Hj Innoxcell Ltd v. Teh Boon Khuan

HCA 1707/2018 & HCA 2835/2018 & HCMP 1402/2020
(Heard together)

[2026] HKCFI 4105

HCA 1707/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 1707 OF 2018

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BETWEEN

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AND

HCA 2835/2018

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO 2835 OF 2018

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BETWEEN

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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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________________________

BETWEEN

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(Heard Together)

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DECISION

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1.This court handed down decision dated 28 October 2024 ([2024] HKCFI 3058) (“the Decision”) in these actions. For the present purpose, the same definitions and abbreviations in the Decision are adopted.

2.By the Decision, this court allowed the application by the Defendants for a non-party costs order whereby the 1^st to the 3^rd Interested Parties (“IPs”) shall be personally liable jointly and severally for the outstanding costs orders made in favour of the Defendants against HJI in these actions with costs of the application (“the Order”).

3.This is the application by the 2^nd and the 3^rd IPs (ie HETCL and IIPDL) for stay of execution of the Order. As directed, this is disposed of on paper without oral hearing.

Background

4.The background was set out in the Decision. As discussed below, it is necessary to also refer to the reasons for decision of this court dated 2 September 2021 ([2021] HKCFI 2604) for proper understanding of the context of the Decision, and now the context in which the present application should be considered. Save as specifically referred to in the discussion below, they will not be repeated here.

5.On 22 November 2024, the IPs lodged an appeal against the Order. The present application was filed on 18 March 2025, hence some 4 months later. Further, the present application was taken out by HETCL and IIPDL only. By the time of the present application, the appeal against the Order was yet to be set down for hearing.

6.The present application itself has taken some time before reaching the present stage. The sinister view about that taken by those acting for the Defendants aside, the delay in my view is fairly attributable to the repeated extensions of time sought by HETCL and IIPDL in complying with this court’s direction in respect of the present application.

The principles

7.The principles governing an application for a stay of execution pending appeal are not in dispute: see Star Play Development Ltd v Bess Fashion Management Co Ltd [2007] 5 HKC 84 at §§7-10; and recently for instance, Capital Century Textile Company Ltd v Li Dianxiao [2024] HKCA 651 at §22. Counsel for the Defendants gives the following summary of them.

8.The starting point is that a successful party should not be deprived of the fruits of his success. Thus, unless the applicant for a stay can justify, no stay of execution will be ordered. The practice of the Court is that a stay can only be justified if good reasons exist.

9.In general, the existence of a merely arguable appeal (that is, one with reasonable prospect of success) is not by itself a sufficient reason for stay. This is only the minimum requirement, so that however exceptional the circumstances may otherwise justify a stay of execution, no stay will be granted if there are no arguable grounds of appeal to begin with.

10.The existence of a strong appeal or a strong likelihood of success will, however, usually by itself constitute a good reason for a stay. In most cases, where it can only be shown that the appeal is reasonably arguable, it becomes necessary for the applicant to provide additional reasons as to why a stay is justified. The common instance will be to demonstrate that the appeal will be rendered nugatory, if execution of the judgment or order being impeached is not stayed for the time being.

11.In exercise of the court’s discretion, it is relevant to consider the prejudice which would be caused to the successful party in the event that a stay is granted, and if necessary, to impose conditions to minimise the prejudice caused to him.

The Decision

12.As explained in the Decision, this court found that the circumstances did not suffice in demonstrating that the litigation by these actions was initiated and dictated by the real or perceived benefit or windfall expected by Kwok which might not align with the perspective of the company and business interests that he represented. Yet even so, this would be subject to the issue of good faith and ulterior motive, which is an alternative basis for a non-party costs order. See the Decision at §53. On this alternative basis, this court found against the IPs, and that it was just to make the non-party costs order. It is against such finding and conclusion that the IPs are appealing.

Grounds as per the notices of appeal

13.The notices of the appeal of the IPs are in the same terms. By the 4 paragraphs of each notice of appeal, they respectively advance grounds of appeal along the following lines:

(1) This court erred in respect of the principles governing non-party costs order, in particular the legal threshold to meet before concluding that it would be just to make the order, and also failed to make the necessary finding to found the conclusion in favour of exercising the discretion to make the order (§1).

