Hung Fat Cleaning Transportation Co Ltd and Another v. Telford Environmental Development Ltd and Others

HCA 2387/2019 and HCA 820/2021 (Consolidated)

HCA 973/2020 (Heard together)

[2026] HKCFI 3343

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2387 OF 2019

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(By Original Action)

AND

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 820 OF 2021

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BETWEEN

(By Counterclaim)

(Consolidated pursuant to the Order of Master Phoebe Man dated 28 July 2021)

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AND

HCA 973/2020

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 973 OF 2020

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________________________

(Heard Together)

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DECISION ON COSTS

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1.On 25 July 2025, I handed down a Judgment in the above actions. For reasons given therein, I found in HCA 2387/2019 and HCA 820/2021 (“the consolidated actions”) that:-

(1)     the 3^rd defendant (“LWH”) was in breach of fiduciary duty as a director of the 1^st plaintiff (“HF”) and in breach of contractual duty as an employee of the 2^nd plaintiff (“ISS”), and that his counterclaim against ISS for wrongful dismissal should be dismissed;

(2)     the 2^nd defendant (“WC”) through its administrator Miss Lee had dishonestly assisted by manufacturing “higher” quotations so that HF would procure machinery from WC for the TED venture (defined in the Judgment);

(3)     Miss Lee was also the administrator of the 1^st defendant (“TED”), another family company.  By way of background, it was undisputed that both companies had the same sole shareholder and sole director (Mrs Lee).  Mrs Lee was not involved in the business of the companies.  Her husband Mr Lee was the decision maker and her daughter Miss Lee the administrator of both companies. Miss Lee’s act of dishonest assistance was to achieve TED’s desired “en bloc bundled” mode of operation, and I found it would be artificial to suggest that TED was an ignorant innocent party.  After HF discovered LWH’s breach of duties and Miss Lee’s act of dishonest assistance, it suspended the provision of manpower for TED’s operations.  TED then terminated the TED agreement and counterclaimed against HF for breach of the TED agreement, which I dismissed.

2.HF was however not able to obtain rescission of the WC Purchase Order due to its act of affirmation in affixing ISS labels to the machinery, nor could it prove loss due to lack of evidence of the market price of the machinery or any defect in their condition, nor was it entitled to equitable compensation as the TED venture was unprofitable.

3.As a result, I ordered in the consolidated actions that:-

(1)     judgment be entered in favour of HF and ISS against LWH for breach of fiduciary duty owed to HF and breach of contractual duty owed to ISS under his employment contract; and

(2)     TED’s counterclaim against HF and LWH’s counterclaim against ISS be dismissed.

I gave directions for written submissions on costs which the parties have provided and I have considered.

Principles governing the exercise of discretion on costs

4.It is well-established that while costs are at the discretion of the court, the proper approach is to exercise the discretion in a principled way with a view to reality and justice: Mimi Kar Kee Wong Hung v Raymond Kin Sang Hung [2015] HKEC 1326, quoted in YBL v LWC (No.2) [2017] 2 HKLRD 783 §9, where at §10, the Court of Appeal highlighted some of the relevant principles in that case, including: (a) whilst the courts often start with the proposition of costs following event, it is no longer a general rule but a starting point; (b) there has to be some justification for depriving a successful party of his costs; (c) in measuring who is the successful party and the extent of his success, the court must examine the reality and justice of the case; (d) in addition, under O.62 r.5 Rules of the High Court, the court in exercising its discretion shall take into account the matters set out in r.5(1) as may be appropriate in the circumstances; (e) r.5(2) highlights some conduct which the court may take into account including whether it is reasonable for a party to take an issue, the manner in which the matter was pursued or defended, the extent of success, and conduct before, as well as during the proceedings; and (f) if a successful party has brought the litigation upon himself or has done some wrongful act in the course of the transaction, he could be deprived of his costs.

5.In relation to depriving a successful party of his costs, it was also held in Yoe Han Yauw v Yoe Han Hian (and others) [2022] HKCA 498 at §21 that it was 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.

6.In Hung Fung Enterprises Holdings Ltd v Agricultural Bank of China [2012] 3 HKLRD 679 at §§101-103, the Court of Appeal held that even in the case of a wholly successful defendant, he may still be deprived of his costs where (1) he has brought about the litigation, or (2) has done something connected with the institution or conduct of the suit calculated to occasion unnecessary litigation and expense, or (3) has done some wrongful act in the course of the transaction of which the plaintiff complains. 

