Fu Sun Engineering Ltd v. Lai Ivy t/a Access Production & Services Co

DCCJ 162/2006

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO. 162 OF 2006

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

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

Coram:  Deputy District Judge Anthony Chow in Chambers (open to public)

Date of Hearing: 21^st September 2006

Date of Handing down of Decision:  27^th September 2006

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

DECISION

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

1.This is the plaintiff’s application to appeal against Registrar J. Ko’s Order on costs dated 15/8/2006 (the “Costs Order”).

Background:

2.The plaintiff filed claim, in the sum of HK$61,200.00, against the defendant for unpaid balance of goods sold and delivered and for services rendered. On or about 4/3/2006, the defendant took out summons for security for costs pursuant to section 357 of the Companies Ordinance Cap. 32.

3.In the defendant’s affirmation in support, she relied on the following grounds:

(i)    Plaintiff is a shell company with a paid up capital of only HK$2.00;

(ii)    The plaintiff did not have any business telephone; and

(iii)    in accordance to the defendant’s search of public records, the plaintiff did not own any of its past or present business or registered offices.

4.On 27/3/2006, pursuant to the order of Registrar Ko, the plaintiff filed affirmation of Kong King Man in opposition. Mr. Kong’s affirmation did not disclose any financial information to the defendant.

5.On 13/4/2006, the defendant first wrote to the plaintiff that she intend to withdraw her application.

6.Further correspondences were exchanged, the parties were unable to agree on costs, but in order to save court time, the parties agreed to the defendant’s withdrawal of the security for costs summons, with costs to be fixed for argument before a master.

7.On 15/8/2006, after hearing submissions from both parties, Registrar Ko ordered:

1. The costs of and incidental to the summons for security for costs up to and including 27^th March 2006 be in the cause of the action;

2. There be no order as to costs of and incidental to the summons for security for costs after 27^th March 2006.

The Law:

8.Although Ms. Jetley, solicitor for the plaintiff, argued since the summons before Registrar Ko on 15/8/2006 dealt solely with costs, therefore the applicable law is somehow different from the usual appeal from master’s costs orders.

9.Be it an appeal of the costs part of a master’s order that dealt with other matters or an appeal of a master’s order that dealt solely with costs, these are both appeals of master’s costs orders to judge in chambers, the relevant principles must be the same.

10.The principle was succinctly stated in Hoddle v. CCF Construction Ltd. [1992] 2 All ER 550, Morland J. held:

“ In my judgment it would be highly undesirable as a matter of general principle that a judge in the position that I am in today should intervene and make different orders as to costs from that made by a master, unless it can be shown by the appellant that the master demonstrably erred in the exercise of his discretion in the order that he made. If it can be shown that the master took into account matters that he should not have taken into account or failed to take into account matters that he should have taken into account, in those circumstances the judge in chambers would be entitled to vary the order made by the master, but in my judgment it would not be in the interest of justice if judges in chamber entered into detailed examination of all the matters that were before the master in order to decide whether they would have come to the same decision as the master. Generally speaking, in my judgment, judges in chambers should not allow appeals against costs orders by masters, unless it can be shown that the order was unreasonable or erred in law or, as I have indicated, either failed to take into account proper matters or took into account matters that should not have been taken into account.”

11.In Lessy Sarl v. Pacific Star Development Ltd. & Anor [1996] 2 HKC 326, after quoting Hoddle with approval, Yam J. condensed the principle into four tests. To successfully appeal against a master’s costs order, the appellant must show:

“ … the learned master has not done any of those four things, namely, that: (i) he was unreasonable; (ii) he had made an error in law; (iii) he failed to take into account proper matters; or (iv) he took into account matters that should not have been taken into account. ...”

The plaintiff’s case:

12.In paragraph 2 of the plaintiff’s skeleton argument, the issue for this appeal was stated as follows:

“ In deciding the Costs Order, whether Registrar J. Ko took into account matters which should NOT have been taken into account in exercising his discretion deviate from the general provision that costs should follow the event under Order 62 Rule 3(2) of the District Court Rules (“RDC”). That is, as Miss Lai, the Defendant, withdrew her own application for security for costs, the costs of and incidental to her said application shall (sic) be to Fu Sun (the “Usual Costs Order”). Emphasis original.

13.Accordingly, the plaintiff’s appeal is based solely on the fourth test in  Lessy Sarl.

14.The matters that the plaintiff alleged Registrar Ko should not have taken into accounts were:

“(A) Fu Sun should not refuse to provide its financial statements to Miss Lai which resulted in Miss Lai’s taking out the Application. (paragraph 4 of the Decision)….

(B) Miss Lai’s taking out her application was justified in the first place. (paragraphs 7 and 9 of the Decision)…”

Analysis:

(A) Fu Sun should not refuse to provide its financial statements to Miss Lai which resulted in Miss Lai’s taking out the Application.

