Sunni International Ltd (in Liquidation) v. Kao Wai Ho Francis and Others

HCA 1884/2018, HCA 2380/2018 and HCCW 121/2013

[2025] HKCFI 5526

HCA 1884/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1884 OF 2018

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BETWEEN

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HCA 2380/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2380 OF 2018

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BETWEEN

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HCCW 121/2013

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES (WINDING-UP) PROCEEDINGS NO 121 OF 2013

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BETWEEN

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DECISION ON COSTS

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Costs between the Plaintiff/ Sunni and Michael Kao in HCA1884/2018

1.On 1 August 2025, this court handed down a Judgment of the trial of the 3 actions heard together pursuant to the Order of Linda Chan J dated 21 May 2020 (“Judgment”).

2.At para 491 of the Judgment, this court gave a direction that with regard to Michael Kao, the 2^nd Defendant in HCA1884/2018, the parties were to exchange their written submissions on costs of the action which would be disposed of on paper. The parties have since exchanged their submissions on costs.

3.Essentially, Sunni asks for costs of HCA 1884 to be paid by Michael Kao to be taxed on a party and party basis if not agreed, with certificate for 3 counsel, and paid forthwith.

4.The relevant findings of facts can be found in the Judgment and are too lengthy to be recited here – the Judgment itself, excluding Annexes, is 177 pages long. Thus, this Decision should be read together with the Judgment in so far as may be necessary.

5.As for the relevant findings of liability against Michael Kao, this court found Michael Kao:

(1) owed fiduciary duties to Sunni as an authorised signatory to Sunni’s HSBC Accounts and various securities accounts but was not its de facto director after his formal resignation as a director and did not owe any duties as de facto director;

(2) was in fraudulent breach of his fiduciary duty as the only authorised signatory of the Fairwin Account for disposing of 99 million of Sunni’s Imagi Shares but did not act in concert with his son, Francis Kao, in such disposal and had no role to play in the disposal of the balance of the 585m Imagi Shares;

(3) liable for signing 3 HSBC cheques of over HK$26m to acquire Cheung Kong Shares which were eventually dissipated to Big Plan, in respect of which Sunni had received no consideration;[1]

(4) not liable for Sunni’s claim for unlawful means conspiracy.

6.However, as far as relief against Michael Kao is concerned, Sunni did not obtain any relief for the disposal of the 99 million of Sunni’s Imagi Shares. The reason was that at the trial, Sunni submitted in its Closing that although in principle it was entitled to HK$36,980,837.84 being the proceeds of the sale of 99 million Imagi shares through Fairwin, for practical reasons, Sunni no longer sought an account from Michael Kao for that sum. Hence, in the end, Michael Kao was found liable to pay equitable compensation in the sum of HK$26,580,881.95 and compound interest to Sunni.[2]

7.Sunni accepts that costs are in the discretion of the Court and that ultimately, the Court has to exercise its discretion to achieve a just result having regard to the circumstances of the case: Re Moulin Global Eyecare Holdings Ltd, unrep., HCCW 470/2005, 17 October 2008, Kwan J (as she then was) at §10.

8.Sunni submits that since Michael Kao had been ordered to pay equitable compensation and compound interest, it is the overall winner as against Michael Kao. As such, Sunni invites this court to adopt the general rule that costs follow event unless it appears to this court that in the circumstances of the case some other order should be made as to the whole or any part of the costs: RHC O 62 r 3(2); Re Elgindata (No 2) [1992] 1 WLR 1207, 1214A-D. (“Point 1”)

9.Sunni further submits that costs are not awarded on an issue basis - the general rule does not cease to apply simply because Sunni did not succeed in all its claims. If Michael Kao seeks any departure from the general rule, the burden is on him to justify the same: Re Moulin Global Eyecare Holdings Ltd at §10. The circumstances of this case do not justify any departure from the general rule. (“Point 2”)

10.Importantly, all the claims and the evidence in support thereof were reasonably, properly and necessarily made and adduced. There were no distinct and separate issues and allegations leading to significant increase in the length or costs of the proceedings.

(1) Sunni’s case against Michael Kao boils down to his responsibility in the disposal of the 585m Imagi Shares and subsequent misappropriation of the proceeds therefrom.

