Hj Innoxcell Ltd v. Teh Boon Khuan
Read the full judgment text of HCA 1707/2018 on BabelCite. This High Court CFI judgment was delivered on 28 October 2024.
1. The main protagonists in these actions were Kwok Yiu Wai Andy (“Kwok”) and Teh Boon Khuan (“Teh”), respectively the ultimate majority and minority shareholders of their joint venture through the corporate vehicle, ie the plaintiff (“HJI”). Upon their breakdown and the removal of Teh from the venture, Kwok caused HJI to commence the actions herein against Teh, his company, Innoxcell Limited, and its former employees (collectively “the Defendants”). Various interlocutory applications taken out
Cited by 6 cases · Cites 11 cases
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HCA 1707/2018 & HCA 2835/2018 & HCMP 1402/2020 (Heard together) [2024] HKCFI 3058 HCA 1707/2018 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 1707 OF 2018 ________________________
________________________ AND HCA 2835/2018 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 2835 OF 2018 ________________________
________________________ AND HCMP 1402/2020 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE MISCELLANEOUS PROCEEDINGS NO 1402 OF 2020 (Transferred from HCA 1707 of 2018) ________________________
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________________________ (Heard Together)
________________________ D E C I S I O N ________________________ 1.The main protagonists in these actions were Kwok Yiu Wai Andy (“Kwok”) and Teh Boon Khuan (“Teh”), respectively the ultimate majority and minority shareholders of their joint venture through the corporate vehicle, ie the plaintiff (“HJI”). Upon their breakdown and the removal of Teh from the venture, Kwok caused HJI to commence the actions herein against Teh, his company, Innoxcell Limited, and its former employees (collectively “the Defendants”). Various interlocutory applications taken out by HJI against the Defendants in these actions substantially failed with adverse costs orders made against it. HJI was then made subject to an order for security for costs, which it defaulted. Hence the dismissal of these actions with further costs against HJI. HJI was then wound up. The Defendants now apply to look to the parties behind HJI in the litigation for their personal liability to pay their costs. BACKGROUND 2.The background was summarised in this court’s written reasons handed down on 2 September 2021 ([2021] HKCFI 2604) (“the 2/9/2021 Reasons”) for the decision made on 3 August 2021 in respect of the Defendants’ applications for security for costs against HJI then. That decision and its aftermath also brought about further adverse costs orders against HJI. It suffices for the present purpose to recapitulate the follows. 3.As the corporate vehicle of the then joint venture between Kwok and Teh, HJI was at all material times a company with paid up capital of HK$100,000. Teh owned 49% shareholdings in HJI while the other 51% was owned by Shenzhen PrimeVest Holding Consulting Co Limited (“PrimeVest SZ”). PrimeVest SZ held such majority shareholdings in HJI through its wholly owned vehicle Hongjing Emerging Technology Company Limited (“HETCL”). 4.PrimeVest SZ had a number of shareholders. Amongst them was Kwok who held more than 77% through his wholly owned vehicle International Institute of Professional Development Limited (“IIPDL”). In other words, Kwok was at all times the ultimate owner of more than 77% of the 51% majority shareholdings in HJI. 5.At the material times, Kwok (with his wife) was the director of IIPDL. He was also a director (with 3 others) of PrimeVest SZ, the sole director of HETCL and a director (with his wife) of HJI. Teh was a director and the chief executive officer of HJI. 6.Upon their breakdown, Teh was removed from the venture in June 2018. All the circumstances considered, it would not be unfair to view that HJI was very much under Kwok’s control then. In such position, Kwok soon caused HJI to commence the actions herein against Teh (in all the actions) and Innoxcell Limited and its former employees (in HCA 2835/2018). 7.In July 2018, HJI commenced HCA 1707/2018 against Teh for alleged breach of director’s duties. It soon took out an application in that action for Teh to deliver up the company documents. Teh provided his undertaking, and pursuant to which disclosed the company documents. Dissatisfied with the disclosure, HJI proceeded with the application for further disclosure, which however was dismissed. Subsequent application by HJI for further and better particulars of the defence of Teh in that action also failed substantially. So did that for summary judgment. 8.In November 2018, HJI commenced HCA 2835/2018 against Teh’s company, Innoxcell Limited, and its former employees for alleged solicitation of HJI’s clients. 9.In 2019, Kwok also caused IIPDL to commence another action (HCA 1664/2019) against Teh and InnoXcell Limited. At one point, Kwok also caused his another corporate vehicle to commence legal action in the Mainland against Teh and the latter’s company in Shenzhen, though the same was withdrawn months afterwards. 