(2) This court erred in relying solely on the fact that HJI was financially unworthy and the third party funding to conclude that there was injustice warranting the exercise of discretion to make the order (§2).

(3) The finding that there was empirically consistent intention not to foot the bill for the adverse costs consequence along the way is plainly wrong (§3).

(4) This court erred in finding that it was just and reasonable to make non-party costs order, in the absence of any finding of ulterior motive on the part of the IPs (§4).

Discussion

14.The starting point is that section 52A of the HCO confers a discretion on the court, and HETCL and IIPDL now seek to impeach its exercise by way of appeal.

15.Counsel for HETCL and IIPDL made clear in their submission that the present application is pursued on the ground that the appeal, as set out in their notices of appeal summarised above, has a strong likelihood of success. In other words, they say that as the Order is almost bound to be set aside on appeal, ordering the Defendants to withhold enforcement of the Order is the only fair course to take. HETCL and IIPDL do not say for the present purpose that the appeal is reasonably arguable, and that there are reasons for stay of execution of the Order pending such argument on appeal.

16.It is therefore not unfair for counsel for the Defendants to observe that HETCL and IIPDL take upon themselves the burden of meeting a very high threshold of satisfying this court for the purpose of the present application.

17.Referring to the grounds of appeal, HETCL and IIPDL suggest that this court failed to identify the legal threshold of the central question, namely whether there was impropriety or bad faith of a serious nature which would ordinarily have to be causatively linked to the applicant unnecessarily incurring costs in the litigation, citing Hydrotech Waterproofing Solutions Ltd v Shun Yuen Construction Co Ltd [2023] HKCFI 601. Further, it is stressed that non-party costs order is exceptional.

18.The fact was quite the contrary. The principles were indeed explained for the purpose of such basis on which the court may consider exercising discretion to a make a non-party costs order: see §§21-34.

19.It would seem that the real criticism by HETCL and IIPDL against this court’s application of the above principles lies with their emphasis on the relevance of their genuine belief in the merit of their case against the Defendants in these actions, which they say this court failed to take into account or to do so adequately. They complain that this court relied solely on the fact that HJI was financially unworthy in coming to the conclusion.

20.Such reading of the discussion in the Decision is neither accurate nor fair.

21.Bona fide or bad faith come to exist in different forms. The context relevant to the exercise of the discretion under section 52A should be linked to the engagement of the applicant in incurring costs in litigation. The issue is a matter of mindset and approach to be adjudged by reference to the circumstances. This is not entirely subjective belief on the part of the paying party but objective observation of the circumstances.

22.In terms of the relevant circumstances, this court did recognise that knowledge of a director or shareholder that a company was not financially worthy alone may not justify the imposition of a non-party costs order, unless he/she was not bona fide in driving the litigation with such knowledge. This court recognised the existence or not of genuine belief that HJI had an arguable case in the litigation was relevant to considering the bona fide of the party who drove the litigation. See the Decision at §§56-57. However, the actual exercise must entail a holistic view to be taken of these circumstances in order to find the mindset and approach of the IPs: see the Decision at §58.

23.Therefore, if the argument of the IPs in the intended appeal suggests that the above should not be the approach, then this court is not convinced that such argument, as a matter of principle, would be accepted by the appellate court. At least for the present purpose, this court is not satisfied that the likelihood of that being accepted is as strong as projected.

24.What this court continued to discuss in the Decision was the holistic view of the circumstances. This court notes that the approach advocated by counsel for HETCL and IIPDL is in terms of stages or limbs of consideration. In any event, the peculiar circumstances of these actions still started with the backdrop already explained in the 2/9/2021 Reasons behind this court’s order for security for costs against HJI. Amongst others, it was found to be the conscious decision of HJI and the IPs, which were under the control of Kwok (the 1^st IP), to refuse funding HJI, and hence allowing the default, to comply with the order, notwithstanding their financial ability and alleged belief in the merit of the case behind HJI: see the Decision at §§11-14.

