Quorum Associates Llc v. Dandan Zhang

HCA1911/2002

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO.1911 OF 2002

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BETWEEN

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Before : Deputy High Court Judge Fung in Chambers (Open to the public)

Date of Hearing : 13 September 2005

Date of handing down Judgment : 15 September 2005

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JUDGMENT

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1.The plaintiff is appealing against the costs orders of the Master in dealing with the following 2 summonses :-

(a)	The Plaintiff’s summons dated 26 May 2005 for leave to discontinue the present proceedings against the Defendant with costs to be taxed, if not agreed.
(b)	The Defendant’s summons dated 14 February 2003 asking for Further and Better Particulars of the Statement of Claim herein.

2.The Master identified the following issues before him : 

(i)	“Indemnity costs” as the action was brought with ulterior motive;
(ii)	Lump sum assessment of $975,600;
(iii)	Payment/Security of costs prior to Discontinuance; and/or
(iv)	Leave to add a Counterclaim in the event that Quorum LLC does not comply with the Court Order.

3.The Master granted leave to discontinue on indemnity costs.  He dismissed (ii), (iii) and (iv) and the request for Further and Better Particulars, but made no order as to costs on such applications.

Background

4.The plaintiff is an international Retainer Executive Search business, commonly called “head hunter”.  It is based in the USA and has acquired a shelf company called Quorum Associated Limited (“QA Ltd) to be its wholly owned subsidiary in Hong Kong.

5.The defendant was the “Managing Director” of QA Ltd although she was not a director on the board.

6.In March 2002, the defendant claimed against QA Ltd in the Labour Tribunal for arrears of salary, etc.  QA Ltd disputed that it was the employer, and averred that the plaintiff was the employer under a letter of employment dated 23 October 2000 signed by the defendant.

7.By a letter dated 2 April 2002, the plaintiff demanded the defendant to return a laptop computer provided by the plaintiff as employer, with the confidential information on the clients in the computer.

8.In May 2002, the plaintiff brought the action herein for, inter alia,  injunction, damages and account of profits for the misuse of confidential information; conversion and return of a laptop computer and a cheque received by the defendant from a client.

9.Upon the application of QA Ltd, the claim in the Labour Tribunal was transferred to the High Court.  The transferred case became HCA 3655 of 2002.

10.In the Defence herein, the defendant averred that she was an employee of the plaintiff until November 2001, and thereafter, an employee of QA Ltd.  The computer was given to her by the plaintiff absolutely in exchange for her not claiming furniture allowance for her home office.  The confidential information was collected during her employment with QA Ltd.  Her employment with QA Ltd was never terminated, and she was entitled to keep the confidential information as along as she was in employment.  Be that as it may, the defendant subsequently returned the confidential information to QA Ltd, but she still keeps the computer.

11.After the transfer to the High Court, the defendant applied for consolidation.  The plaintiff objected and applied for a stay of the action herein pending determination of HCA 3655 of 2002.   On 13 June 2003, the master refused consolidation, and granted the stay.

12.On 12 November 2002, the plaintiff was ordered to pay security of costs of HK$80,000 into court in the action herein.  The master estimated the security for costs up to and including the pending stay application, on a party and party basis.  He used the hourly rate of $826 per hour for a litigant in person.

13. On 12 April 2005, Suffiad J handed down the judgment in HCA 3655 of 2002.  His Lordship found that the defendant’s employment was transferred from the plaintiff to QA Ltd, and by their conduct, the relationship of employer & employer between QA Ltd and the defendant came to an end at the end of March 2002.  The cheque the subject of the conversion claim herein was touched upon.  His Lordship found that the defendant continued to serve a client after termination whereby she took the cheque from the client on behalf of her employer.

14.Suffiad J ordered costs nisi against QA Ltd.  The defendant applied to vary it to an indemnity basis.  The application was refused.

15.Mr. Hart’s firm ceased to act for QA Ltd.  Apparently, QA Ltd is being wound up.

16.The plaintiff applied to discontinue the action herein.  The defendant opposed it.  She argued that the action herein was brought with ulterior motive to intimate her from dropping her claim and/or conducted with oppression in order to delay the trial of HCA 3655/2002.  She asked the Master to make lump sum assessment of costs of the action in the sum of $975,600 on an indemnity basis, to order the payment in as security as a condition of leave to discontinue, failing which she be at liberty to add a Counterclaim against the plaintiff.

17.In the judgment handed down by the Master on 11 August 2005, the Master said at paragraph 8(h) :

“Upon the evidence before the Court, in my view, it is not easy to conclude that Quorum LLC did prosecute this action with “ulterior motive”.  However, I am satisfied that, as a whole, the proceedings herein were taken against Madam Zhang “oppressively”.  A successful business lady has been dragged to these litigations/trouble for some years.  QAL is not going to be good for any payment.  Quorum LLC is residing outside the jurisdiction of Hong Kong and asking to put an end to the matter.  The serious allegations against Madam Zhang is not to be pursued.  It is doubtful if she will be getting any further payment other than the said $80,000.00 security for costs.”