10.In 2020, HJI applied for leave to commence committal proceedings against Teh for breach of his disclosure obligation. Leave to do so was granted by the court. Hence HCMP 1402/2020. 11.In view of the cumulative outstanding taxed costs against HJI and the further costs to be incurred in these actions, the Defendants applied for security for costs against HJI in 2021 pursuant to section 905 of the Companies Ordinance, Cap 622. The ground was reason for belief that HJI would be unable to satisfy its costs liability if the defence succeeded. As mentioned, the application was heard before this court. On 3 August 2021, this court granted the order sought with the sanction in the event of default of compliance being liberty to the Defendants to apply for dismissal of these actions altogether. Subsequently, this court also dismissed HJI’s application for leave to appeal against the order: see decision dated 23 September 2021 ([2021] HKCFI 2792) (“23/9/2021 Decision”). 12.By then, the Defendants, as judgment creditors in respect of the accrued taxed costs, have already petitioned for the winding up of HJI. Whilst it opposed the petition, HJI eventually let the order for security for costs go into default. Hence the exercise by the Defendants of their liberty to apply to dismiss these actions. Following the dismissal of these actions, HJI was also wound up by the order of the court on 15 November 2021. By then, further costs against HJI accumulated. 13.Now that HJI is in liquidation, Kwok, PrimeVest SZ, HETCL and IIPDL have come forward as proving creditors in respect of debts said to be owed by HJI to them. They include those arising out of their funding of HJI’s litigation against the Defendants. 14.As observed by this court in the 2/9/2021 Reasons, the fact was that Kwok and his associates under his steer consciously funded HJI to continue to engage the Defendants in litigation, but clearly without any intention to foot the bill for any adverse costs consequence. After security for costs has been ordered, HJI defaulted in compliance after unsuccessful attempt to seek to impeach it. The taxed or summarily assessed costs under some 15 outstanding costs orders added up to a sum of HK$1.63 million. That is yet to include the further costs ordered against HJI which are pending taxation. 15.Against this background, the Defendants took out the present applications in these actions respectively pursuant to section 52A of the High Court Ordinance, Cap 4 (“HCO”) and Order 62 rule 6A of the Rules of the High Court, Cap 4A (“RHC”). By their amended summonses filed on 1 February 2024 in these actions respectively, the Defendants apply for:
16.By summonses filed in these actions respectively on 19 July 2024, the Defendants applied to further amend the ambit of the applications to include other costs orders which were already referred to in the affirmation evidence. The further amendment was not opposed, which in any event should cause no surprise. Hence the same being allowed at the hearing. THE PRINCIPLES 17.Section 52A of the HCO provides:
18.O62, r6A of the RHC provides:
19.The application is a summary procedure. The first stage is to consider whether the parties should be joined for the purpose of costs, and then to give them reasonable opportunity to be heard. That said, joinder for such purpose is refused only if it is clear that the application is tainted by undue delay or fundamental misconduct or misconception so as to amount to abuse of process: see Sun Focus Investment Limited v Tang Shing Bor & Anor [2012] 5 HKLRD 853 (at §§12-20). 20.The court in Wong Chong Kwai Yin v Tsang Hau Ling [2022] HKCFI 1367 described (at §32) that the application is appropriate only in plain and straightforward cases. However, this should not be understood as seeking to add to or to subtract from what was said in Sun Focus Investment Limited (above) about the summary nature of the application. 21.Apart from citing the above, the court in Achieve Goal Holdings Ltd v Zhong Xin Ore-Material Holding Co Ltd [2023] HKCFI 1407 (4 May 2023) explained (at §4) that the court in exercising the discretion at the second stage would take into account:-
22.In Hydrotech Waterproofing Solutions Ltd v Shun Yuen Construction Company Ltd [2023] 2 HKLRD 173, the court had the following explanation (at §7). 23.Whilst costs orders against non-parties are sometimes said to be exceptional, “exceptional” in this context means no more than outside the ordinary run of cases where parties pursue or defend claims for their own benefit and at their own expense. 24.Where a non-party not merely funds the proceedings but substantially controls or at any rate is to benefit from them, justice will ordinarily require that he pays the successful party’s costs if the proceedings fail. 25.Such a party is not so much facilitating access to justice by the party funded as himself gaining access to justice for his own purposes, and as such he himself is regarded as the real party to the litigation. 26.Ultimately, the touchstone is whether it is just to make such an order in all the circumstances. 