Terkild Johan Terkildsen and Another v. Barber Asia Ltd and Others

HCA 1963/2003

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 1963 OF 2003

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BETWEEN

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Before:  Hon Saunders J in Chambers

Date of Hearing:  1 June 2007

Date of Handing Down of Ruling:  6 June 2007

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R U L I N G

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Background:

1.The factual circumstances in which the issue now before me arose may be found in the judgement delivered by me in this matter on 8 March 2007, where I had to consider an application by the plaintiffs to amend the statement of claim, and a counter application by various defendants to strike out the statement of claim.

2.The writ was issued in May 2003, and was served on Mr Elliott.  On 18 November 2003, Mr Elliott filed a defence.  When the summons to amend the statement of claim was filed, the draft amended statement of claim contained no allegations at all against Mr Elliott.  The plaintiffs accept that that effectively constituted a discontinuance against Mr Elliott. 

3.But no discontinuance was filed.  On 11 January 2007, Mr Elliott issued a summons for an order for discontinuance and costs.  The plaintiffs acceded to the order for discontinuance but wished to argue the question of costs. The question of costs was adjourned for discussion between solicitors, and argument if there could be no agreement.

4.No agreement has been reached on the question of costs, and the matter came before me for argument on 1 June 2007.  Having heard the parties, I ordered that the plaintiffs must pay Mr Elliott’s costs in the proceedings, together with the costs of the argument on 1 June 2007, all cost to be taxed on a party and party basis.  I now give my reasons for that decision.

The argument for the plaintiffs:

5.Mr Bedford argues that the plaintiffs were not wrong to commence proceedings against Mr Elliott, relying upon a letter dated 16 March 2001, which, Mr Bedford says, gives a misleading impression that Mr Elliott was more knowledgeable about, and more intimately involved in the management of ISG in 1998, when the plaintiffs lost their funds, than has subsequently transpired.  Mr Bedford contends that the defence filed by Mr Elliott was a bare denial, and that following the completion of discovery in June 2005, when it became apparent to plaintiffs that they could not succeed against Mr Elliott, the matter proceeded no further against him.

The law:

6.Under O 21 r 2 a plaintiff may discontinue an action without leave, at any time not later than 14 days after the service of the defence.  Where the discontinuance is under this rule, then under O 62 r 10, the defendant is entitled, without further order, to tax his costs of the action, and if those costs are not paid within four days after taxation, to sign judgement for the costs.

7.However, once that period of 14 days after service of the defence has passed, leave is required to discontinue, and the grant of leave may be on such terms as to costs, the bringing of a subsequent action, or otherwise as the Court thinks fit: O 21 r 3.

8.The general rule is that a defendant is entitled to costs when an action is discontinued: see Inchroy Credit Corporation Ltd v Cheung Man-cheung [1992] 1 HKLR 120, and Trend Publishing (HK) Ltd v Vivien Chan & Co (a firm) [1996] 2 HKLR 227.  That general rule will be applied where the discontinuance constitutes a recognition by the plaintiff of likely defeat.

9.But it is right that the court has a discretion in the matter of costs, a discretion which will enable the court to do justice between the parties: see Inchroy Credit at 122 l 38 –123 l 43 and Trend Publishing at 436D-437A.  For an example of the discretion being exercised see Leung Yuet Ching v Leung Yuet Kuen [2001] 4 HKC 562.

Discussion:

10.The circumstances in which the plaintiffs funds were lost occurred between October 1997 and May 1998.  At the time of the issue of the writ in May 2003, the only evidence apparently available to the plaintiffs, pointing to the involvement of Mr Elliott in the loss of the funds, was a letter dated 16 March 2001. 

11.That letter is a letter signed by Mr Elliott, on the letterhead of a company called Exemplar Holdings PLC Ltd, in which Mr Elliott says that he “provide(s) company secretarial services for ISG”.  The letter says that as a result of providing those services, he was familiar with other investors.  The letter then proceeded to set out a number of points, generally in favour of the defendants, in respect of the circumstances in which the investors funds were lost.  While the letter demonstrates apparent knowledge on the part of Mr Elliott of the circumstances, there is nothing in the letter to indicate that he personally was involved in the transactions during the relevant period.

12.Discovery was apparently not completed until 2005.  Discovered amongst the relevant documents were two invoices from a firm called East Asia Corporate Services (BVI) Ltd, addressed to ISG, and marked for the attention of Mr Elliott.  One, dated 24 March 1998, is for the sum of US$150 relating to the issuance of a Certificate of Good Standing issued to a Mr Barber, the other dated 28 December 1998, for US$60, is for the re-ordering of a company seal, presumably for ISG.

13.The plaintiffs have no other evidence which points to the involvement of Mr Elliott in the activities resulting in loss of their funds.  Consequently they have elected to discontinue the claim against him.

14.Mr Bedford says that by writing the letter dated 16 March 2001, Mr Elliott “allowed himself to be the mouthpiece of the directors of ISG and gave the misleading impression that he was more knowledgeable about, and more intimately involved, in the management of ISG in 1998, when the plaintiffs lost their funds”. 

15.Having considered the letter, I have formed the view that the inferences sought to be drawn by Mr Bedford are not sufficient to justify the issue of proceedings of the nature in this case, against Mr Elliot.  While a person may be aware of the activities of the directors of a company to whom he provides secretarial services, it does not follow that that person is a participant in those activities.  Rather than indicating an intimate involvement in the management of ISG in 1988, in my view, the letter tends to indicate a survey of circumstances after the event, culminating in a view being taken of those circumstances, by the writer of the letter.

16.I do not accept the submission that the defence filed by Mr Elliott was a bare denial.  In response to an allegation that Mr Elliott had acted as “a shadow director or as the company secretary of ISG”, there was a specific denial.  Further, it was specifically pleaded by Mr Elliott that he only became a director of ISG in April 2003.  In the light of these pleadings the plaintiffs ought to have considered their position in relation to Mr Elliott promptly, and determined much earlier than July 2006, to amend the statement of claim, effectively discontinuing against Mr Elliott.

17.In my view there was simply no sufficient basis upon which Mr Elliott should have been joined in the proceedings.  I appreciate that the writ was issued close to the expiry of the limitation period, but that was a matter in the hands of the plaintiffs.  Mr Bedford was obliged to acknowledge that the plaintiffs knew their funds had been lost as long ago as June 1998.  No reason has been given to me why the writ could not have been issued earlier, and discovery completed.  If the writ had been issued in good time, and discovery completed, revealing a proper justification for proceedings against Mr Elliott, he could have been joined as a party with no concern for limitation provisions.

18.In my view it would be quite wrong to refuse Mr Elliott his costs.  To do so would be tantamount to permitting a plaintiff to issue a writ on the flimsiest of bases, and then, upon mature reflection, to escape by discontinuance, without any penalty as to costs.  In the present case the discontinuance is nothing more and nothing less than a plain acknowledgement by the plaintiffs of likely defeat.  The fact that the plaintiffs may have believed at the time they issued a writ that they were justified in suing Mr Elliott is irrelevant.  As a consequence of that belief, a belief that is now completely abandoned, Mr Elliott has been put to expense and should be compensated.

19.For these reasons I ordered that the plaintiffs must pay Mr Elliott’s costs on the discontinuance and on the argument as to costs, all costs to be taxed on the party and party basis.

Mr Nigel Bedford, instructed by Messrs Weir & Associates, for the Plaintiffs

Mr Arthur Randall, instructed by Messrs Laracy Gall, for the 9^th Defendant