China Life Trustee Ltd v. China Energy Reserve and Chemicals Group Overseas Co Ltd and Another

HCA 146/2020

[2022] HKCFI 2524

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 146 OF 2020

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BETWEEN

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Before:  Hon Au-Yeung J in Chambers

Closing Date for Submission:  17 June 2022

Date of Decision (by paper disposal):  12 August 2022

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D E C I S I O N  ( T O    V A R Y    C O S T S )

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Introduction

1.By a Decision dated 18 March 2022 (“March Decision”), this Court dealt with China Life’s Joinder Application, China Life’s Garnishee Application and D1’s Setting Aside Application. This Court ordered, on a nisi basis, that costs of all 3 Applications should be borne by D1 and the Ad Hoc Committee with certificates for 2 counsel.

2.By a summons dated 12 April 2022, the Ad Hoc Committee seeks to vary the costs order to “the costs of the 3 Applications be borne by D1, whilst the costs of the Garnishee Application being also borne by the Ad Hoc Committee as to 35%, with certificates for 2 counsel” (“Variation Summons”)

3.The summons is opposed by BOCOM Trustee. China Life only opposes the part that seeks to limit the Ad Hoc Committee’s liability to 35% of the costs.

4.This decision adopts all the abbreviations in the March Decision. Numbers in brackets refer to paragraph numbers in the March Decision.

5.The Ad Hoc Committee’s grounds for variation can be summarized into 3 limbs[1]:

(1)  That the Ad Hoc Committee was only granted leave to oppose the Garnishee Application and it “took up the torch at the last minute only because of the Defendants’ absence” (“Limited Participation Ground”);

(2)  That the Ad Hoc Committee only filed a short affirmation of 10 pages limited to the issues in the Garnishee Application. (“Limited Evidence Ground”); and

(3)  The Garnishee Application failed or at least did not succeed to the extent of US$70 million (“Partial Success Ground”).

Limited Participation Ground

6.The Ad Hoc Committee aptly reminded this Court that it was only given leave to participate in the Garnishee Application. At the hearing which led to the March Decision, Mr Li SC acting for the Ad Hoc Committee expressly stated that the Ad Hoc Committee had no submission to make on the other 2 Applications. This was reflected in the March Decision which stated that the Ad Hoc Committee did not oppose the Joinder Application (§50) and that the analyses made clear that the Setting Aside Application was made by D1.

7.BOCOM Trustee submits that the Ad Hoc Committee’s role in the garnishee order was by no means “last minute”. Even before the first call-over of the garnishee order on 16 April 2021, the Ad Hoc Committee had asked the Court for permission to participate in the Garnishee Application, instructed BOCOM Trustee to oppose the Garnishee Application and had demanded to participate in the proceedings so as to oppose the Garnishee Application alongside the Defendants. The Ad Hoc Committee’s instructions to oppose the Garnishee Application was the sole reason why BOCOM Trustee found itself in a position of conflict, such that BOCOM Trustee was forced to apply for and obtain an adjournment pending resolution of the conflict.

8.BOCOM Trustee submits that this point of conflict not only formed the basis of the Joinder Application (and was acknowledged by the Court in §§50 and 121 of the March Decision) but was also pivotal to D1’s case for the Setting Aside Application. It was due to significant overlap and duplication of arguments in the Ad Hoc Committee and D1’s arguments that when the Defendants failed to turn up at the hearing of the Garnishee Application that the Ad Hoc Committee was able to “take up the torch” and advance the arguments against the Garnishee Application in D1’s place.

9.I am not persuaded by the contentions of BOCOM Trustee. Although the conduct of the Ad Hoc Committee put BOCOM Trustee into a position of conflict, the principle remains that the Ad Hoc Committee who has not been given leave to participate in the Joinder Application and the Setting Aside Application, and who had not addressed the Court as a result, could not be made to bear the cost.

10.Further, as Mr Li SC submits, the Interested Party’s conflict of interest is rooted in its taking on multiple roles acting for different bondholders. As it must have known all along, in any insolvency situation, the interest of the holders of different tranches of bonds are unlikely to be perfectly aligned. It cannot blame some bondholders (here, the Ad Hoc Committee) for asserting and defending their interest.

11.I agree. This Court has held that the Ad Hoc Committee had locus standi to appear in the Garnishee Application despite objection from China Life (§§8(1) and 69).

12.However, I do not agree that the Ad Hoc Committee’s involvement in the Garnishee Application was limited. It was true that the Ad Hoc Committee advanced its case based, in part, on the evidence of the CERC Parties (§12) and that there was substantial overlap in its case and that of D1. However, the Ad Hoc Committee was advancing a case in its own right. If the garnishee order nisi was not made absolute, the Ad Hoc Committee would potentially benefit in that the subject matter of the Garnishee Application may be used to meet its debt.

13.I hold that the Ad Hoc Committee should only be responsible for the costs of the Garnishee Application, but its participation was not nominal but active and substantial.

Limited Evidence Ground

14.I agree with BOCOM Trustee that the volume of a party’s filing is not relevant to the liability for costs. This ground is not sustainable.

Partial Success Ground

15.The Ad Hoc Committee’s case on 3 types of trust was a total loss. It only succeeded to the extent of US$70 million out of a total of about US$121 million to be garnisheed. The US$70 million formed a relatively minor part of the evidence and submissions were made pursuant to the Court’s requisition. It could hardly have affected the way in which each party had prepared the Garnishee Application for hearing. China Life could not get that sum because its house was not in order (§107).

16.D1 did not appear at the hearing. The costs spent by China Life and BOCOM Trustee were on contesting the Ad Hoc Committee’s contentions. It would be unfair for the Ad Hoc Committee to escape full liability of costs, in view of its active and substantial participation. The Partial Success Ground fails.

Conclusion

17.I vary the costs order and order that “the costs of the 3 Applications be borne by D1, whilst the costs of the Garnishee Application shall also be borne by the Ad Hoc Committee, with certificates for 2 counsel.”

18.The Ad Hoc Committee is partly successful in varying costs.

(1)  As between it and the Interested Party, there should be no order as to costs.

(2)  As between it and China Life, the Ad Hoc Committee shall bear China Life’s costs.

There shall be sent for one junior counsel.

19.I thank counsel for their assistance.

Written submission by Mr Victor Dawes SC and Mr Joshua Chan, instructed by DLA Piper Hong Kong, for the Plaintiff

Written submission by Mr Laurence Li SC, instructed by Kirkland & Ellis, for the Ad Hoc Committee

Written submission by King & Wood Mallesons, for the Interested Party