27.Relevant to the application against Kwok as the director and person in ultimate control of HJI, the court in Hydrotech Waterproofing Solutions Ltd (above) (citing Goknur v Organic Village [2021] 4 WLR 101) explained the following indicia (at §§11-14). 28.Ordinarily the mere fact that a director controlling a company has caused the company to bring or defend proceedings which the director funded, and which ultimately failed, is not, without more, sufficient to render the director liable for costs. 29.What will probably matter most is whether it can be said that the individual director in controlling or funding the company’s pursuit or defence of litigation was seeking to benefit personally from the litigation. 30.A director who is controlling and funding the litigation to help preserve the company or advance its legitimate interests cannot usually be said to be seeking to gain personally from the litigation. He or she is merely doing what their duties as a director require them to do. The company is the real party. 31.Conversely, if the company’s stance was dictated by the real or perceived personal benefit to the individual director (whether financial, reputational or otherwise) or a personal windfall from the litigation, knowing that the company has no money to pay the other side’s costs if they lose, it might be said that the director, not the company, was the real party. 32.Alternatively, a non-party costs order may be made against a director where there is some form of impropriety or bad faith on his or her part which is causatively linked to the applicant unnecessarily incurring costs in the litigation. The touchstone is whether the director held a bona fide belief that the litigant company had an arguable claim or defence and that it was in its best interest to advance that claim or defence. It is the impropriety in relation to the litigation, for which the non-party is regarded as responsible, which is relevant. 33.One example is where a director knew that the company had no genuine cause of action and knew that the company by virtue of its insolvency or financial state would be unable ultimately to pay the costs of the unsuccessful litigation, yet still prosecuted, defended and/or continued the proceedings for his own reasons. In cases like this, a non-party costs order may be made against the director who can be said to have acted improperly and/or in bad faith. 34.A costs order made against a director in the above circumstances does not impinge upon the principle of limited liability. It is intended to avoid the injustice of an individual director engaging in risk-free litigation for his own purposes. See Hydrotech Waterproofing Solution Ltd (above) at §§11, 12, 18; Big Island Construction (HK) Ltd (above) (at §12); Ng Hing Yau & Anor v Kong Art Ltd [2022] 2 HKLRD 1153 (at §31). 35.As so far rehearsed, the authorities made clear the emphasis in the case of litigation in the name of a company driven or controlled by its controlling shareholder or director or corporate vehicle. Ordinarily, the litigation was commenced in the name of the company as it should be when the cause of action was vested in it. The company would expect to benefit from the outcome of such litigation. The same in many aspects may also benefit the shareholder or director or corporate vehicle driving the litigation. The key which differentiates an ordinary from an exceptional case lies in the identification of interest or benefit to the shareholder or director or corporate vehicle from the litigation which could only be said to be personal to him or it. Such benefit personal to the controlling shareholder or director or corporate vehicle should appeal to the court as what may not necessarily be part of that legitimately expected from the company’s perspective, or in alignment with that, from the litigation. That in my view explains the court’s description of such benefit to the director as a personal windfall from the litigation and preservation of position or reputation of the director instead of the company. 36.Each case turns on its own facts. The court has to form a view of the circumstances and whether justice requires the imposition of non-party costs order as a matter of summary determination. PREMISE OF THE APPLICATION 37.The Defendants are pursuing against Kwok, HETCL and IIPDL as funders of HJI’s litigation, but there is more. 38.The Defendants seek to join Kwok for costs purposes on the basis that he was the person in control of HJI driving its claims in these actions, and stood to personally benefit from the actions. Alternatively, it is said that he held improper motives in procuring the actions or the failed applications therein. 