China Medical Technologies, Inc. (in Liquidation) and Others v. Samson Tsang Tak Yung and Others

CACV 505/2019
(On appeal from HCA 3391/2016 and
HCA 1417/2013 (Consolidated)) &

CACV 510/2019
(On appeal from HCA 3391/2016)

[2022] HKCA 421

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF APPEAL

CIVIL APPEAL NO 505 & 510 OF 2019

(ON APPEAL FROM HCA 3391/2016 and 1417/2013(Consolidated))

________________________

CACV 505/2019
(On appeal from HCA 3391/2016 and
HCA 1417/2013 (Consolidated))

BETWEEN

HCA 3391/2016

HCA 1417/2013

(Consolidated by Order of Master Chow dated the 23^rd day of July 2018)

CACV 510/2019

(On appeal from HCA 3391/2016)

HCA 3391/2016

____________

Before: Hon Au and Chow JJA in Court

Dates of Written Submissions: 11 & 25 February and 4 March 2022

Date of Decision: 18 March 2022

________________________

DECISION

________________________

Hon Chow JA (giving the Decision of the Court):

1.On 19 January 2022, this Court handed down its judgment (“the Judgment”) allowing the Plaintiffs’ appeal against an order made by Ng J (“the Judge”) dated 22 May 2019 whereby the Judge set aside and discharged a worldwide mareva injunction granted ex parte by L Chan J on 11 December 2017, as amended by L Chan J on 8 January 2018 and as continued by Chow J on 12 January 2018 (“the Injunction”), against, inter alia, the 2^nd Defendant (Mr Tsang). The effect of the Judgment is that the Injunction (save §4(2)(a) to (c) and (f) thereof) continues against the 2^nd Defendant until trial or further order of the court.[1]

2.The Court also made an order (“the Costs Order”) that the 2^nd, 5^th and 13^th Defendants shall pay the Plaintiffs’ costs of and occasioned by the Continuation Summonses and Discharge Summons before the Judge and the Main Appeal (including the Respondent’s Notices), to be taxed if not agreed with certificate for Senior Counsel and Solicitor Advocate (§76 of the Judgment), and gave certain directions regarding the apportionment of the Plaintiffs’ costs amongst the 2^nd, 5^th and 13^th Defendants (§77 of the Judgment).

3.By a summons filed on 28 January 2022, the 2^nd Defendant applies for a variation of the Costs Order (“the Application to Vary”) so that:

“(i) One-third of the agreed or taxed Plaintiffs’ costs of and occasioned by the Continuation Summonses and Discharge Summons before the Judge with certificate for 2 counsel (to be borne by the 2^nd Defendant) be the Plaintiffs’ costs in the cause of the Consolidated Action (HCA 3391/2016 and HCA 1417/2013) against the 2^nd Defendant or alternatively, other appropriate variation in view of the Plaintiffs’ material misstatement relating to the 2^nd Defendant as referred to in paragraphs 60, 70-73 of the Judgment; and

(ii) the 2^nd Defendant do pay one-third of the agreed or taxed Plaintiffs’ costs of and occasioned by the Main Appeal (including the Respondent’s Notices) with certificate for Senior Counsel and Solicitor Advocate”.

4.In Mr Alder’s Submissions for the 2^nd Defendant dated 11 February 2022, he puts forward a modified proposed variation of the Costs Order.  He proposes that the Plaintiffs be deprived of 40% (or other appropriate percentage) of their costs of the ex parte applications and the Continuation Summonses against the 2^nd Defendant, and the remaining costs (ie 60% of the Plaintiffs’ costs relating to the 2^nd Defendant and 100% of the 2^nd Defendant’s costs) be in the cause.  He does not seek to vary the Costs Order as regards the costs of the Main Appeal, or the apportionment of the Plaintiffs’ costs in §77 of the Judgment.