(2) This in turn was contingent on the resolution of the fundamental factual dispute about his role and involvement in Francis Kao’s fraudulent misappropriation scheme. To show the Court the full picture and to assist the Court in resolving this fundamental factual dispute, it was reasonable for Sunni to place before the Court all the relevant evidence pertaining to the necessary factual background of the activities of Sunni at all material times since its formation and in particular since Sunni was under the control of Michael and Francis Kao and shedding light on Michael Kao’s role and involvement.

(3) It was also reasonable for Sunni to present to the Court legal arguments on different basis upon which Michael Kao could potentially be found liable in order to assist the Court in properly determining his responsibility and liability, especially when the Liquidator had unravelled a massive fraudulent misappropriation scheme. In fact, Michael Kao brought suspicion on himself - he was involved in disposing of 99 million Imagi Shares, which was an integral part of the disposal of all Sunni’s assets to make funds available for dissipation and in drawing 3 cheques for acquiring Cheung Kong Shares which were then dissipated to Big Plan, which was one of the means of misappropriation.

(4) As such, strands of fact and law were interwoven in this case. No discrete points on facts or law can be safely isolated. It therefore cannot be said that significant time and costs had been wasted to justify the exercise of the discretion to deprive Sunni of part of its costs. (collectively “Point 3”)

11.It seems to this court Points 1 and 2 simply set out the general legal position. It is Point 3 which explains why this court should adhere to the general legal position in the circumstances of this case. In order to resolve this issue, this court has to examine Michael Kao’s submissions.

12.On the other hand, Michael Kao’s position is that a fair and proportionate order is that there should be no order as to costs as between Sunni and him.

13.His counsel Mr Lincoln Cheung submits that following trial, each party has achieved some success. Michael Kao successfully resisted Sunni’s main case of conspiracy to injure by unlawful means (“Conspiracy Claim”), whereas Sunni only partially succeeded in its claim for breach of fiduciary duties against Michael Kao as its authorised signatories (“Breach of Duties Claim”) in respect of two discrete matters: (i) the disposal of 99 million Imagi shares via the Fairwin Account, and (ii) the signing of 3 HSBC cheques relating to the acquisition of Cheung Kong Shares. This court assessed Michael Kao’s liability at HK$26,580,881.95, representing only approximately 24% of the total sum of HK$111,195,705.21 claimed against him.

14.Mr Cheung further submits the Conspiracy Claim, which the Court ultimately rejected, materially prolonged the proceedings and significantly increased the costs incurred by Michael Kao. As reflected in the Judgment, Sunni failed to adduce cogent evidence to support Michael Kao’s involvement in the alleged concerted scheme but a substantial portion of the pleadings, evidence and submissions were directed to the Conspiracy Claim. In these circumstances, the costs order should properly reflect the disproportionate burden imposed on Michael Kao in defending a claim which was not substantiated.

15.As for the applicable principles, Mr Cheung has made a number of points which should not be controversial.

16.First, after the CJR, the Courts are more ready to depart from the traditional starting point of costs following the event, relying on the more recent authority of Chan Shun Kei v Hong Kong Construction (Hong Kong) Ltd unrep., CACV 192/2014, 7 March 2016 at §24, per Lam VP (as he then was) who cited Wong Kam Tong v Tin Shing Court, Yuen Long (IO) (No 2) [2012] 2 HKLRD 1128 per Cheung JA and Pfeiffer GmbH v Cheung Hay Kit unrep., CACV 245/2013, 29 October 2014) per Kwan JA (as she then was).

17.Second, the following 3 principles derived from Cheng Ka Shing v Bonus Plus Co Ltd [2020] HKCFI 828 between §§7 and 11 are particularly relevant for the present purpose:

(1) Under RHC O 62 r 5(1), the Court may take into account the underlying objectives, the conduct of all the parties, and whether a party has succeeded on part of his case, even if he has not been wholly successful.

(2) Under RHC O 62 r 5(2), the conduct of the parties includes (a) whether it is reasonable for a party to raise, pursue or contest a particular allegation or issue; (b) the manner in which a party has pursued or defended his case or a particular allegation or issue; (c) whether a claimant who has succeeded in his claim, in whole or in part, exaggerated his claim; and (d) conduct before, as well as during, the proceedings.

(3) It is not necessary to establish that a successful party has acted unreasonably or improperly in raising an issue for it to be deprived of the whole or part of its costs. The Court may so order where the failed allegation of the successful party has caused a significant increase in the length or costs of the proceedings, which simply requires the Court to be satisfied that the increase is one that can be estimated as a more than a trifling proportion of the total costs.