39.As for HETCL and IIPDL, the Defendants proceed on the basis that the former was controlled and ultimately 77% owned by Kwok while the latter was controlled and wholly owned by Kwok at the material time as mentioned above. The mind-set and approach of Kwok in the litigation could likewise be attributed to these corporate vehicles. KWOK 40.Kwok disputes that he personally funded the litigation. Essentially he says that the funding of the litigation could be traced back to PrimeVest SZ while he, as well as IIPDL and HETCL, were merely conduits of injection into HJI for its finance including subsequently funding of the litigation. Part of the arrangement was dated even prior to the litigation, and was necessitated by the fact that PrimeVest SZ, which held the 51% shareholdings of HJI (through HETCL), is a Mainland company subject to foreign exchange restrictions. 41.On the contrary, the Defendants refer to what the proofs of debts filed by these parties upon the winding up of HJI suggest. Majority of these proofs were signed and verified by Kwok and/or his wife. These proofs suggest that Kwok and his corporate vehicles claimed to be creditors of HJI in respect of, amongst others, loans to HJI in funding the litigation. Considering their contents and the period covered, I find the Defendants have valid reasons for such contention. 42.In the 21/9/2021 Reasons, this court made the observation that HJI, through Kwok, admitted that it has relied on the funding of third party including Kwok and other investors to enable its prosecution of its claims in these actions. Considering all the circumstances and documents disclosed for the present purpose, I would not alter such view. These parties concerned consciously came forward as creditors of HJI with their respective proofs of debt. There was no qualification as to the source of the funds which are said to have enabled them to inject or to lend to HJI. Nor was there qualification by reference to beneficial entitlement to the debts. Whether or not there arises any duty on their parts vis-à-vis PrimeVest SZ to account to the latter any debt eventually recovered from HJI does not change the practical view of the matter in the circumstances. 43.The major dispute is whether or not Kwok was the real party to the litigation in these actions. Kwok essentially argues that he did what was to be expected of him as director on behalf of HJI in which the causes of action against the Defendants was vested. Therefore, there is no fair basis for attaching personal liability on him for the costs orders against HJI in these actions. 44.After the removal of Teh in June 2018, Kwok’s control as the director and ultimate majority shareholder of HJI through his corporate vehicles is undeniable fact. That Kwok in such position caused the litigation in these actions and played the leading role in driving them is also undeniable. This court made such observation in the 2/9/2021 Reasons on the basis of the materials before this court. His steer started with the engagement of solicitors to the giving of instructions as well as the litigation strategy and the filing of affirmation evidence for the purpose of the various applications in the name of HJI. Kwok himself deposed to the similar effect. The court documents filed with the court and those between him and the solicitors for HJI at different stages of the litigation further corroborate such state of affairs at the time. 45.According to Kwok, the initiation and conduct of litigation in these actions were not dictated by him but matters of collective decision of his investors, ie the other shareholders of PrimeVest SZ which held HJI through HETCL. As mentioned, these few other shareholders held about 23% of PrimeVest SZ. Besides Kwok, there were also 3 other directors of that company. 46.On behalf of Teh, reference is made to the lack of detailed contemporaneous documentary evidence of board discussion and resolutions in relation to the conception, initiation and conduct of the legal proceedings. Some admittedly are even evidence of ratification by some of these investors of the steps taken in the litigation created only to address the present application. 47.All the evidence considered, this court is prepared not to rule out the contemporaneous knowledge of some of these minority shareholders of PrimeVest SZ about the proceedings in these actions. That said, the contemporaneous documentary evidence tends to suggest their minimal and passive involvement in the relevant decisions relating to the litigation. Whilst it cannot be said that they did not endorse the litigation, the impression is that they largely left it to Kwok to take charge. Consistent with such passive involvement, majority of these minority shareholders are seen to have even backed out from the investment altogether in early 2023. 48.Counsel for the Defendants refers to how the litigation was brought about and how it has since been conducted as driven by Kwok. He argues that they could only be explained by what Kwok perceived to be personal benefits to himself and his corporate associates. Such personal benefits, he argues, were both pecuniary and non-pecuniary. 