5.The Costs Order is, it is not disputed, an order absolute.  It was made after the court asked the parties, at the conclusion of the hearing of the appeal, for their position on costs and the parties agreed that costs should follow the event.  Mr Alder says that the agreement of counsel only concerned the costs of the appeal, but not the costs below, and that this court should have invited written submissions on the costs below in view of its finding of misstatement by the Plaintiffs on a serious allegation against the 2^nd Defendant in both ex parte applications to determine an appropriate costs order to do justice to the parties, maintain the integrity of the administration of justice and deter such conduct in future. Mr Alder submits that this amounts to “exceptional circumstances” justifying an application for variation of a costs order which has not yet been sealed or perfected.[2] The court undoubtedly has an inherent jurisdiction to vary a costs order absolute which has not yet been sealed or perfected.  However, such jurisdiction should not be lightly exercised in the absence of exceptional circumstances or strong reasons to do so (see Kung Kwok Wai David v The Commissioner of Estate Duty [2022] HKCFI 333, at §15).  In the present case, this court’s decision to uphold the Judge’s finding that there was a material misstatement by Mr Borrelli to L Chan J on 11 December 2017, namely, that “each of the Tsang Properties was purchased without mortgage” (see §§70-73 of the Judgment), cannot be said to be something of a surprise to the 2^nd Defendant.  The Plaintiffs argue, with some justification, that the issue of misstatement was a live one at the time of the appeal, and if the 2^nd Defendant considered that it warranted particular costs consequences he should have made submissions when the court asked the parties for their position on costs at the end of the hearing.[3]  Alternatively, the 2^nd Defendant could have suggested that while the costs of the appeal should follow the event, the costs of the hearing below should be dealt with after further submissions from the parties.

6.Mr Alder argues, nevertheless, that there was a misunderstanding, in good faith, as to the scope of the indication given by counsel on costs at the end of the appeal hearing, and this could be a sufficient ground for the court to re-open an order which has not yet been sealed or perfected.  He refers the court to the judgment of Woo JA in Sun Jianqiang v Trans-Island Limousine Service Ltd [2004] 1 HKC 533, at §28, in support of his position.  The learned judge there said that examples of “strong reasons” for the present purpose included a plain mistake on the part of the court, a failure of the parties to draw to the court’s attention a fact or point of law that was plainly relevant, or discovery of new facts subsequent to the judgment being given.  While we are not satisfied that there was any “mistake” as such, we are prepared to accept that the 2^nd Defendant’s counsel intended that his agreement that costs should follow the event only covered the costs of the appeal, but not those below.  On this basis, we are prepared to look at the Costs Order afresh insofar as it relates to the costs of the Continuation Summonses and Discharge Summons.

7.Mr Alder, while accepting that costs are always in the discretion of the court to be exercised according to established principles and the circumstances of each case, refers the court to the “traditional” (pre-CJR) approach as to the costs of interlocutory injunctions as stated by Rogers VP in King Fung Vacuum Ltd v Toto Toys Ltd [2006] 2 HKLRD 785, at §27:

“The traditional order on interlocutory injunctions has been that the successful party in any application for an interlocutory injunction would have his costs in the cause. Following the American Cynamid decision, the practice has frequently been to make both parties costs, costs in the cause. There is no justification if one applies American Cynamid principles for giving the successful party his costs in any event, or worse still an immediate order as to costs, unless of course, that party has acted improperly or is in some way to be penalised. It could be, for example, that if a plaintiff seeks an interlocutory injunction and the application is totally baseless and does not even establish, for example, that there is a matter fit to be tried, that the court would then consider that such an order might be made. But those would be very special circumstances. Normally an order of either costs in the cause, or perhaps the successful party’s costs in the cause would be appropriate.”

8.However, recent authorities after the CJR suggest that the courts are now more ready in interlocutory applications to make an immediate order as to costs, instead of costs in the cause, or plaintiff/defendant’s costs in the cause: see Midland Business Management Ltd v Lo Man Kui (No 2) [2011] 2 HKLRD 667, at §§9-12; Wing Fai Construction Co Ltd v Yip Kwong Robert (No 2) (2012) 13 HKCFAR 454, at §7; Predicine Holdings Ltd v Bianchi (Hong Kong) Ltd [2021] 2 HKLRD 216, at §31; and Chow Steel Industries Public Company Ltd v Ko Sung [2021] HKCA 1642, at §§22-27.

