WAH NAM HOLDINGS CO. LIMITED v WILLIAM CHAN PAK TO

HCA008974D/1999

HCA 8974/99

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 8974 OF 1999

-----------------------------------

Coram: Madam Justice Yuen in Chambers

Date of hearing: 26 November 1999

Date of handing down of Reasons for Decision: 30 November 1999

----------------------------------------------------

REASONS FOR DECISION (ON COSTS)

----------------------------------------------------

Hearing ex parte on notice

On 1 June 1999, the Plaintiffs applied to the Duty Judge ex parte on notice for injunctions against the Defendants. The order sought against the 1st - 7th Defendants was to restrain them from converting Convertible Notes issued by the 8th Defendant and from dealing with the Notes or rights resultant therefrom. The order sought against the 8th Defendant was to restrain it from paying interest on the Notes.

At that hearing, the 1st - 7th Defendants through their solicitors gave undertakings in lieu of an injunction. The 8th Defendant did not give any undertakings, but its solicitors apparently indicated to the judge that they would neither consent nor object to the injunction sought. An injunction was given against it.

Summons Day

On 11 June 1999, the parties appeared before the Summons Judge who fixed dates for the hearing of the Inter Partes Summons. The undertakings in lieu of injunction, and the injunction against the 8th Defendant, were continued.

D1 - D7's Summons

On 8 July 1999, the 1st - 7th Defendants issued a summons for, amongst other things, orders that they be released from their undertakings and for discharge of the injunction against the 8th Defendant.

The grounds for the application were (i) that there was material non-disclosure of the Plaintiffs' parlous financial circumstances and (ii) that there was a collateral purpose for the Plaintiffs' commencement of proceedings. As part of this latter ground, it was the 1st - 7th Defendants' contention that the Plaintiffs were acting in collusion with the 8th Defendant which had by then avoided the Convertible Notes. The 2nd Plaintiff is the largest shareholder in the 8th Defendant. The 1st- 7th Defendants' summons was served on the 8th Defendant.

Hearing of D1- D7's Summons

On 16 July and 19 July 1999, the application was heard. The 8th Defendant was represented by counsel, although he played a relatively small part in the proceedings. The 8th Defendant did not apply for discharge of the injunction against it, but filed evidence denying the 1st -7th Defendants' allegation of collusion and giving its reasons for avoiding the Convertible Notes.

Decision

1. On 21 July 1999, I ordered that the 1st - 7th Defendants be released from their undertakings on the ground of the Plaintiffs' material non-disclosure. I made no order in relation to the discharge of the injunction against the 8th Defendant.

2. I made an order nisi that the costs should follow the event, i.e. that the costs of the ex parte hearing and of the 1st - 7th Defendants' Summons be paid by the Plaintiff forthwith. Various submissions have since been made to this court on costs.

Costs Order

3. I should first clarify that there should also be included in the costs of the 1st - 7th Defendants' Summons the costs of the short hearing before me on 12 July 1999. It is not disputed by any party that that hearing was part of the Summons.

4. Miss Priscilla Wong, counsel for the Plaintiffs, has submitted that the costs should be in the cause. She says that the issue of beneficial ownership of the Convertible Notes is such that one side must be lying. She submits that until determination at trial, the court would not know which side was lying, and if the court were to find ultimately that the 1st - 7th Defendants were lying, it would not be right to give them the costs of the Summons. She also submitted that the Plaintiffs' failure to disclose their financial circumstances was not an intentional or contumelious failure.

5. In my view, even if I were to accept the submission that one side must be lying, and postulating the situation that it was the 1st - 7th Defendants who had lied about the beneficial ownership of the Notes, the fact remains that I have found that the Plaintiffs have gone to Court on an ex parte application (albeit with - very short - notice) without having disclosed to the Court all the relevant circumstances. Even if the 1st - 7th Defendants were to be found to be lying, two wrongs do not make a right, and in my view, the merits of the Plaintiffs' case do not exonerate them from their duty, which is a duty owed to the Court, to disclose all materials relevant to the weighing operation to be carried out by the Duty Judge.