49.The Defendants highlight the existence of personal vendetta in the litigation. When stating HJI’s case, Kwok did not hold back from viewing Teh and his associates as competitors in the business. For that matter, these actions were meant to be a message serving deterrent effect on those involved in Kwok’s business and attempting to compete with it. The impact mirrored on Teh and his associates, according to Teh, was the negative publicity, reputational damage and distress caused to them which would only stand to benefit Kwok and his corporate vehicles in the competition. That was the non-pecuniary benefit. 50.Further, Kwok is said to expect personal pecuniary benefit from the litigation. Apart from his interest as shareholder, Kwok was given a monthly director fee since mid-2018 expressly to reward him for the inherent high risk needed to be undertaken by him in the then upcoming litigation with the Defendants while the company was in financial difficulties. That also featured in his proof of debt submitted upon the winding up of HJI afterwards. That, the Defendants say, was pecuniary benefit personal to Kwok. 51.On the basis of the contentions under each cause of action in these actions, merits aside, the targeting of the Defendants as those allegedly responsible is not inexplicable or surprising. Where the causes of pursuing the relevant remedies against the Defendants were vested in HJI, and subject to the issue of good faith, it is in my judgment not readily apparent that such view of the matter adopted by Kwok against the Defendants necessarily failed to align with the company’s perspective in the circumstances. The non-pecuniary benefit from the litigation in this respect could not be said to be personal to Kwok and not shared by the company. 52.The director’s fee was expressed to be remuneration for Kwok’s undertaking of the responsibility of handling the litigation on behalf of HJI. Again it could be assumed for the present purpose that this was arranged as a result of Kwok being in majority control of HJI. That said, the arrangement gave rise to his entitlement to monthly director’s fee, which became HJI’s immediate and recurrent liability but did not hinge upon the outcome of the litigation at any stage. 53.Subject to the issue of good faith or ulterior motive, which would be discussed as the alternative ground below, the circumstances discussed above do not suffice in demonstrating that the litigation in these actions was initiated and dictated by the real or perceived benefit or windfall expected by Kwok which may not align with the perspective of the company and business interests that he represented. ULTERIOR OR IMPROPER MOTIVE 54.This is the alternative basis of the present applications. The Defendants question the bona fide of Kwok in engineering and steering these actions. In view of the above discussion, the Defendants indeed need to rely on this alternative basis for the present purpose. 55.The starting point is that Kwok caused these actions to be brought against the Defendants while HJI was of limited capital worth and on the brink of insolvency. The audited financial statements in respect of the period between 2018 and 2021 are testament to HJI’s substantial loss. In the application for security for costs mentioned above, this court rejected Kwok’s alleged belief in the business prospect and thus financial ability of HJI. Had these actions failed, HJI on its own would have been unable to meet the adverse costs consequence. Kwok could hardly deny awareness of the situation when these actions were commenced and continued. 56.In principle, the fact that a director or shareholder knew that his company was not financially worthy or would be unable to meet any adverse costs consequence of litigation alone may not justify attaching personal liability for such costs on him. A company also should not expect its exercise of the right to take legal action to advance its legitimate cause of action to be criticised merely because of its financially unsound situation, which may have been brought about by many factors. To address such situation, the receiving end of such litigation may be entitled to apply for security for costs, as indeed what happened in these actions. 57.However, non-party costs order may be imposed on such a director or shareholder who drove the litigation in the above circumstances when he was not bona fide in doing so. One instance is that he in fact held no genuine belief that the company had an arguable case in the litigation. In such a case, it may be said that the director or shareholder had acted in bad faith by nevertheless engaging the opponent to unnecessarily incur costs which had no prospect of recovery. 58.A holistic view of the conduct of Kwok and his associated corporate vehicles in the litigation is necessary for casting light on their mind-set and approach. 59.As observed by this court in the 2/9/2021 Reasons, it was not that Kwok and his other funders were financially unable to fund the litigation or to bear its adverse costs consequences. The fact was they had been funding the prosecution of every step of the proceedings in these actions as well as other concurrent actions. Only that they were conscious of not funding for the adverse costs consequence along the way. That I find was abundantly clear. 