25.This court found that the IPs had been funding the prosecution of every step of the proceedings in these actions and other concurrent actions as well as engaging the Defendants in litigation, but empirically without any intention to foot the bill for any adverse costs consequence. That called into question their bona fides as a matter of mind-set and approach of engaging in effectively risk-free litigation by shielding behind the separate corporate personality of HJI. Their alleged conviction in the merit of the case of HJI in these actions fell to be viewed in such light. See the Decision at §§59-65. In his submission, counsel for HETCL and IIPDL argues that his clients were and are not under any obligation to fund HJI in litigation. This is true but misses the point under scrutiny.

26.This court therefore does not agree that the relevance of the merit of the case of HJI (or the IPs) has been ignored as alleged. Nor does this court agree that this court has emphasized the relevance of the financial inability of HJI out of proportion and without regard to the other circumstances in the Decision, which counsel for HETCL and IIPDL advocates to consider in terms of stages or limbs.

27.This court was entitled in the circumstances to come to the finding as explained in the Decision. Again at least for the present purpose, this court is not convinced that there is a strong likelihood that the appellate court will find that this court was plainly wrong, and therefore resolve to interfere with this court’s exercise of discretion.

28.On behalf of HETCL and IIPDL, counsel seems to question the causal link between his clients and the engagement of the Defendants in litigation and thus incurring costs. The issue is strictly beyond the explicit ambit of the notices of appeal. That aside, the argument does not align with the objective factual background of the litigation as found in the 2/9/2021 Reasons, which has not been successfully impeached. It also does not align with that as explained in the Decision as well as the above.

Other arguments

29.As mentioned, HETCL and IIPDL do not seek to argue that there is any reason why the execution of the Order should be stayed pending their appeal which is reasonably arguable. The Order entails liability of monetary payment. There is no suggestion that their appeal against the Order may be rendered nugatory or position somehow devastated beyond relief in the absence of the stay for the time being. In any event, there is nothing before this court to enable potentially relevant consideration of conditional stay in those circumstances.

30.However, counsel for HETCL and IIPDL suggests that the notices of appeal may be amended so that new grounds may be advanced. Whilst the IPs are entitled to do so without leave, they manage to do so by taking advantage of their own delay in maintaining the progress of the appeals in their current stage without setting down.

31.In any event, what counsel suggests as additional or alternative argument on appeal is that this court failed to consider first, ordering the IPs to bear some, but not all, of HJI’s outstanding costs orders, and/or second, saving HETCL from the non-party costs order.

32.For the present purpose, the short answer to the first additional argument above is that it was simply not raised or argued before this court at the hearing of the Defendants’ applications then. Further, it is not for this court to consider for the present purpose whether and, if yes, how the materials and arguments would have turned out, had such argument been raised then. This court also wonders how this argument, if entertained, would have assisted HETCL and IIPDL in seeking stay, be it either unconditionally or completely.

33.The second additional argument above should have already been answered. As counsel for the Defendants points out, there is no challenge to the applicability of the principles of attribution. Their application to HETCL was premised on the fact that HETCL’s ultimate control rested with Kwok, the 1^st IP, through his shareholding and sole directorship as well as and the minimal and passive involvement of the other minority shareholders in its sole owner (PrimeVest SZ): see the Decision at §§3-5; 47; 67-69.

Conclusion and order

34.All things considered, the applications by HETCL and IIPDL are dismissed.

35.I make a nisi order that HETCL and IIPDL do jointly and severally pay the Defendants’ costs of and occasioned by these applications with certificate for counsel. In the absence of application within 14 days to vary, the nisi costs order shall become absolute without further order. Upon the nisi costs order being absolute, costs shall be assessed summarily on the basis of the Defendants’ statements of costs lodged with the court by letter dated 23 February 2026; and for such purpose, HETCL and IIPDL shall lodge and serve their written comment within 14 days thereafter. Upon expiry of the time for such written comment, costs will be summarily assessed on paper without further notice.

Written Submission by Ms Clara Wong, instructed by Wellington Legal, for the defendants in HCA 1707/2018, HCA 2835/2018 and HCMP 1402/2020

Written Submission by Mr Jerome Liu, instructed by Benny Kong & Tsai LLP, for the 2^nd and the 3^rd interested parties in HCA 1707/2018, HCA 2835/2018 and HCMP 1402/2020