Nh Investment & Securities Co Ltd v. Universe Income Builder Fund Series Iv Llc and Others

HCCL 2/2021

[2022] HKCFI 1715

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMMERCIAL ACTION NO 2 OF 2021

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DECISION

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1.The issue before the court this morning is one of costs between the Plaintiff and the 7^th Defendant (“D7”) in relation to 3 Summonses.

2.In this action the Plaintiff claims that 2 large sums of money which it had invested in a Fund in 2018 and 2019 were not used for that purpose.  In its Points of Claim, the Plaintiff seeks damages and tracing remedies against the Defendants (D7 was the “Fund Administrator” and “Legal Custodian” of the Fund) based on misrepresentation, breach of contract, inducing breach of contract, unlawful means conspiracy, negligence, unjust enrichment, knowing receipt and dishonest assistance.

3.On the 27^th April 2021, the Plaintiff obtained an ex parte proprietary injunction against, inter alia, D7 in respect of the said sums of money.  On 29 April 2021, the Plaintiff took out an inter parte Summons for the continuation of the ex parte order and for ancillary disclosure (“Summons (1)”). 

4.On 6 May 2021, D7 took out a Summons to discharge the ex parte order.  Alternatively, it offered an undertaking in place of the injunction (“Summons (2)”).  In support of the application, evidence was produced by D7 to the effect that the traceable proceeds of the Plaintiff’s money were limited to a sum of US$967,927.08 (“Sum”).  Further, D7’s evidence contained various details which rendered the ancillary disclosure sought by the Plaintiff unnecessary.

5.At the hearing of Summons (2) on 7 May 2021, it was ordered that the substantive argument be heard on 18 May 2021.

6.On 12 May 2021, the Plaintiff took out another Summons for various relief (“Summons (3)”).  For the present purpose, the relevant parts of Summons (3) are paras 3.2, 3.3, 3.4, 4 and 5 thereof.  In those paragraphs, in addition to D7’s undertaking in respect of the Sum, the Plaintiff asked for further undertaking from D7 in relation to other sums of money and for ancillary disclosure in respect of the same (“Summons (3) Relief”).   

7.At the hearing on 18 May 2021, D7’s undertaking to preserve the Sum was accepted by the court and the injunction was discharged.  The Summons (3) Relief were adjourned for argument.  On 6 January 2022, the Plaintiff gave notice to D7 that those Relief are no longer pursued. It is regrettable that the parties have not been able to reach an amicable agreement on the disposal of these Summonses.

8.By its Points of Defence, D7 denies each of the claims against it.  It claims to be an innocent custodian, and it asserts a positive claim to the Sum as fees for its custodian and related duties. 

9.In respect of the rival contentions on costs, the Plaintiff says that it is entitled to have its costs in the cause for Summons (1).  D7 says that it should have the costs of that Summons on indemnity basis.  As regards Summons (2), D7 also asks for its costs on indemnity basis.  The Plaintiff says that there should be no order as to costs.  On Summons (3), the Plaintiff concedes that D7 should have the costs of the Summons (3) Relief.  However, D7’s position is that such costs should be awarded on indemnity basis. 

10.It must be said at the outset that these costs arguments are quite disproportionate.  The hearing bundles consist of 13 full size box files.  The skeleton arguments run to 38 pages in total. 

11.D7 is asking for a punitive costs order against the Plaintiff on the basis that the ex parte order was tainted by material non-disclosure.  However, the Order made by the court on 18 May 2021 by which the injunction was replaced by D7’s undertaking contained no reservation or other provision for variation or discharge of the injunction. For that reason, the Plaintiff contends that D7 is barred from opening up the injunction by relying on the “Chanel principle” (see Compania Sud Americana De Vapores SA v Hin-Pro International Logistics Ltd [2015] 2 HKLRD 458, [16]). 

12.Although it appears from the transcript of the hearing of the 18 May 2021 that D7’s undertaking was said to be a “bridging measure”, there is nothing in the 18 May 2021 Order which suggests that the granting of the injunction against D7 will be revisited.  Indeed, the Order appears to be consistent with the discussions between the court and senior counsel for D7 at the hearing (see bundle B / tab 35 / p 501S to 502G). Further, the Plaintiff has rightly pointed out that there is no discharge application or variation application in respect of D7’s undertaking before the court. 

13.There are merits in the Plaintiff’s arguments based on the operation of the Chanel principle.  Further, given the present circumstances as summarised above, I do not believe that the court’s resources should be expended on arguments on material non-disclosure for the purpose of determining the costs of the 3 Summonses. 

14.There is no dispute that the Sum, which is in D7’s possession, can be traced to the Plaintiff’s investment in the Fund.  The rights and wrongs between them will be fully ventilated at the trial of this action.  I believe that the court should adopt a fair and proportionate approach in resolving the costs issues.  With that approach, I am of the view that the appropriate costs order in respect of both Summons (1) and (2) should be costs in the cause of the action. 

15.As for the costs of the Summons (3) Relief, I accept the order proposed by the Plaintiff. 

16.I bear in mind the principles set out in Huge Dragon Corp Ltd v Lung Mun Oasis (IO) [2014] 3 HKLRD 286, [11]-[14].  I see no sufficient reason to order any costs be taxed on indemnity basis.

17.I shall hear the parties on the costs of this hearing. 

Mr Nigel Kat SC, instructed by O’Melveny & Myers, for the Plaintiff

Mr Raymond Chu, instructed by H Y Leung & Co LLP, for the 7^th Defendant