60.Strikingly, whilst allowing the order for security for costs to go into default, and hence the dismissal of these actions, Kwok subsequently sought to cause the revival of the claims, which were virtually identical to those by HJI in HCA 1707/2018, in the concurrent action commenced by IIPDL under his sole control (HCA 1664/2019). For that, Kwok caused IIPDL to apply to amend its statement of claim in May 2023, though unsuccessfully. That was consistent demonstration of conscious funding of the pursuit of litigation but avoiding the adverse costs consequence in these actions. 61.Despite resistance by HJI, which was again funded, the order for security for costs was made in these actions. Eventually Kwok and his corporate vehicles decided to default in providing security for costs. However, there was no suggestion or evidence of lack of financial inability. In defaulting, Kwok and his corporate vehicles could not deny awareness of the likely fate of dismissal of these actions and the prospect of the Defendants being unable to recover their costs from the unworthy HJI. 62.According to Kwok, it was a commercial decision of the investors of PrimeVest SZ to cease funding the litigation in these actions due to concern about the uncertain time when the litigation could be concluded. As mentioned, Kwok himself ultimately held more than 77% of PrimeVest SZ. Counsel for the Defendants highlights the brevity of evidence of such alleged discussion or resolution of investors. Counsel also questions how that was bona fide if they saw merit in their claims in these actions. Indeed the pursuit against Teh and his associates in these actions was nowhere near the stage of actual ventilation of its alleged merit before Kwok and his associates allowed the pursuit to end. 63.The Defendants also borrow from the scepticism expressed by the court about the bona fide behind the interlocutory proceedings in these actions, for instance the decision of the court dated 4 October 2019 ([2019] HKCFI 2448) (at §§9; 13; 17-19). Amongst others, the court there observed that almost 11 months after the issuance of the writ, the statement of claim had still not been served on the defendant, thus not unreasonably causing the Defendants to entertain the possibility that there might be no trial. The manner in which the application was proceeded with also caused the court there to question its bona fide. 64.On behalf of Kwok, it is argued that whilst the court might have considered the various proceedings in these actions to be unmeritorious, HJI has conducted them pursuant to legal advice. Consideration in this respect is expectedly less straightforward in view of the privileged position between Kwok/HJI and HJI’s legal representatives unless they choose to waive that. It is also pointed on behalf of the Defendants that HJI has in the course of some 3 years changed no less than 7 different firms of solicitors. That, it is argued, caused people to suspect legal representative shopping to suit the intended courses of action. 65.All things considered, the holistic view of the conduct of litigation by HJI under the steer of Kwok in my view is this. These actions were conceived and initiated when HJI was known to be financially unworthy and third party funding was a must. Yet the litigation was funded and conducted while Kwok and his corporate associates managed to shield behind the separate corporate personality of HJI with empirically consistent intention not to foot the bill for the adverse costs consequence along the way. That was the mind-set and approach of engaging in risk-free litigation. The questionable bona fide may not necessarily lie with whether or not the causes of action were formulated or the various interlocutory steps were taken pursuant to legal advice. However, the bona fide becomes questionable if whatever conviction in the merits of the claims in these actions was allowed to give way to such mind-set and approach with respect to the costs position. Engaging the Defendants to incur costs in litigation with such mind-set and approach, and with a view to leaving them with no real prospect of recovering their costs in the event that HJI failed is injustice which should be avoided. 66.In my judgment, it is just and reasonable in the circumstances to make the order sought against Kwok. HETCL; IIPDL 67.Like Kwok, HETCL also filed its proof of debt as creditor of HJI upon the latter’s winding up. Worth noting is the fact that it was Kwok who signed the proof on behalf of HETCL, and that the debt is said to have arisen out of substantial advances in payment of legal fees to various firms of solicitors acting for HJI in prosecuting and defending the various applications in these actions. The same may be said about IIPDL, on behalf of which Kwok’s wife signed and submitted proof of debt said to have arisen out of advances to fund the latter’s litigation in these actions and the petition for winding up. 68.Again, the argument on behalf of HETCL and IIPDL is that the funds originated from PrimeVest SZ, and they were mere conduits of injection into HJI. As mentioned, PrimeVest SZ filed its own proof of debt, which was also signed by Kwok’s wife without reference to litigation funding but unpaid sponsorship and operation fees owed by HJI during the entire period between 2017 and 2021. It defies understanding if the beneficial entitlement to the debt owed by HJI as verified by Kwok or his wife at the times somehow is not the true state of affairs as now alleged. If that was how these related parties chose to proceed for the purpose of proving the debts owed by HJI, any mutual account of distributions in the winding up in satisfaction of those debts in accordance with the now asserted ultimate source of all the funding does not serve to displace the factual basis for identifying the funders of litigation for the present purpose. 