeleton for the Commissioner dated 19 January 2022 which it is not necessary to recite in this decision).

(7)  This is a case where only the Plaintiff’s side, but not the Defendant’s side, would have been party to the relevant events. For the Defendant to assess the merits of the Plaintiff’s claim, the Defendant was entirely dependent on the Plaintiff to produce evidence in support of his claim. In the absence of sufficient proof, the Defendant would not have had proper basis to allow deduction of the Loans. The Defendant should not be penalised on costs for the Plaintiff’s inexplicable and inordinate delay in releasing information or providing documents which only he had the power to produce.

18.The court was fully aware of the matters now relied upon by Ms Wong at the time when it made the Order. Most significant of them are the Plaintiff’s delay and evasion in responding to the Estate Duty Office’s inquiries, the late discovery of documents, and the poor quality of and/or doubts about the Plaintiff’s oral evidence. On the other hand, although the Defendant has succeeded in resisting the Plaintiff’s reliance on 5 of the 8 Loans, in terms of amount, they come to only about 22% of the Loans (HK$9,173,300 out of HK$41,534,925.83). Thus, the Plaintiff has, as a matter of fact, achieved a significant reduction in the net value of the Estate for the purpose of assessment of the estate duty payable by the Plaintiff. It is one thing to deprive a successful plaintiff of the whole or part of the costs incurred by him to pursue a claim, and quite another to order a successful plaintiff to pay the costs of an unsuccessful defendant (although the court no doubt has jurisdiction to make such an order in a proper case). In this case, the Plaintiff and Defendant are each partially successful in relation to the issue of the Loans. Having reconsidered the whole circumstances of this case afresh, including those matters relied upon by Ms Wong referred to in §17 above, I remain of the view that the fair costs order to make in respect of the issue of the Loans is that there should be no order as to costs.

19.In respect of the costs incurred in relation to the Remaining Items, the parties were able to resolve the relevant disputes quite some time prior to the trial. I have not been referred to the details of those disputes, and do not have full information regarding the nature of the disputes and how they were resolved. I am unable to form any view as to the reasonableness or otherwise of the respective positions taken by the parties in relation to them. What I have been told is that there has been a reduction of over HK$10 million in the net value of the Estate in respect of the Remaining Items. The costs which the Plaintiff might have incurred in relation to the Remaining Items are likely to be a small fraction of the costs incurred in relation to the Loans or the Tin Ha Road Property. In view of the fact that the Plaintiff has decided to adopt a neutral stance on this matter, I would vary the Order to the extent as sought in §1.2 of the Summons. Save to this extent, the Summons is dismissed.

20.On the issue of costs, the Plaintiff has, by and large, succeeded in resisting the Summons. Having heard the parties on the issue of costs, I see no reason why costs should not follow the event. I therefore make an order that the Defendant shall pay the Plaintiff’s costs incurred in resisting the Summons, including the costs of the hearing on 24 January 2022, to be taxed if not agreed with certificate for 2 counsel. For the avoidance of doubt, this order as to costs is an order absolute.

21.I should mention that, consistently with the position adopted by her in the present application, Ms Wong argues that whatever costs order that this court may made in relation to the Summons can only be an order nisi. I do not accept this argument which, if correct, means that there could, in theory, be no end to the issue of costs unless the court gives an oral judgment at the conclusion of a hearing, or asks the parties to attend the court for delivery of an oral judgment and deal with the issue of costs immediately afterwards. This would plainly be contrary to the underlying objectives of the Civil Justice Reform mentioned in Order 1A, rule 1 of the Rules of the High Court.

Mr Edward Chan, SC, and Mr Nicholas Oh, instructed by Lily Fenn & Partners, for the Plaintiff

Ms Sheena Wong, instructed by Department of Justice, for the Defendant