Cheung Sai Lun v. Lau Tai Chin Francis and Another

HCCW 677/2004

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

COMPANIES WINDING UP NO. 677 OF 2004

____________________

BETWEEN

____________________

Before : Hon. Barma J in Chambers (Open to Public)

Date of Hearing : 19 September 2007

Date of Decision : 19 September 2007

______________________________________________

REASONS FOR DECISION

______________________________________________

1.The question before me today for determination relates to the costs of an application for an ex parte injunction brought by the Petitioner, Mr Cheung, against the 1st Respondent, Mr Lau. 

2.The history of the litigation between Mr Cheung and Mr Lau is set out in a judgment which I handed down on 18 May 2007 in relation to a dispute between them as to the affairs of UPI Technology Limited (“the company”), in which they were both equal shareholders.  In the event, I held that Mr Cheung succeeded in his petition for the winding-up of the company and made a costs order nisi in his favour in respect of the costs of those proceedings.   

3.Subsequently, upon an application to vary the costs order nisi, the order was varied to the extent that Mr Cheung was awarded 90 per cent of his costs rather than all of them, as had been ordered under the order nisi.

4.The ex parte injunction application was made on behalf of Mr Cheung on 6 July 2007.  The nature of the application was for a Mareva injunction against Mr Lau in order to prevent him from dissipating his assets so as to render Mr Cheung’s ability to recover his costs of the winding-up proceedings effectively nugatory or valueless. 

5.The background to the application for the ex parte injunction can be briefly summarised as follows.  Judgment in relation to the main proceedings was, as I have said, handed down on 18 May 2007.  An application was thereafter taken out for variation of the costs order nisi.  Between the time of the taking out of that application and its hearing, Mr Lau entered into a sale and purchase agreement in respect of a property which he owned.  It was said by Mr Cheung that this appears to have been the only substantial item of property that Mr Lau owns in Hong Kong.  No information as to this proposed sale was given to Mr Cheung.  Mr Cheung, in fact, seems only to have found out about it because he was in the habit of making, from time to time, searches on the internet to monitor Mr Lau’s position, in particular in relation to this property. 

6.On discovery of the fact that the property was to be sold, a discovery which was made after the order nisi was made absolute with the variation that I have mentioned, Mr Cheung, not surprisingly, was somewhat concerned.  Mr Cheung then took steps to seek legal advice, and would appear to have been told that if there were reasons to believe that Mr Lau was seeking to deal with his assets in such a way as to render himself effectively judgment-proof so far as the costs order which Mr Cheung had obtained was concerned, there might be grounds for obtaining interlocutory injunctive relief in support of the costs order so as to prevent that cost order being rendered worthless to Mr Cheung at the end of the day.

7.It appears that some investigations were then made with a view to establishing the nature of the transaction for the sale and purchase of the flat.  According to Mr Cheung, he made various enquiries of estate agents, although he did not identify most of the estate agents to whom he referred, who operated in the area in which the property in question was located.  He says that he was given to understand that the price at which the property was sold was somewhat below the price that might be expected for a property of that nature.  This is disputed.

8.Mr Cheung also says that, quite apart from that, he was told that the sale did not appear to have taken place with assistance of an estate agent, but appeared to have been a private sale.  Mr Cheung’s solicitors thereupon made enquiries of those who had acted for Mr Lau in the winding-up proceedings to enquire as to the status of the proposed sale.  Enquiries appear to have been made to Mr Lau’s former solicitors on or about 5 July 2007.  Mr Lau’s solicitors, these being the solicitors who acted for him in the winding-up proceedings and who act for him today, informed those acting for Mr Cheung that they did not act for Mr Lau in relation to the sale and purchase transaction.  However, it appears that they indicated that they would inform Mr Lau of Mr Cheung’s concerns, and it does appear that Mr Lau was informed of a letter raising questions about the sale that had been sent by Mr Cheung’s solicitors to the solicitors acting for Mr Lau in the winding-up proceedings the same day.