9.Mr Alder submits that there seems to be no difference between substantive and Mareva injunctions.  In both, if the plaintiff fails at trial, it may be said that the defendant ought never to have been restrained from substantive conduct or dealing with its assets.  In Mareva cases, especially where, as here, the plaintiffs rely exclusively on the merits of a commercial dispute to demonstrate fraud so as to justify Mareva relief, final judgment will provide hindsight: if the action fails then Mareva relief was never justified.[4]

10.In the context of interlocutory injunctions (including Mareva injunctions), Au J (as he then was) in Mendlowitz & Associates Inc v Winner International Group Ltd, HCA 574/2009 (14 May 2010), said the following:

“[28] I do not think it is now right to say that as a matter of principle, the costs of an interlocutory injunction should be in the cause unless there is justification for its departure. The Court is entitled to and should look at the merits of the injunction itself as at the time of the application to decide what should be the proper costs order for that application in all the circumstances, which do not necessarily depend on the outcome of the trial.

[29] In Bushbury Land Rover Ltd v Bushbury Ltd [1997] FSR 709, the first instance judge refused to grant an interlocutory injunction against the respondent in relation to passing off on the balance of convenience and further ordered the applicant to pay the respondent’s costs. The applicant sought leave to appeal against that costs order, contending that it should be the respondent’s costs in the cause, which was the normal costs order for interlocutory injunction, and that there was nothing to justify a departure from it in that case. A single Lord Justice dismissed the application for leave, and the applicant renewed its application before two members of the Court of Appeal. In dismissing the renewed application for leave and in dealing with the applicant’s said submissions, Auld LJ said as follows at 712:

‘In my judgment, that argument [that the normal costs order for interlocutory injunction should be the respondent’s costs in the cause unless there was anything to justify a departure] … ignores the clear distinction between entitlement to interlocutory relief and final judgment which underlines Lord Diplock’s identification in American Cyanamid Co v Ethicon Ltd [1975] AC 396 of the criteria on which the court should exercise its discretion whether to grant the former. The fact that a plaintiff may succeed ultimately does not demonstrate that he should have been granted interlocutory relief when the merits of the matter were still unresolved and the court was balancing convenience. Final judgment provides no hindsight, tipping the earlier balance one way or the other.’

…

[30]  There is thus nothing wrong in principle for this Court, in the exercise of its discretion, to look at the merits of the application for the Injunction on its own to decide what proper costs order should be made in all the circumstances, without ‘linking’ it to what may happen at the end of trial or to the action itself.”

11.In Chow Steel Industries Public Company Ltd, Kwan VP (giving the judgment of the Court of Appeal) quoted with approval §28 of the judgment of Au J above and continued as follows:

“[24] Likewise in England, it is not the law or practice that the costs of interlocutory injunctions should normally be in the cause of the underlying action …

[25] In Albon v Naza Motor Trading Sdn Bhd [2008] 1 Lloyd’s Rep 1, the applicant obtained an interlocutory anti-arbitration injunction on the ground that his signature on the joint venture agreement that contained the arbitration clause was forged. The respondent (Naza) sought inter alia permission to appeal against the judge’s decision to award to the claimant the costs of the application. In refusing to grant permission to appeal, Longmore LJ said at §21:

‘21. The argument for Naza on this issue is that costs are not usually ordered on applications for interim injunctions since it is not until trial that it can be known whether the claimant has the right which he asserts he has. … This is not, however, an invariable rule. The narrow issue in the present case is what is to happen while the forgery issue is being determined; that does not depend on the claimant being right on the forgery issue. Granted that the forgery issue is to be determined in England, Naza was perfectly able to form a view as to the likelihood of their persuading the court that that the arbitration should continue meanwhile. The judge was entitled to conclude that they miscalculated and should suffer the consequences. This is very much a matter for the judge’s discretion and I would refuse permission to appeal on this question.’