7.Finally, it would be unusual for a successful party to be ordered to bear the costs of the unsuccessful party: Yoe §21, quoting Jiang Zhong v Yeung Chun Leung [2018] 1 HKLRD 886.

Discussion

8.The first issue is of course who was the successful party here.  In relation to liability only, by and large, HF and ISS (“the plaintiffs”) were the successful parties.  I had no hesitation in rejecting Miss Lee’s evidence in defence that she had attached the “higher” quotations “inadvertently”, and I also rejected without hesitation LWH’s evidence in defence that he asked CCM for quotations from other suppliers and had provided Miss Lee’s attachments of “higher” quotations for reference only.  Even in the face of documentary evidence in the form of the series of emails, they persisted in denying liability. 

9.These are serious adverse finding against these witnesses’ integrity.  I found that the “higher” quotations were manufactured to create the impression that they came from independent companies, so that the WC quotation would be regarded as the lowest of three independent quotations, thereby achieving TED’s desired en bloc bundled mode of operation.

10.Despite the findings of liability, the plaintiffs were unable to obtain relief due to the lack of evidence to prove loss.  Nevertheless, as a result of the findings of liability, LWH’s counterclaim against ISS was dismissed, and TED’s counterclaim against HF (which was more substantial than HF’s claim against it) was also dismissed.  The counterclaims were filed with their respective Defences and were maintained throughout the trial.  They were dismissed by reason of the findings of liability.

11.I have considered the submission made on LWH’s behalf that his unsuccessful claim for unlawful dismissal could have been brought in the Labour Tribunal for which less costs would be incurred.  However, LWH had not begun proceedings in the Labour Tribunal first, which he then had to transfer to the High Court.  He commenced proceedings in the tribunal only after filing a counterclaim in the action.  Further, given the nature of the issues, and the fact that the LWH claim and counterclaim were inextricably bound with the TED claim and counterclaim, a tribunal claim would in any event have had to be transferred to the High Court.

12.I have also taken into account that the plaintiffs had failed in their case of liability in relation to the procurement of sub-contractors.  However, this issue took very little time.  The bulk of the time was taken up by the issue of liability for breach of fiduciary and contractual duty and dishonest assistance, in which I rejected the evidence of LWH and Miss Lee, resulting in the failure of their defences and the dismissal of the counterclaims of LWH and TED.

13.In the circumstances, examining the reality and justice of the case holistically, I consider that the correct order as to costs should be that there should be no order as to costs as between the plaintiffs and LWH and TED.

14.As for WC, it is correct that no order was made against it and it did not file a counterclaim that turned out to be unsuccessful like LWH and TED.  In that respect, WC may be said to be a successful defendant.  However, insofar as it had incurred separate costs from TED (TED and WC have throughout been represented by the same legal representatives), I would order that it should be deprived of its costs.  Miss Lee was instrumental in manufacturing the “higher” quotations for LWH to forward to CCM and hence to the Procurement Department, so that HF would purchase machinery from it (WC).  In doing so, WC had clearly brought the litigation upon itself, as well as having done a wrongful act in the course of the transaction, and it is clear from the authorities that the court is entitled in the exercise of its discretion to deprive it of its costs.

15.Finally, as for the costs in HCA 973/2020, the two defendants in that case other than LWH did not participate in the action, and HF does not seek costs against them.  For the same reasons as in the consolidated actions, I would make no order as to costs as between the plaintiffs and LWH.

Mr Henry Cheng, instructed by Clyde & Co, for the 1^st and 2^nd Plaintiffs (by Original Action) in HCA 2387/2019 and the 1^st Defendant (by Counterclaim) in HCA 820/2021, the 1^st and 2^nd Plaintiffs in HCA 973/2020

Mr Victor Yuen, instructed by LO & FUNG, for the 1^st and 2^nd Defendants (by Original Action) in HCA 2387/2019 and the 2^nd and 3^rd Defendants (by Counterclaim) in HCA 820/2021

Mr Paul Wong, instructed by Lo & Lawyers, for the 3^rd Defendant (by Original Action) in HCA 2387/2019 and the Plaintiff (by Counterclaim) in HCA 820/2021, the 3^rd Defendant in HCA 973/2020