9.The solicitors acting for Mr Cheung were able to make contact with Mr Lau later in the day and enquired of him when the proposed sale and purchase was to be completed.  Mr Lau declined to give that information at the time, saying that he wasn’t sure of the exact date of completion, and left the matter at that.  Mr Cheung’s solicitors then explained that they were concerned about what would happen to the sale proceeds in the event that the sale went through and was completed, as appeared to be the intention, and asked Mr Lau whether he would be prepared to undertake to pay the sale proceeds into court.  Mr Lau indicated that he had not, at that stage, seen the letter that had been sent, and asked for a copy of it to be sent to him so that he could consider his position. 

10.The next morning Mr Cheung’s solicitors (who had by then identified the solicitors whom they believed to be acting for the purchaser in the proposed sale and purchase transaction as Messrs Ho & Wong) contacted Messrs Ho & Wong on the morning of 6 July 2007.  They were told that Messrs Ho & Wong were no longer acting for the intending purchaser, having been informed by him that he was terminating their instructions and would instead be instructing Messrs. Ng Tam Ko & Chan, the solicitors who had up to then been acting for Mr Lau in respect of the sale and purchase of the property.

11.Faced with this development, Mr Cheung became alarmed and instructed his solicitors to take steps to move ex parte for an injunction to restrain the disposal of the proceeds of sale of the flat.  It was against this background that an application for a Mareva injunction in respect of the sale proceeds of the flat was made to Madam Justice Kwan on 6 July 2007.  Madam Justice Kwan granted the application, which then came back before me for a return date hearing a week later on 13 July 2007.

12.At that hearing Mr Lau indicated, through his counsel Mr Ko, who appeared for him on that occasion, that he did not wish to contest the injunction itself, although he maintained that he had no intention of disposing of his assets.  He said, however, that for purposes of saving costs he was prepared to consent to a continuation of the injunction subject to certain variations.  I should add that the original injunction did contain, as is usual in Mareva injunctions, an exception which permitted Mr Lau to expend a certain amount of money for his daily living expenses, and also for his legal expenses in connection with the injunction.  The limits there stated were HK$15,000 per week for living expenses, and a overall limit of HK$50,000 in respect of legal expenses. 

13.Initially, in the summons seeking continuation of the ex parte injunction the order proposed did not, it seems, include those exceptions.  It is also pertinent to note that the injunction, as granted, extended, on the face of it, to the whole of the sale proceeds of the flat rather than the net sale proceeds of the flat, which would have been substantially lower given that the property was, in fact, the subject of a mortgage to a bank lender.  In the event the injunction was continued, but on the basis that Mr Lau paid into court the net proceeds of sale after deduction of such amounts as had to be paid to clear the mortgage on the property and the expenses of the sale.  The injunction was also continued on the basis of the exceptions for living expenses and legal expenses which I have just mentioned.

14.In his affirmation filed for that hearing, Mr Lau indicated that he was of the view that it was inappropriate for Mr Cheung to have applied for the injunction against him ex parte, and indicated that he would resist the making of a costs order against him in respect of the ex parte application.  This aspect of the matter concerning costs was not something that could be resolved by agreement between the parties.  I gave directions for the parties to file evidence limited to the question of costs so that that matter could be determined.  That is the matter that is now before me. 

15.The parties have, in fact, filed voluminous evidence in relation to the question of costs and therefore, perhaps ironically, the question of costs is likely to have generated as much, if not more, costs than I expect would have been involved in the ex parte application and the inter partes applications themselves.  That may, in no small part, be due to the ill feeling that has no doubt has been generated between Mr Cheung and Mr Lau as a result of their disputes in relation to the company, which led to the winding-up proceedings and a lengthy trial, and the matters that have taken place thereafter.  

16.Be that as it may, the question that I have to decide now is as to where the costs of the ex parte application and the later inter partes application should fall.  Mr Ng, appearing today for Mr Lau, as he did at the trial of the winding-up proceedings, has urged me to come to the conclusion that the costs of the ex parte application should be left to be borne by Mr Cheung.  I think he also asks that his client should have the costs of the inter partes application.

