C Y Foundation Group Ltd v. Leonora Yung and Others

HCA 933/2011

IN THE HIGH COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

COURT OF FIRST INSTANCE

ACTION NO. 933 OF 2011

Coram : Mr. Registrar K.W. Lung in Chambers

Date of Order for Paper Disposal : 5^th April 2012

Date of Handing Down Decision : 13^th April 2012

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D E C I S I O N

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THE APPLICATION

1.By a consent summons dated 24 February 2012, the parties asked the Court to set aside one hour for the argument in court on the following disputes:

(1) how the fees and costs of the proposed mediation are to be shared between the parties;

(2) the time for the commencement of the mediation; and

(3) whether there should be an interim stay of the proceedings herein pending mediation

2.On 9 March 2012, I directed the parties to, within 7 days from the date of receipt of the directions, set out their arguments in respect of the above disputes for me to consider whether I should dispose of them on paper or direct fixing of the date with the estimated length of the hearing.

3.On 22 March 2012, the plaintiff’s solicitors submitted a letter together with a table, in which they had set out the issues in dispute and the parties’ respective arguments.

4.The file was passed to me on 5 April 2012.  Having considered the arguments submitted, I decided that the matters could be disposed of on paper without a hearing.  I shall now set out my reasons for my decisions.

THE FACTUAL BACKGROUND

5.I shall only set out the brief factual background of the case.

6.This is a claim by the plaintiff, a listed company in Hong Kong, against the defendants, the 1^st to 6^th defendants being the high level officials of the administration with the power to make decisions for the plaintiff and the 7^th to 12^th defendants being the executive staff of the plaintiff under the management of the 1^st to 6^th defendants. Among all the claims, the plaintiff claims against the 1^st to 6^th defendants for breach of fiduciary duties and for conspiracy with the 7^th to 12^th defendants for giving bonus to the 7^th to 12^th defendants without the authority of the plaintiff; alternatively, not for the benefit of the plaintiff or was motivated by an improper purpose.  The claims against the 7^th to 12^th defendants are for conspiracy and restitution of the bonus paid to them.  All the defendants had disputed the claims.

7.The matter has reached the stage under Order 25 of the Rules of the High Court and Timetabling Questionnaires had been filed.

8.By a consent order dated 20 January 2012, the parties agreed the timetable for exchange of the witness statements, seeking counsel's advice and further interlocutory applications.

9.The plaintiff had served the Mediation Notice on the defendants and the defendants had, in response, served their Mediation Responses under Practice Direction 31. Now they have come to the above disputes, which they seek this Court’s directions.

JURISDICTION

10.Paragraph 13 of Practice Direction 31 provides:

“Where the parties are unable to reach agreement on certain proposals in the Mediation Notice and Mediation Response in relation to the mediation:

(1)      If the parties are willing to have their differences resolved by direction of the Court, they may make a joint application to the Court for directions resolving the points of difference between them;”

THE ISSUES IN DISPUTE

How the fees and costs of the proposed mediation are to be shared

11.The plaintiff proposed that the mediator’s fees and the costs of mediation should be shared and paid by the plaintiff and defendants equally, such that each party should be responsible in equal shares for 1/13 of the whole amount of fees and costs and such costs should not be recoverable as costs of the proceedings against the losing party (or parties) if mediation fails.

12.The defendants disagreed and suggested that the plaintiff should bear half of the fees and costs of mediation whilst the 1^st to 12^th defendants would bear half of the fees and costs of mediation.  The 1^st to 6^th defendants gave the reason that the plaintiff is involved in all 12 disputes to be resolved by the proposed mediation whilst the 1^st to 12^th defendants are altogether involved in the 12 disputes. The 7^th to 12^th defendants did not add any further ground in support and further proposed that in the event that mediation fails, it should be costs in the cause.

13.The plaintiff disagreed with the defendants’ suggestion for the reason that the mediator had to be engaged by all the parties for the intended mediation, it would be, in its view, fair and reasonable for such fees and costs to be shared among them in equal shares.  

14.In my view, first of all, the apportionment of the mediation fees and cost should be determined on a broad brush approach instead of bogging down to detail of time and work for each of the parties served by the mediator because that will unnecessarily lead to satellite disputes among the parties.

15.In essence, in respect of the plaintiff and each of the defendants, there is a tripartite agreement among the plaintiff, the defendant and the mediator.  Therefore, each party has an obligation to pay the mediator’s fees and cost for the service rendered.  In apportioning the fair amount of fees and cost among the parties for the service rendered by the mediator, I consider that it is only reasonable that reference should be made to the value of the stake of the parties in mediation and the service rendered by the mediator to the parties, though, as I have said above, on a broad brush basis.

16.On the above basis, I consider that the plaintiff’s proposal has not taken into account the value of the plaintiff’s claims and the fact that the mediator may have to attend the parties individually as each party may have his or her own interest for settlement.  In this case, it is quite clear that there are at least two camps of defendants; one being the 1^st to 6^th defendants and the other being the 7^th to 12 Defendants, each being legally represented separately.  Even within the same camp, each defendant is entitled to have separate consideration and negotiation by the mediator to protect his/her own interest.  It is quite apparent that the mediator will have to render service to different groups for negotiation.  It is simply not realistic to say that the plaintiff will only have one round of negotiation applicable to all defendants.  Also, even if mediation takes one round of negotiation applicable to the plaintiff and all the defendants, the plaintiff’s suggestion has not taken into account of the value of its stake in mediation, which is the aggregate of its claims against all the defendants.