And as to the costs order, the Master said at paragraph 9 :

“At the hearing before me, the parties spent most of the time on the issue of indemnity costs.  Madam Zhang succeeded in it.  I see no reason to depart from the usual costs order.  There will be an order nisi that Quorum LLC shall bear costs of its application and the hearing before me, on indemnity basis, to be taxed if not agreed.”

18.At the beginning of the hearing, I asked Mr. Hart that as the defendant has been acting in person, whether the taxation on party to party basis and indemnity basis makes any practical difference, and whether the costs of the argument herein outweighs the benefit to the plaintiff even if it were to succeed.  Mr. Hart pointed out that the security of costs up to the stay, on a party to party basis, was $80,000.  The defendant is now claiming costs of $400,000 on an indemnity basis up to the leave to discontinue.  Hence, the question is not academic.

Ulterior motive and oppression

19.The defendant submitted that this action was brought as a tool first to intimate her from dropping her claim, secondly to transfer the Labour Tribunal Claim to the High Court where legal representation will be unaffordable to her.  The defendant said if her claim were adjudicated at the Labour Tribunal, it would have taken a year as opposed to three years in the High Court.

20.In support of her argument, the defendant submitted that :

(1)	The Master accepted her argument on ulterior motive.
(2)	The plaintiff reported a case of theft of the computer to the police but no prosecution was founded.  The plaintiff never informed her about the result and she had to wait until the police told her so.
(3)	The plaintiff threatened to obtain an injunction against the misuse of confidential information but never did so.   The plaintiff pleaded substantial loss but never gave particulars of the damage.  It must have been tactics to browbeat her to dropping her claim.
(4)	QA Ltd faced prosecution in the magistrate’s court for failure to pay her wages.  It was wound up to avoid the prosecution.
(5)	Now QA Ltd is wound up, she could not pursue a counterclaim to vindicate her name.

Bona fide claim

21.Mr. Hart submitted that the plaintiff had bona fide belief that it was the employer, based on the written agreement signed by the defendant.  Now that Suffiad J had found that the employment was transferred to QA Ltd by conduct, the plaintiff lacked locus to sue, and the only responsible thing to do is to discontinue the present action.

22.The present action was mainly directed at the confidential information withheld by the defendant.  That was why the matter had to be reported to the police.  It is up to the police whether a criminal case is founded.  After all, the defendant handed back the confidential information after the filing of the Defence.  The main purpose of the action is achieved.

23.In relation to HCA 3655/2002, Mr. Hart pointed out that QA Ltd did make payment into court of about $120,000.  Although that was only 30% of the sum awarded, it could not be said that QA Ltd or the plaintiff was trying to frustrate the claim.

24.In answer to the Master’s finding of oppression, Mr. Hart submitted that the litigation was started by the defendant and she was not “dragged” into it.  QA Ltd is not a party herein and its impecuniosities are not relevant.  The plaintiff should not be asked to pay indemnity costs to make up for what the defendant could not recover from QA Ltd.

Consideration

25.The Master has a wide discretion as to the award of costs.  I should not disturb the order unless there has been an error in the exercise of the discretion.

26.All the conduct of the parties, including HCA 3655/2002 can be taken into account.                     I take it that the Master did not find any ulterior motive.  In any case, there is a genuine dispute as to the confidential information.  The defendant’s main defence was there was no termination by QA Ltd.  Now that it is determined there was de facto termination, much of the defence is gone.  At any rate, the defendant has handed back the confidential information.  Apart from the point on the proper plaintiff, it could not be said that the action herein was groundless. 

27.It is disturbing to see that QA Ltd is being wound up, but it is not ipso facto insolvent.  The defendant seems to be suggesting that it is apparently a members’ voluntary winding up.  There is no evidence on the proof of the judgment debt.  It must be noted that the plaintiff had insisted that it was the employer and the defendant insisted it was QA Ltd. Hence, it could not be said that the plaintiff had all along sought to shield behind QA Ltd so as to avoid liability.

28.Suffiad J found the defendant to be an honest witness, and had found against the witnesses of QA Ltd.  In case there was any damage to the defendant’s reputation, the judgment must have been some sort of rehabilitation.  Be that as it may, his Lordship did not see fit to order indemnity costs as requested by the defendant.

Conclusion

29.In the premises, I find that the conclusion of oppression is not supportable.  I shall set aside the order and substitute taxation on a party to party basis.

30.The Master found that the time was mostly spent on the issue of indemnity costs, and the time on the other issues were negligible, hence there was no order as to costs on the defendant’s summons.  As I have allowed the appeal, it is not necessary to deal with this point.  In any case, I would have deferred to the decision of the Master.

31.I shall make an order nisi that the defendant do pay the costs herein and below to the plaintiff, to be taxed if not agreed, to be made absolute in 14 days.

Mr Andrew Hart, of Messrs Barlow Lyde & Gilbert, for the Plaintiff

Defendant, acting in person, present.