17.In his skeleton argument Mr Ng suggested that the key question had to be looked at was the question of whether or not the petitioner, Mr Cheung, had been guilty of serious material non-disclosure or misrepresentation when applying for the ex parte injunction, and whether or not he had been guilty of oppressive conduct.  With respect, I do not think that that is the most appropriate characterisation of the question which is before me today.  No doubt those are matters that may be taken into account in an appropriate case.  But it seems to me that the key question for consideration, in considering whether or not Mr Cheung should be allowed his costs of applying ex parte for the Mareva injunction which he obtained, is whether or not it was reasonable for him to have done so in the light of the circumstances obtaining at the time. 

18.In my view, despite Mr Ng’s urgings to the contrary, it seems to me that it was entirely reasonable for Mr Cheung to have taken out the ex parte application when he did.  In saying this, I think that perhaps the key consideration that would have motivated Mr Cheung in making the application, and indeed probably the key factor that would have been in the mind of the judge hearing the application, would have been the fact that the property in question was being sold shortly after an unfavourable judgment and costs order had been rendered against Mr Lau. 

19.In itself it may be that the sale of Mr Lau’s property was not something that would necessarily excite suspicion.  However, it has to be said that the responses that were obtained when efforts were made by those acting for Mr Cheung to find out more about the transaction were not such as to inspire confidence.  Whatever Mr Lau’s reasons may have been for not providing information which was, one would have thought, readily available to him, such as the likely completion date of the property, the fact is that that information was not readily volunteered.  Without that information Mr Cheung’s legal advisers could not be expected to know when completion was to take place.  And this would, I think, have justified them in being concerned as to the possibility that completion might be due to take place at a very near point in the future, so that if an application remained on an inter partes basis it might turn out to be too late. 

20.Moreover, it does seem to me that the fact that it was discovered subsequently to those requests being made, but before the application was made, that it appeared that the solicitors acting for Mr Lau were also going to act for the purchaser was a further factor that would have given rise to some concern on the part of Mr Cheung and those acting for him.  In the circumstances, it seems to me that it was, in fact, reasonable for Mr Cheung to have made the application as and when he did. 

21.That said, I shall also consider briefly the various points made by Mr Ng today as to the suggested non-disclosure or misrepresentation on the part of Mr Cheung.  However, I must preface what I have to say about these matters by pointing out that there is little indication in the evidence filed so far by Mr Lau in relation to the cost aspect of this proceeding to indicate the nature of the non-disclosures and misrepresentations that were relied upon by Mr Ng today. 

22.In his first affirmation filed in relation to the injunction proceedings, which was his seventh affirmation in these proceedings, Mr Lau did not suggest that there was any material non-disclosure or misrepresentation in what had been said by Mr Cheung in his affirmation, or by those representing him in their skeleton submissions filed for the purpose of the ex parte injunction.  All that Mr Lau said in that affirmation was that he had, in fact, no intention to dissipate his assets or to leave Hong Kong, and that he considered that there was no need for an ex parte application to have been made.

23.In his eighth affirmation, filed in response to certain matters raised by Mr Cheung, in his evidence in response on the question of costs, Mr Lau did mention the fact that he thought that Mr Cheung had been guilty of some degree of non-disclosure or misrepresentation.  However, it is apparent from that affirmation that the matters complained of related really to the question of whether or not the sale in question was at an undervalue, and also to the question of his legal representation in the context of the sale transaction.

24.Before me today Mr Ng raised a range of other matters concerning statements that were made in the skeleton submissions in support of the application as being misrepresentations as to the likelihood of Mr Lau leaving Hong Kong, and also various matters which were put forward as non-disclosures on the part of Mr Cheung.  None of these were matters of which proper notice had been given to Mr Cheung or those acting for him.  As a result, they were not in a position to deal with them in any meaningful way.  For that reason alone I would think it right not to place any great weight on any of those allegations.

