Kwan Kwok Ki v. Wong Tung Hung and Others

HCA 1343/2014

[2025] HKCFI 2936

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1343 OF 2014

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BETWEEN

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DECISION ON COSTS

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The application to vary the Costs Order Nisi

1.I refer to the Judgment I handed down on 16 April 2025 (the “Judgment”)[1]. I use the same terms and abbreviations as used therein.

2.At §182 of the Judgment, I made a costs order nisi (the “Costs Order Nisi”) that Ds shall on a joint and several basis bear the costs of the action (including for the avoidance of doubt the costs of the Counterclaim), including any costs reserved, with certificate for 2 counsel (not 3, for the avoidance of doubt), to be taxed if not agreed.

3.Since the Judgment, P and D2 have reached agreement that the costs under the Costs Order Nisi shall be paid on an indemnity basis. No agreement has been reached between P and the other defendants. By summons of 29 April 2025, P seeks to vary the Costs Order Nisi to the extent that “the costs of action borne by [D1] and [D3] shall be on ‘an indemnity basis’ ”.

4.I have since handed down directions with the view of disposing of the application on the papers.

5.Pursuant to those directions, P has lodged his submissions in support dated 19 May 2025 (“P/Sub#1”) and in reply dated 16 June 2025. D1 and D3 have filed their joint submissions in opposition dated 2 June 2025 (“D1&3/Sub”). Counsel teams are the same[2].

Parties’ stances in summary

6.The bases of and reasons for P’s application (“Basis 1” to “Basis 4”) are summarised in §4 of P/Sub#1, namely:

(a) D1/D3’s fraudulent conduct;

(b) D1/D3 have been running a false case knowingly from the very beginning;

(c) D1/D3 have been maintaining a case that they know is doomed to fail; and

(d) D1/D3’s conduct of the litigation by running unpleaded defences.

7.D1 and D3 resist indemnity costs. They say in D1&3/Sub that:

(a) There is no presumption that successful fraud claimants should have costs on indemnity basis. In the present case, whilst this Court has held that fraudulent misrepresentations had been made by D1 and D2, there is no suggestion of something “out of the norm”. D1 and D3 should not be “tarred with the same brush”;

(b) D1/D3 did not knowingly run a false case. Again D3 should not be “tarred with the same brush”. It had to rely on what D1 and D2 told it. In respect of D1, his case was that he did not know whether the Purported Savills Agreement was genuine. Whilst he had been disbelieved in respect of the 1^st and 2^nd CBC Meetings, it is “common that the Court, in the normal part of fact finding, would find a witness’ evidence more credible and therefore adopt his version instead of the story of another witness”, and that does not show any “significant unreasonable behaviour that went beyond the norm”;

(c) D1/D3’s case was not doomed to fail. It turned on the credibility of D1 and, D1/D3 believed, D2. The fact that D1’s evidence was not accepted did not make the decision to defend a very large claim brought by P “significant unreasonable behaviour that went beyond the norm”; and

(d) D1/D3 did not ambush P in running the Causation Points and the Mitigation Defence, as the facts have been pleaded.

The legal principles

8.The legal principles are not in dispute.

9.Costs are in the discretion of the court.

10.Of course, that discretion has to be exercised judicially and in accordance with the correct approach.

11.That correct approach was summarised by Bokhary PJ in Commissioner of Inland Revenue v Poon Cho Ming John (No 2) (2020) 23 HKCFAR 74 at §4:

With particular reference to indemnity costs but relevantly also to common fund costs, the following propositions emerge from this Court’s judgment in Town Planning Board v Society for Protection of the Harbour Ltd (No 2) (2004) 7 HKCFAR 114, [14]–[18]:

(a) In certain circumstances, costs may be awarded on a more generous than usual basis of taxation so as to achieve a fairer result.

(b) It is for the receiving party to show that the case has some special or unusual feature.

(c) Such features are not confined to an ulterior motive, an improper purpose, deception or underhand conduct on the part of the paying party.

(d) Neither the attributes of the parties nor the character of the proceedings are irrelevant to the question of whether a more generous than usual basis of taxation should be ordered.