15.My review of Registrar Ko’s decision reveals that after stating the defendant’s application for security for costs was based on 3 grounds, namely: (1) the plaintiff’s total paid up capital was only HK$2.00; (2) the plaintiff appeared not to own any properties in Hong Kong after preliminary investigation; and (3) the defendant wrote to the plaintiff to inquire about the plaintiff’s financial circumstances but was met with no reply, the registrar stated these facts distinguished this case from those in Alcan Construction Materials Limited v Kwok Ho Tak trading as Tak Hing Civil Engineering HCCT 49 of 2000, where the defendant based its allegation solely on the plaintiff company having a paid up capital of only $20.00 .

16.Then Registrar J. Ko in paragraph 4 of his judgment stated:

“ In the present case, the present defendant has done more than that. The defendant has conducted preliminary investigation but failed to identify any property owned by the plaintiff, and the defendant has also written to the plaintiff to request for financial circumstances in order to avoid an application for security of costs, but to no avail.”

17.In other words, in paragraph 4 of his judgment, Registrar J. Ko was simply distinguishing the facts of this case from the facts in Alcan, it was however not the only factor he considered in his costs order.

18.Ms. Jetley first referred to section 357 of the Companies Ordinance and stated this section required the defendant to have creditable testimony that there is reason to believe the company will be unable to pay the costs of the defendant, before the company is required to furnish security for costs.

19.This is indeed the statutory provision for an order for security for costs; however, there is nothing in this section that deals with matters the court should or should not consider when exercising its discretion on costs.

20.Ms. Jetley then referred to San Heines Investments Ltd. v. THL (Holdings) Co. Ltd. & Another [2001] 1 HKC 39, where Deputy High Court Judge Muttrie held an applicant for security for costs cannot simply “…make some allegation of impecuniosity… The applicant still has to produce creditable evidence - be it direct or circumstantial…”.

21.That is of course the correct approach when deciding whether to grant an order for security for costs; but again, nothing in this case points to what a master should or should not take into account when exercising his discretion on whether to depart from the usual costs order.

22.Ms. Jetley then referred to paragraph 23/3/14 of the Hong Kong Civil Procedure and paragraph 23.1.7 of the Hong Kong Civil Court Practice, but again there was nothing there that mentioned what a master should or should not consider when exercising his discretion on costs.

(B) Miss Lai’s taking out her application was justified in the first place.

23.Ms. Jetley again referred to the judgment in Alcan, where it was held the mere fact that the plaintiff was a shelf company did not automatically mean it would be unable to pay its bills. But this decision has nothing to do with the Registrar’s finding that the defendant was justified in taking out the summons in the first place.

24.The fact one of the many factors considered by Registrar Ko was once held in another case to be insufficient to “trigger the court’s jurisdiction under Section 357”, did not mean it was improper for the Registrar to consider it as one of the factors in deciding whether to depart from the usual costs order.

25.Judging from Ms. Jetley’s submission, it is plain that the plaintiff failed to appreciate the factors a court should consider in whether to grant a summons is not necessary the only factors that court should consider in its costs order. Otherwise, costs should follow the event in all cases and there need not be any discretion.

26.Order 62 Rule 3(2) states:

“If the Court in the exercise of its discretion sees fit to make any order as to the costs of or incidental to any proceedings, the Court shall, subject to this Order, order the costs to follow the event, except when it appears to the Court that in the circumstances of the case some other order should be made as to the whole or any part of the costs.” Emphasis added.

27.In my opinion, the words “except when it appears to the Court that in the circumstances of the case some other order should be made” gave the Court a wide discretion to consider all relevant surrounding factors, when deciding whether to depart from the usual costs order.

28.Since the plaintiff’s refusal to reply meaningfully to the defendant’s enquiry was the act that induced the defendant’s summons for security for costs, it was clearly a relevant surrounding factor to be considered when the Learned Registrar decided whether to depart from the usual costs order. 

29.Similarly, I can see no reason the Learned Registrar should not have considered the defendant’s justifications in taking out the summons in deciding to depart from the usual costs order. 

30.The facts of each case are unique; no ridge rule on costs can cater to all facts and circumstances. That is why costs is left to the discretion of the court and that is exactly why Order 62 Rule 3(2) gave the court wide discretion to depart from the usual order.

31.Registrar Ko was clearly justified to consider both factors in departing from the usual costs order. I have also considered the other three tests in Lessy Sarl and found the Learned Registrar’s costs order: (i) reasonable; (ii) made no error in law; and (iii) took into account of all proper matters. I see no reason to interfere with his decision.

Orders:

32.Appeal dismissed.

33.Costs of and incidental to this appeal be to the defendant, with certificate for counsel, to be taxed if not agreed. 

Representation:

Ms. R. Jetley, of Messrs Y.F. Wong & Co., for the Plaintiff

Mr. Jin Pao, instructed by Messrs Danny Lau & Lam, for the Defendant