25.Turning to the two allegations of which notice does appear to have been given, the first relates to the question of whether or not the sale of the property was, in truth, at an undervalue.  The evidence on this is, at best, unclear.  In support of his application, Mr Cheung put forward information that he had been given by various estate agents.  Although it is fair to say that the sources of that information were not clearly stated, I think it fair also to question the degree of weight which this is likely to have had in the context of the application for an injunction.

26.It seems to me that by far the most weighty factor that would have weighed with the judge in granting the injunction, as it would have with me had I been hearing the application, would have been the fact that the sale had taken place very shortly after judgment was given at a time when it was known or reasonably believed that there would be a substantial costs bill to be met by Mr Lau in respect of the proceedings, subject to any appeal that he might have been minded to bring against them.

27.Moreover, it seems to me that the question of what the valuation of the property was is a question the answer to which is open to reasonable differences of opinion.  I do not think that it can be said that such comparables as Mr Cheung put forward in support of his contention that the sale appeared to be at something of an undervalue, and the alternative comparables put forward by Mr Lau to suggest that the sale was, in fact, at a value that was reasonable, are matters that enable the court to come to a view one way or another as to this issue.  It seems to me that there will be reasonable scope for difference as to what the valuation of a piece of property might be and as to what are the appropriate comparables to take into account in considering that valuation.  It seems to me, at the end of the day, that this was not, fairly regarded, either a misrepresentation or non-disclosure.

28.The other matter that was the subject of complaint was as to the suggestion that the same solicitors were acting for both Mr Lau and the intending purchaser.  It appears, from Mr Lau’s evidence, that what happened was that when it became apparent that Messrs Ho & Wong, who were initially instructed for the purchaser, might not be able to complete their investigations as to the title to the flat in sufficient time to enable completion to take place as the parties wished (it was intended or hoped that completion would take place on or about 16 July 2007) a decision was made that the solicitors who had up to then acting for Mr Lau in the transaction should instead act for the purchaser, with Mr Lau seeking fresh legal representation.  That, however, is not a matter that could have been known to Mr Cheung or those advising him at the time. 

29.In the circumstances, it does seem to me that, at the time that the application was made, Mr Cheung and those advising him could be excused for thinking that the same solicitors were at that point acting for both Mr Lau and the purchaser, and that this was a change of circumstances from that which had previously obtained, and therefore a matter giving rise to some cause for concern.

30.As far as the other complaints are concerned, it seems to me that a number of the allegations of non-disclosure concerning, for example, the fact that Mr Cheung himself had sold property which he owns are matters of minor significance.  I do not consider those to be non-disclosures in any real sense of the word. 

31.I turn also to consider the suggestion that the application was made on a basis that was oppressive in that it sought the payment into court of the entirety of the sale proceeds, rather than the net sale proceeds after discharging whatever mortgage or charge existed over the property and the sale cost.  It seems to me that there may be something in this point.  But, at the end of the day, it is, I think, a relatively minor point in that it was addressed at the inter partes hearing and was dealt with by a suitable variation to the terms of the injunction.  Indeed, I think it is fair to note that when this was pointed out to those acting for Mr Cheung, the point was readily taken on board and reflected in the proposed consent summons that was prepared by them for the purpose of avoiding the need for the inter partes hearing.

32.When all is said and done, therefore, it does seem to me that having regard to the chronology of the matter and having regard to the fact that when steps were taken to seek Mr Lau’s clarification as to what the position was in relation to the sale, clarification was not readily forthcoming - it does seem to me that it was justified for Mr Cheung to have made the application for the ex parte injunction on 6 July 2007. 