(e) The discretion to order a more generous than usual basis of taxation is not to be fettered or circumscribed beyond the requirement that such taxation be ordered only when it is appropriate to do so.

(f) As to that, the grounds on which a more generous than usual basis of taxation is to be ordered must be connected with the case. That extends to — but no further than to — any matter relating to the litigation and the parties’ conduct in it, and also to the circumstances leading to the litigation.

12.In Pacific Electric Wire & Cable Co Ltd v Texan Management Ltd (CACV 90-91,93-96/2012, 11 October 2013), Kwan JA (as the V-P then was), with reference to Town Planning Board v Society for Protection of the Harbour Ltd, observed at §10 that:

For the court to award costs on an indemnity basis, the successful party should show that the case has some “special or unusual feature” (Town Planning Board v Society for Protection of the Harbour Ltd … at §15, approving Overseas Trust Bank Ltd v Coopers & Lybrand (a firm) & Ors … at 182J, and Sung Foo Kee Ltd v Pak Lik Co (a firm) … at 575C to D). The courts have emphasised the undesirability of attempting to define the circumstances in which orders for indemnity costs are to be made, it has been said that the discretion is not to be fettered or circumscribed beyond the requirement that taxation on an indemnity basis must be “appropriate” (Town Planning Board v Society for Protection of the Harbour Ltd at §17).

13.Mr Li has cited to me a number of authorities, some involving findings of fraud, in which the Courts ordered indemnity costs. Those cases include Grant David Vincent Williams v Jefferies Hong Kong Ltd (HCA 320/2011, 12 July 2013) at §9, Yu Yining v HMVOD Ltd [2025] HKCFI 502 at §37, Pacific Electric Wire & Cable, and Wong See Lung v Huang Hua Jiang (HCA 2067/2009, 4 November 2014) at §3.

14.Those cases are illustrations as to how the courts have previously exercised the discretion in ordering indemnity costs, and what circumstances the courts have considered “appropriate” to do so. Mr Li is not putting forward any presumption that successful fraud claimants should have costs on indemnity basis.

15.As I have summarised and italicized above, in resisting indemnity costs, Mr Yan repeatedly makes references to the phrases “out of the norm” and “significant unreasonable behaviour that went beyond the norm”. Those phrases came from Excelsior Commercial & Industrial Holdings Ltd v Salisbury Hammer Aspden & Johnson (a firm) [2002] CP Rep 67 at §39, and Pisante v Logothetis [2022] Costs LR 1481 at §§ 65 & 66.

16.Those are not legal tests that are set in stone. As is clear from the observations of Baker J in Pisante v Logothetis, the consideration remains that of appropriateness (emphasis added):

65. I do not regard it as appropriate to say that there is some presumption that successful fraud claimants should have their costs on the indemnity basis. The fact that the allegation successfully made was of dishonest wrongdoing does not, without more, make it more appropriate than in any other kind of case that a claimant’s costs should be recoverable though incurred disproportionately or that the claimant should not have to show that its costs were reasonably incurred and reasonable in amount. The considerations applicable to a defendant who has successfully fought off a fraud allegation, in which there is authority coming close to creating a presumption, are not the same.

66. However, I agree with the claimants that the conduct of the defence in this case involved significant unreasonable behaviour that went beyond the norm …

17.In any event, what is “significant” (or not), and what is “unreasonable”, are both facts sensitive. I agree with Mr Li that reliance of those labels may not be very helpful.

Discussions

18.The 4 bases which Mr Li relies upon are in my view all made out.

19.Basis 1 is self-evident from this Court’s findings of fraud against D1 and D2, and the circumstances in which they were perpetrated. On those findings, this is a bad case. 2 persons were involved. They were P’s agents who owed him fiduciary duties. They did the contrary of what fiduciaries are expected to do. They made misrepresentations to their principal. The misrepresentations were not one off, but were made in the course of several days. The misrepresentations were not just spoken words. A document which they knew to be fake were shown to P. Such conduct deserve condemnation.