18.Third, after the CJR, the issue based approach referred to in Re Elgindata (No 2) should not be narrowly interpreted: Chan Shun Kei at §25 where Lam VP (as he then was) observed:

“25. …Mr Lee submitted that in the application of the issue based approach espoused by In re Elgindata (No 2) [1992] 1 WLR 1207, the court should only embark on that approach if an issue is something so distinct and separate in itself that the decision of it constitutes an event. With respect, that is a too narrow interpretation of the issue based approach after the introduction of Civil Justice Reform. Order 62 Rule 5(2)(a) and (b) particularly directs the court to consider the conduct of the parties including whether it was reasonable for him to raise, pursue or contest a particular allegation or issue and the manner in which a particular allegation or issue was pursued. We do not think the “issue or allegation” in such context should be so narrowly confined. Such narrow construction is not in line with Order 1A Rule 1.”

19.Fourth, the Court may deprive the successful party of his costs even if the issue on which he failed did not cause a significant increase in the length or costs of the proceedings; for example, where some of the claims failed due to the lack of evidential support: Pfeiffer GmbH at § 23 where Kwan JA (as she then was) explained:

“23. Insofar as it was argued that a successful party should be deprived of his costs only in the situation where the issue on which he failed had caused a significant increase in the length or costs of the proceedings, we would reject this argument. The court should eschew a mechanistic or restrictive approach in exercising its discretion as to costs in view of the amendments to the relevant provisions in the Rules of the High Court. Besides, this argument makes no sense in a case where a claim is doomed to fail due to the lack of evidential support, as naturally little time and costs would be spent where no or little evidence is adduced in support of such a claim.”

20.Mr Cheung then raises a number of what he describes as the relevant considerations at paras 9 to 15 of his written submissions. They are self-explanatory and need not be repeated here. This court would only highlight those which this court considers to be particularly germane to the question of costs between Sunni and Michael Kao.

21.To start with, a significant number of issues in these proceedings[3] were not relevant to Michael Kao. There is no reason why Michael Kao should bear Sunni’s costs of those issues which did not concern him.

22.Next, Sunni has wholly failed in its Conspiracy Claim against Michael Kao, who was entitled to defend the same and be entitled to the costs of doing so[4]. This failed claim had taken up the majority part of Micael Kao’s defence and had caused a significant increase in his costs in defending the proceedings. The Conspiracy Claim significantly expanded the scope of the claims against Michael Kao, which would otherwise have been confined to the issues concerning the disposal of the 585m Imagi Shares, the 3 cheques signed by Michael Kao for the acquisition of the Cheung Kong Shares and the subsequent disposal of the same (i.e. the Breach of Duties Claim). But for the unwarranted introduction of the Conspiracy Claim against Michael Kao, his defence to Sunni’s claim could have been conducted much more economically and focused on the Breach of Duties Claim.

23.While Mr Cheung is content to make good his point by reciting only part of para 340 of the Judgment in para 12 of his written submissions, for ease of understanding his point, the following paras of the Judgment should also be mentioned here:

“340. But this court is not satisfied that [Michael Kao] had acted in concert with Francis Kao to dispose of all the 585 million Imagi shares. There is also no evidence from which this court can infer Michael Kao was sufficiently aware of or involved in the Disposal of the Other Listed Shares (other than the Cheung Kong shares), the cheque payments to Francis Kao, the Interbenz Cheque, the Yacht Payments, the Miscellaneous Payments etc.

341. The question is: are there enough for this court to draw the inference that Michael Kao was a party to the conspiracy and had the intention to injure Sunni?

342. In both his Opening and Closing, Mr Cheung keeps emphasising that for the present purpose, each of the alleged conspirators must have been sufficiently aware of the surrounding circumstances and share the same object for it properly to be said that they were acting in concert at the time of the act complained of. His ultimate submission, as expected, is that the factual matters relied on by Sunni are not made out and do not amount to overt acts from which a conspiracy can be inferred against Michael Kao.