6. In the passage from Scott J's judgment in Manor Electronics Ltd v Dickson [1988] RPC 618 which I had quoted in my Decision of 21 July 1999, it is quite clear that when material non-disclosure has attended the obtaining of an ex parte injunction, the practice of the courts is to discharge the order without going into the merits. Although it is true that the 1st - 7th Defendants did not succeed on the "collateral purpose" ground, it would be difficult to make any real allocation in the time used, and I do not propose to do so.

7. In my view, therefore, the costs of the ex parte hearing, the costs of the hearing in June 1999 when the undertakings and injunction were continued and the costs of the 1st - 7th Defendants' Summons are discrete matters which should not be affected by the determination of this case after trial.

8. As for the scale of costs, I would agree with Mr Barlow that the facts warrant indemnity costs. The application to the Duty Judge was made ex parte, when there appears to have been little justification for the urgency except to launch an attack containing an element of surprise.

9. The parties had been trying to find a private resolution for some time, and their respective solicitors had been in correspondence. The solicitors for the 8th Defendant company have asserted that the Plaintiffs had given it no prior notice of their ex parte application. They say (and the Plaintiffs have not disputed) that if the Plaintiffs had requested the 8th Defendant before the ex parte application not to pay interest or to convert the Notes, the 8th Defendant would have agreed to do so. There was thus no pressing urgency.

10. Given that these costs are severable from the costs of the rest of the case, and because the ultimate determination at trial is likely to be some time away, the costs should be taxed and paid forthwith. Although this is a matter of the court's discretion, it is interesting to note that a similar order has been made in a case of material non-disclosure (Naf Naf S.A. v Dickens (London) Ltd [1993] FSR 424).

11. The Plaintiffs do not oppose certificate for two counsel and I so certify. Accordingly I ordered that the costs of the 1st - 7th Defendants of the ex parte hearing, of the hearing in June 1999 when the undertakings were continued and of the 1st - 7th Defendants' Summons be paid by the Plaintiffs on an indemnity basis, the Summons being certified fit for two counsel.

12. As for the costs of the 8th Defendant, given the 8th Defendant's position if it had been given prior notice of the Plaintiffs' intended application, its costs of the ex parte hearing and of the hearing before the Summons Judge should be borne by the Plaintiffs in any event as Mr Ting, solicitor for the 8th Defendant, has not asked for taxation and payment forthwith.

13. The 8th Defendant's costs of the 1st - 7th Defendants' Summons is another matter. The Summons was served on the 8th Defendant, and it asked for discharge of the injunction against the 8th Defendant (this was brought up again at another hearing in October 1999, when I dismissed the 1st - 7th Defendants' application and ordered costs against them, which order has not been challenged).

14. More importantly, the 1st - 7th Defendants were asserting collusion between the Plaintiffs and the 8th Defendant. This is a serious allegation that the 8th Defendant was entitled to challenge (and in practice was bound to challenge, unless it agreed to it). The 8th Defendant filed evidence to deny the 1st - 7th Defendants' evidence. In my view, it cannot be suggested that counsel should not have been instructed at the hearing to maintain that position.

15. Accordingly, I ordered that the 8th Defendant's costs of the Summons be paid by the 1st - 7th Defendants in any event.

16. As for the costs of the hearing on 26 November 1999, given the conclusions to which I have arrived, I ordered that the 1st - 7th Defendants' costs be paid by the Plaintiffs, and the 8th Defendant's costs be paid equally by the Plaintiffs and the 1st - 7th Defendants in any event.

Representation:

Miss Priscilla Wong and Miss Ifan Chan (instructed by David Lo & Partners) for Plaintiffs

Mr Barrie Barlow and Mr Thomson Mo (instructed by Horvath and Giles) for 1st - 7th Defendants

Mr Dennis Ting of Siao Wen & Leung for the 8th Defendant