[26] Albon was affirmed in Koza Ltd & Anr v Koza Altin Isletmeleri AS [2020] Costs LR 1479, in which Popplewell LJ emphasised at §4 that there is no ‘general rule applicable in all cases’ and ‘no invariable practice’ that where an applicant obtains an interlocutory judgment on the balance of convenience, the court should reserve costs. In that case, the injunction was not of a ‘holding the ring’ type, and the issues which were ventilated upon the application would not be revisited as part of the substantive dispute.

[27]  What is important to note from these decisions is that the court’s hands are not tied.  If factors are present that warrant an immediate order as to costs, the court may exercise in the exercise of its discretion make such an order.”

12.In our view, it is neither necessary, nor appropriate, to put cases of interlocutory injunctions (including Mareva injunctions) into any special category insofar as costs are concerned.  In all cases, the court has a broad discretion to exercise as to whether to make an immediate costs order in favour of the plaintiff/defendant, or reserve the issue of costs to the trial, or order that costs, or plaintiff/defendant’s costs, be in the cause.  In some cases, it may be appropriate to order that costs, or plaintiff/defendant’s costs, be in the cause as suggested by Mr Alder.  However, it is not correct to treat such order as being the default, or prima facie, position.  Each case must be looked at having regard to all relevant circumstances.

13.In the present case, at the hearing before the judge, the 2^nd Defendant left the issue of good arguable case “in the Court’s hand” (for the purpose of the application in question), but pursued the issues of substantial delay / risk of dissipation, whether the Plaintiffs should have applied ex parte without notice, and material non-disclosure / misstatement.  Save in relation to the issue of material non-disclosure / misstatement (which we will further discuss below), this court has found against him on all other issues, and accordingly held that the Injunction (save §4(2)(a) to (c) and (f) thereof) ought to be continued against him.  The application before the Judge was hotly contested, and substantial costs would plainly have been incurred by both sides.  In our view, this is a case where “the merits of the injunction itself as at the time of the application” would fully justify ordering the 2^nd Defendant to pay the Plaintiffs’ costs of and occasioned by the Continuation Summonses and Discharge Summons.  We do not accept Mr Alder’s submission that the court should adopt the “traditional” or “hindsight” approach in determining the interlocutory costs before the Judge in this case.

14.This court’s finding of material misstatement by the Plaintiffs in the ex parte application before L Chan J referred to in §5 above is relevant to the court’s exercise of its discretion on costs, but is by no means conclusive on the issue.  The material misstatement found by the court was a limited one, and it only formed a small part of the issues ventilated before the Judge as between the Plaintiffs and the 2^nd Defendant.  More significantly, on the 2^nd Defendant’s case, the Tsang Properties were not his assets.  Thus, the discharge of §4(2)(a) to (c) and (f) of the Injunction, while material to Interested Party (Ms Chui), would have no real impact on him on his own case.  In all the circumstances, we do not consider the matter of material misstatement to be significant in determining the costs position between the Plaintiffs and the 2^nd Defendant before the Judge.  In passing, we should mention that we do not consider the allegation that “Mr Borrelli is a repeat offender with a long record of material misstatements to Courts”[5] is relevant to the present application.  We do not consider that the Plaintiffs here should be punished for other instances of misconduct, or alleged misconduct, on the part of Mr Borrelli.

15.For the above reasons, the 2^nd Defendant’s summons dated 28 January 2022 is dismissed with costs to the Plaintiffs, to be taxed if not agreed.

Karas LLP, Solicitors for the Plaintiffs in both cases

Mr Edward Alder, instructed by P C Woo & Co., for the 2^nd Defendant in HCA 3391/2016 and the 2^nd Defendant in HCA 1417/2013