343. Mr Cheung in his Closing submits at length that Sunni has failed to prove its case of a conspiracy (which this court takes it to mean a “combination, arrangement or understanding”) between Francis Kao and Michael Kao or a common intention on their part to injure Sunni. It is not necessary to recite the entirety of his submissions. The most important point in Michael Kao’s defence is that the primary facts do not support the inference of a combination, arrangement or understanding between the two in relation to Francis Kao’s fraudulent scheme or an intention on the part of Michael Kao to injure Sunni.

…

347. This court has borne in mind that for an allegation of such serious misconduct, it must be able to find the inference “compelling” and “plainly established” on the primary facts. On the evidence, this court is unable to infer that Michael Kao was “sufficiently aware of the surrounding circumstances and share the same object” for it to be properly said that the father and son were acting in concert at the material time. Nor is this court able to infer that Michael Kao harboured an intention to injure Sunni by doing what he did – he may or may not have foreseen that his unlawful conduct may or will probably harm Sunni, but even if he had, that was not enough to infer an intention to injure Sunni.

Conclusion on Unlawful means Conspiracy

348. To conclude, this court finds that Sunni’s unlawful means conspiracy claim is made out against Francis Kao, Win Harvest and Big Plan but not Michael Kao.”

24.Next, the Conspiracy Claim against Michael Kao was not reasonably brought. As this court held in paras 336-348 of the Judgment in rejecting the Conspiracy Claim against Michael Kao, Sunni’s primary factual case in this regard was deficient and the evidence fell short of supporting a “compelling” inference that Michael Kao was acting in concert with Francis Kao and others to injure Sunni as required by law. This head of claim is unmeritorious and devoid of sufficient evidential basis from the outset.

25.Further, even in respect of the Breach of Duties Claim, Sunni was not wholly successful. While Sunni prevailed on issues such as the scope of an authorised signatory’s fiduciary duties and limitation:

(1) It failed in its contention that Michael Kao was a de facto director of Sunni and owed Sunni fiduciary duties in that capacity.

(2) It only established that Michael Kao was liable for the disposal of 99 (out of 585) million Imagi shares and the signing of the 3 HSBC cheques for the acquisition of the Cheung Kong shares, but not for the disposal of the remainder of the 585m Imagi Shares or the Other Listed Shares.

26.There is force in the above submissions.

27.Having considered both parties’ submissions, this court’s view is that while there is validity in some of Sunni’s submissions in Point 3, on balance this court agrees with the submissions of Counsel for Michael Kao and that in the exercise of the court’s discretion, a just, fair and proportionate result having regard to the circumstances of the case is that there should be no order as to costs. In view of this, it is unnecessary to dwell on the parties’ submissions on Certificate for 3 Counsel.

28.To be fair to Sunni, this court acknowledges Sunni was presenting a massive case of misappropriation of its assets and quite a number of issues within which the claims against Michael Kao had failed were inextricably linked to the broader issues and claims against the other Defendants especially Francis Kao. This court also accepts the Liquidator rightly felt obliged to adduce all the evidence and arguments in support thereof in order to show this court the full picture, as they could not be easily isolated and separated from one another.

29.However, this court does not accept the above as a sufficient reason to launch the failed Conspiracy Claim against Michael Kao which was unmeritorious and devoid of sufficient evidential basis from the outset.

30.Nor does this court accept there was no increase in terms of the length of the proceedings or a significant increase in the overall legal costs of Michael Kao. While Sunni would still have to adduce all the evidence and arguments available to it against all the other Defendants in order to show this court the full picture of its overall case, the failed Conspiracy Claim against Michael Kao inevitably invited a response from Michael Kao who justifiably felt necessary to defend it. That naturally increased the length of the proceedings, from pleadings to evidence to his conduct, particularly submissions, at trial. That also naturally added to the financial burden of Michael Kao in terms of legal costs.

Disposition and costs order nisi

31.For the above reasons, there shall be no Order as to costs between Sunni and Michael Kao.

32.Regarding the costs of these submissions on costs, there shall be an Order nisi that they shall be borne by Sunni, to be taxed if not agreed, and paid to Michael Kao forthwith, Certificate for 2 counsel.

Written submissions by Mr Edward Chan SC, Mr Lawrence Cheung and Ms Ann Lee, instructed by M/s T K Tsui & Co, for the Plaintiff in HCA 1884/2018

Written submissions by Mr Lincoln Cheung and Mr Jason Kung, instructed by M/s David Fenn & Co, for the 2nd Defendant in HCA 1884/2018