20.In relation to Basis 2:

(a) Whether the 1^st and 2^nd CBC Meetings took place, and whether the 1^st and 2^nd Representations were made during those 2 meetings, are the most important factual issues in the trial;

(b) D1 knew whether the 1^st CBC Meeting had taken place. He knew whether he attended the 2^nd CBC Meeting. Those are squarely within his knowledge. All Ds plead that the 1^st CBC Meeting did not take place, and that D1 only joined the 2^nd one when P and D2 were leaving;

(c) I have recorded that shortly before trial, D1/D3 and D3 split their joint legal representation. In the Agreed Chronology of Events, in respect of the 2^nd CBC Meeting, there is this entry (emphasis added):

Meeting at Charlie Brown Café between P and D2. (P’s case is that D1 was also there. D1/D3’s case is D1 only arrived to join them when they leave the café. D2 no longer disputes that D1 was present throughout the meeting.)

(d) Despite D2’s change of position, D1 maintained his pleaded stance, and testified in court to that effect;

(e) I have found against D1;

(f) Mr Yan submits that it is “common that the Court, in the normal part of fact finding, would find a witness’ evidence more credible and therefore adopt his version instead of the story of another witness”. But the reasons for findings on credibility vary. “Common” or not also varies. In the present case, the events concerned, and the version put forward by D1/D3, were matters within his knowledge. This is little room for faulty memory, even less for misunderstanding. My findings have to be viewed in such lights;

(g) I reject Mr Yan’s submissions that this Court’s findings in relation to the 1^st and 2^nd CBC Meetings does not show any “significant unreasonable behaviour that went beyond the norm” – if the use of such a label is regarded as useful. I am of the view that they actually do.

21.On Basis 3:

(a) Basis 3 flows from Basis 2;

(b) D1, and D3 through D1, knew what had happened. If the 1^st CBC Meeting had taken place (which I have found that it did), and if D1 was at the 2^nd CBC Meeting throughout (which D2 was no longer disputing, and which I have found), D1/D3’s factual case is doomed to fail.

22.On Basis 4:

(a) During the trial, D1/D3 ran a number of legal defences. I found that they had not been properly pleaded – see §§120 and 130. I stress in particular §§120(b)(vi), 130(k) and 130(m). Pleadings is not a game of word. There was nothing which could have prevented D1/D3 from raising specifically and expressly the issues concerned in the pleadings. They did not;

(b) In P/Sub#1, Mr Li uses the word “ambush”, in that he submits “D1/D3 tried to ambush P with a number of unpleaded defences”. In my view, he is justified in saying so;

(c) Such litigation conduct should be denounced.

23.Twice, Mr Yan submits that “D3 should not be ‘tarred with the same brush’ ”:

(a) No authority has been cited to me to why D3 should be approached any different. A contrary illustration can be found in Wong See Lung – see the position of the 4^th defendant therein;

(b) I in fact see no reason D3 should be approached any differently. D3 has been found liable for breach of fiduciary duties, and also on a vicarious basis. D1/D2’s conduct was the basis of D3’s liability.

24.I am not basing the present decision on the Court’s findings of fraud only. But on the totality of the above, I am of the view that this is an appropriate case for this Court to exercise its discretion and order indemnity costs against D1 and D3. Again, if labels are regarded as important, I am of the view that the totality of the above demonstrates the existence of “significant unreasonable behaviour [on the part of D1/D3] that went beyond the norm”, such that this Court is justified in forming the view that this is an appropriate case for this Court in so exercising its discretion.

Conclusion and disposition

25.For the reasons set out above, I accede to P’s application to vary the Costs Order Nisi to the extent that the costs of the action borne by D1 and D3 shall be on an indemnity basis. Those costs shall include the costs of and occasioned by this application to vary, which in my view has been unreasonably opposed.

Costs Submissions and Reply Submissions by Mr CY Li SC leading Mr Felix H.Y. Tang, instructed by YT Szeto & Co, for the Plaintiff

Response by Mr John MY Yan SC leading Ms Shannon Leung, instructed by Cheung & Choy for the 1^st Defendant and KL Chan & Co for the 3^rd Defendant