17.The costs for mediation should be in the cause of the proceedings as it is closely connected with the litigation.  See paragraphs 89-94 of the Honourable Mr. Justice Lam’s Judgment in Chun Wo Construction & Engineering Co.Ltd. Fujita Corporation Henryvicy Construction Co. Ltd trading as Chun Wo-Fujita-Henryvicy Joint Venture v.  China Win Engineering Ltd.  HCCT 37/2006 delivered on 12 June 2008:

“89. Section 52A of the High Court Ordinance empowers the court to determine the costs of and incidental to all proceedings the Court of First Instance. The issue is whether costs of the mediation can be regarded as costs incidental to the legal proceedings.

90. Costs incurred on negotiations with a view to settlement are costs incidental to legal proceedings even though the process of negotiations is not part of the legal proceedings. See the First Schedule to Order 62, Part I item 5(a)(x).

91. There is therefore no merit in the Plaintiff’s submission that costs of mediation cannot be costs incidental to legal proceedings since the mediation process is a separate process.

92. As a matter of principle, for the purpose of deciding whether some costs should be regarded as costs incidental to legal proceedings,I fail to see any valid distinction between costs incurred on negotiations and costs incurred in mediation. Both are alternative means to settle a civil dispute that would otherwise be litigated.

93. In Vellacott v Convergence Group plc [2007] EWHC 1774 (Ch) Rimer J (as he then was) held that the costs of a failed post-action mediation were costs incidental to the court proceedings. The English Court of Appeal made a similar order in Eagleson v Liddell [2001] EWCA Civ 155.

94. It is a question of fact whether a mediation is so closely connected with a piece of litigation such that the costs of mediation can properly be described as costs incidental to a set of legal proceedings. If a mediation takes place a long time ago before parties commence legal proceedings, the court may be slow to conclude that the costs of such a mediation should be taxable as costs incidental to the legal proceedings, see Lobster Group Ltd v Heidelberg Graphic Equipment Ltd [2008] EWHC 413 (TCC), 6 March 2008.”

18.I therefore decide that the defendants’ suggestion should be accepted.

The time for the commencement of the mediation

19.The 1^st to 6^th defendants proposed that mediation should commence after conclusion of the Criminal Trial of DCCC 476/2011 in which the 2^nd defendant is the defendant, but the plaintiff insisted that mediation should commence within 28 days from the date of the Mediation Minutes to be filed.  The 1^st to 6^th defendants submitted that the criminal trial is going on now and there is a possibility that the 2^nd defendant may not be able to attend mediation for he will be attending his criminal trial from 6^th February 2012 to 16^th March 2012.  The plaintiff’s solicitor argued that he might be represented by his solicitor for the mediation meeting.  I have also noted that 1^st defendant is the wife of 2^nd defendant.  I suppose the 2^nd defendant can authorize his wife to attend the mediation.  After all, the criminal trial has already commenced and there is at least one month from the delivery of this Decision to the time for mediation.  We are now in April 2012. The criminal trial should have completed.  If it is, for whatever reason, part-heard, it will have to take too long for mediation to proceed.  There is simply no sufficient reason that mediation should wait until conclusion of the criminal trial.  There is a strong possibility of appeal if the 2^nd defendant is convicted.  I agree with the plaintiff that there should not be a stay as proposed by the defendants.  I consider that the mediation should commence within 28 days from the date of the Mediation Minutes to be filed or such date that the mediator is first available.

Whether there should be an interim stay of the proceedings herein pending mediation

20.The defendants asked for an interim stay of 90 days in order to save costs.  The plaintiff said that it did not request an interim stay pending mediation.  I note that the parties had not proposed any stay in their consent summons dated 24 February 2012.  Paragraph 16 of Practice Direction 31 reads:

“The Court may, on the application of one or more of the parties or of its own motion, stay the proceedings or any part thereof for the purpose of mediation for such period and on such terms as it thinks fit, bearing in mind the importance of avoiding so far as possible, disruption to the milestone dates and of avoiding, save in exceptional circumstances, any postponement of the trial dates.”

In considering whether a stay should be ordered, the court has to give thought to what practical benefit there would be if the proceedings were stayed.  See paragraph 10 of Resource Development Limited v.  Swanbridge Limited HCA1873/2009 delivered on 31 May 2010.

21.There are altogether 13 parties, including the plaintiff in these proceedings and they have not exchanged their witness statements.  The mediation, if successful, will at least, save the substantial costs for preparing the witness statements.  I am satisfied that there are practical benefits for the parties if a short stay is ordered and I so order.  As to the length of the stay, I do not see any reason for 90 days as proposed by the defendants. Mediation will take place within a short time.  The reasonable length of stay should be such period from the date of filing and serving the Mediation Minutes until conclusion or termination of mediation.  If mediation fails, the parties should prepare for the trial immediately.

THE ORDER

22.I shall make an order in terms of the following:

(1) The fees and cost of mediation shall be borne by the plaintiff and the defendants as to one half of the total amount to be paid by the plaintiff and the other half by the defendants in equal shares;

(2) The costs of mediation, if failed, shall be the costs in the cause;

(3) Mediation shall commence within 28 days from the date of filing and serving the Mediation Minutes or the first available date of the mediator; the Mediation Minutes shall be filed and served within 7 days after the deadline for appeal of this decision or after decision of the appeal, if any, whichever is the later;

(4) There shall be an interim stay of the proceedings from the date of filing and serving the Mediation Minutes until conclusion or termination of mediation;

(5) An order nisi, to be absolute 14 days from the date of of this Decision, that costs of this application be in the cause.

Messrs. Henry Wai & Co. for the Plaintiff.

Messrs Peter K. S. Chan & Co for the 1^st to 6^th Defendants.

Messrs Y. L. Yeung & Co. for the 7^th to 12^th Defendants.