33.To the extent that it is suggested that Mr Lau was unfairly treated in that he was not given an opportunity to consider the terms of what was being proposed, it does seem to me that while it is fair to say that Mr Lau may not have had sight of the actual proposal in written form, he was invited to come to attend at the solicitors acting for Mr Cheung, at which time he would, no doubt, have been given an opportunity to consider what was being asked of him.  If at that point he had pointed out that there was a problem with requiring the entirety of the sale proceeds to be paid into court given the existence of a mortgage and the likely existence of legal expenses involved in the sale, I have no doubt that the necessary variation to the proposed terms of the order or the proposed terms relating to a payment into court would have been agreed.

34.In all of the circumstances, therefore, it does seem to me that Mr Cheung was justified in making the application in the way that he did.  I therefore have concluded that, so far as the costs of the ex parte application are concerned, that these should be paid by Mr Lau to Mr Cheung, such as those costs may be.

35.So far as the costs of the inter partes hearing is concerned, however, I think the position is slightly different.  I say that because having regard to the terms of the consent order that was proposed and the summons that was put forward for inter partes relief, it does seem that it was necessary for Mr Lau to have come to court to ensure that a suitable exception for his living and legal expenses, which had been included in the original injunction, was maintained for the purpose of a continuation of the injunction and the payment into court. 

36.In the light of that, I think that all things considered the appropriate costs order as to the inter partes hearing would be that there should be no order as to costs of that particular hearing.

37.So, for the reasons which I have endeavoured to give, I am of the view that, although Mr Lau should pay Mr Cheung’s costs of the ex parte hearing, there should be no order as to costs as to the inter partes hearing.  That leaves the question of the costs of this application.

(Discussion re clarification of order and submission on costs)

38.I think as far as the costs of this particular argument are concerned, I think the matter has gone on for quite long enough, and quite enough money and time has been expended on this matter.  It seems to me that the best that I can do is to give a fairly rough and ready decision as to where the costs should fall. 

39.It seems to me that given that Mr Lau was seeking to persuade the court that no order as to costs should be made at all in relation to the ex parte application and that he should have his costs of the inter partes application, it is clear that he had been unsuccessful as to that.  At the same time Mr Cheung has not been entirely successful in obtaining all of the costs in connection with the ex parte and inter partes applications.  I think it is also fair to say that the certain amount of the material that was placed before the court in the affirmations and exhibits was of no or very peripheral relevance.

40.In all of the circumstances, I think that I shall simply order that, as far as the costs of this costs application are concerned, Mr Lau is to pay to Mr Cheung two thirds of his costs, to be taxed if not agreed.

(Submission re gross sum assessment)

41.I am not minded to make a gross sum assessment of the costs in this matter.  Perhaps the most fundamental reason for it is that if I were to accede to an application for a gross sum assessment, as has been suggested, I think it incumbent on those applying for an award of costs on a gross sum basis to put forward an indication of what their actual costs are.  I do not think it is acceptable to simply say that, “Well, the other side has put forward a figure for their costs, and we are perfectly happy with that so we will accept it as the amount for our costs.”

42.An award of costs is an indemnity in respect of the costs that have actually been incurred, and an award of costs will only be made to the extent that costs have, in fact, been incurred.  Although I have no doubt that costs have been incurred, and probably not insignificant costs at that, for the account of Mr Cheung in relation to this matter, the fact is that I have no information before me as to what those costs were.

43.The other matter that I would point out is that given that there is already going to have to be a taxation of the costs of the petition proceedings, it seems to me that a taxation of these additional costs will add relatively little in the overall scheme of things.  I think it would also be unfortunate if, as a result of a gross sum order being made, a statutory demand were then served and a bankruptcy petition followed, which might well have an impact on Mr Lau’s ability to take such legitimate points that he might by way of appeal or by way of taxation, or otherwise.

44.In all of the circumstances of the case, I do not feel that this is an appropriate case in which to make a gross sum assessment of the costs.  I therefore decline to do so.

Mr Hectar Pun, leading Miss Jocelyn Leung, instructed by Messrs Fairbairn Catley Low & Kong, for the Petitioner

Mr Lawrence Ng, leading Mr Tony Ko, instructed by Messrs Peter Wong & Partners, for the Respondent