69.The above discussion in respect of Kwok refers. Counsel for the Defendants argue that any ulterior motive on the part of Kwok as the ultimate owner of both HETCL and IIPDL in the litigation at the material time constituted attributes of his corporate vehicles in this respect: see Moulin Global Eyecare Trading Ltd v Commissioner of Inland Revenue (2014) 17 HKCFAR 218 at 251-252 (at §§67, 106(6)). This I agree must be the practical view of the circumstances then. I also find it just and reasonable in the circumstances to make the non-party costs orders against these corporate vehicles. OTHER ISSUES 70.The other issues raised on behalf of the interested parties may be disposed of briefly. 71.The interested parties query that they have not been forewarned about the possibility of a non-party costs application. 72.The significance of prior warning in respect of intention to make an application for non-party costs order must vary from case to case. The key is whether or not such prior warning would have materially changed the course or conduct of the proceedings: see Big Island (above) (at §§80-81); Kazakhstan Kagazy PLC v Zhunus [2019] Costs LR 1749 (at §101). The court in Myers Management Consulting Ltd v Topmix (International) [2022] 2 HKLRD 974 described (at §§41-43) the question as whether or not given the prior warning the non-party could have made decisions in respect of the conduct of litigation differently which may have an impact on the ultimate result. 73.According to Kwok, the interested parties would have reflected on the situation and/or to decide to act differently, had they been warned of the possible application for a non-party costs order against any of the interested parties. However, if a view must be formed of the circumstances of these actions, one must note that this is not merely about taking a step or continuing the litigation or not, but also the manner of doing so consciously on the part of HJI as steered by Kwok. Kwok himself also claimed for the present purpose that he acted on behalf of HJI in accordance with legal advice. If failure and adverse costs order made against HJI time and time again did not deter, it does not sound convincing that such warning would have brought about material change. Prejudice expected to arise for failure of prior warning in my judgment did not realistically arise in the circumstances of the present case. 74.The other issue raised is for the attention of the court, namely that Kwok has in January 2024, and hence amidst the present applications, disposed of his entire shareholding in PrimeVest SZ held via IIPDL to an Australian company (where he is said to be residing). It is pointed out as casting unfavourable light on Kwok in terms of conscious and consistent manoeuvre with a view to avoiding the adverse costs consequence of the litigation in these action at all times including the present. In my view, no definite inference from that is necessary, and the liberty of the Defendants to consider appropriate responsive step to take in the circumstances also needs no specific mention. ORDER 75.All the circumstances considered, I find the case for the present applications in these actions established so that it is just to make the orders sought respectively, and therefore the interested parties shall be personally responsible for the costs orders against HJI stated in the summonses in these actions respectively on a joint and several basis. 76.There be a nisi costs order that the interested parties shall jointly and severally pay the costs of the Defendants with certificate for 2 counsel. The order will in the absence of application in 14 days to vary become absolute without further order. Upon that, the Defendants shall lodge and serve their statement of costs within 14 days, and the interested parties shall lodge and serve their written comment within 14 days thereafter. Costs will be summarily assessed on paper.
Mr Christopher Chain, SC and Ms Clara Wong, instructed by Wellington Legal, for the defendants in HCA 1707/2018, HCA 2835/2018 and HCMP 1402/2020 Ms Queenie Lau, SC and Ms Natalie So, instructed by Benny Kong & Tsai LLP, for the interested parties in HCA 1707/2018, HCA 2835/2018 and HCMP 1402/2020 | |||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||||
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