Sanctuary Systems Ltd v. Orient International Holdings Hong Kong Co Ltd and Another
Read the full judgment text of HCA 479/2010 on BabelCite. This High Court CFI judgment was delivered on 16 June 2015.
1. This is a summons of the plaintiff (“ SSL ”) for an order that the defendants do bear its costs in Norwich Pharmacal proceedings (“ NP costs ”).
Cited by 8 cases · Cites 1 case
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HCA 479/2010 IN THE HIGH COURT OF THE HONG KONG SPECIAL ADMINISTRATIVE REGION COURT OF FIRST INSTANCE ACTION NO 479 OF 2010 ____________
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________________ DECISION ________________ 1.This is a summons of the plaintiff (“SSL”) for an order that the defendants do bear its costs in Norwich Pharmacal proceedings (“NP costs”). BACKGROUND 2.In HCMP No. 1674 of 2009 (“the NP Action”), SSL and its holding company (“PPL”) (collectively “Ps”) obtained, in 2009 and 2010, 3 Norwich Pharmacal Orders (“the NP Orders”) against banks, with corresponding Gagging Orders. In the following analyses, when I refer to an NP Order, it shall include the corresponding Gagging Order. 3.In gist, at the initial stage of the NP Action, Ps suspected one Mr Constanzo and a Mr Wong[1] of serious misconduct resulting in damages suffered by Ps. Ps intended to commence proceedings in Jamaica against Mr Constanzo, his wife, Mr Wong and a company, based on breach of fiduciary duties, fraudulent misrepresentation, breach of contractual and breach of common law duties of care towards Ps. 4.The 1st NP Order was sought to enable Ps to ascertain the true identity of Mr Wong and entities controlled by him, and to trace the improper personal gains they obtained as a result of wrongdoing against Ps. Information obtained pursuant to the 1st NP Order identified D2 as recipient of monies. Other entities had also been receiving various sums of money from Cossco Construction Development Co Ltd (“Cossco Development”) and D2 in the present action. 5.The 2nd NP Order sought documents on bank accounts of Cossco Development and D2 for the purpose of obtaining details of payments made and received by those two companies, and to ascertain the extent of their involvement in the wrongdoings. 6.The 3rd NP Order was sought for the purpose of obtaining more information about other potential wrongdoers, in particular, documents of bank accounts relating to directors and/or shareholders of Cossco Development (including one James Xu) and/or D2. 7.On 1 April 2010, SSL instituted the present action against the defendants, alleging that they held US$1.32m (“the Funds”) on behalf of SSL pursuant to a Quistclose trust. 8.The 1st defendant (“Orient HK”) filed a witness statement of James Xu who alleged, amongst others, that (a) Ps failed to make due payments for the Palmrya Project and (b) that US$700,000 of the Funds had been used to make payments for the Project. 9.On 29 May 2012, Ps obtained the permission of Reyes J in the NP Action to use documents obtained as a result of the 2nd and 3rd NP Orders in the present action (“the Leave Order”). The purpose was to rebut James Xu’s allegations in the preceding paragraph. 10.The Quistclose trust was found to be established after trial. Orient HK was ordered to return what was left in its hands (about 30% of the Funds) to SSL and the rest of the 70% remained the sole liability of D2. See the judgment dated 14 February 2014 (“the judgment”). 11.SSL seeks NP costs against the defendants in the present action. The objections of Orient HK can be classified under 3 heads:
12.D2 has been served but failed to answer SSL’s summons. All 3 grounds equally apply to D2. GROUNDS IN OBJECTION A. No entitlement to recover NP costs 13.Norwich Pharmacal proceedings are often used to discover the identities of wrong doers and to investigate the flow of funds. In A Co v B Co [2002] 3 HKLRD 111, at 116F-118C, Ma J (as he then was) stated that:
14.The general principles on costs relating to Norwich Pharmacal orders have been stated in Totalise plc v The Motley Fool Ltd and anor [2001] EWCA Civ 1897, Aldous LJ, at §§29-30.
15.Mr Wou, counsel for Orient HK, submits that given the terms of the Leave Order, the 1st NP Order and the 2nd and 3rd Gagging Orders have no place in this action. Further, there was no order as to costs in the 2nd and 3rd NP Orders. Orient HK was not even a party to the NP Action. 16.Lunn J (as he then was) did give leave to Ps to use documents discovered through the 1st NP Order against any person. Accordingly, if it can be shown that documents obtained pursuant to the 1st NP Order were used in the present action, SSL will be entitled, in principle, to seek costs against the defendants. The Gagging Orders were accompanying orders necessary to protect SSL’s interests and to ensure that the objects of the NP Orders were not undermined. They should accordingly be treated in the same way as the NP Orders. 17.Further, given the principles in the Totalise case, it mattered not that the NP Orders did not reserve costs or that Orient HK was not named as a party to the NP Action. 18.Ground A is not substantiated. B. Improper procedure used 19.Mr Wou submits that the court should not make an order awarding costs against Orient HK who was not a party to the NP Action unless the court is satisfied that it is in the interests of justice to do so: section 52A(2) of the High Court Ordinance, Cap 4. In addition, Orient HK must be joined as a party to the NP Action for the purpose of costs only: Order 62, rule 6A(1) of the Rules of the High Court. 20.With respect to Mr Wou, I see no impropriety for SSL to seek an order for costs of the NP Action in the present action. It is the trial judge who is in the best position to decide whether the documents discovered as a result of the NP Action (“the NP documents”) were relevant to the present action. I do not see the need for SSL to join Orient HK in the NP Action or to use separate proceedings to prove the costs incurred in the NP Action as “damages”. Ground B is not substantiated. C. Extent of recovery of costs of NP Action objectionable C1. Claim against Orient HK 21.In deciding on the extent of liability of Orient HK for NP costs, I have taken into account the following factors: 22.Firstly, it must always be remembered that costs (including NP costs) are always in the discretion of the court, to be exercised in accordance with proper notions of fairness and justice. The applicant should put forth evidence to assist the court in deciding the liability and quantum of NP costs for which a defendant should be liable. 23.Secondly, it has to be shown that the NP documents were relevant to one or more of the issues in the action of which the plaintiff was successful against a defendant. 24.Only documents under the 2nd and 3rd NP Orders were used against Orient HK. Mr Wou contends that those documents were not relevant or material to the finding of liability against Orient HK. He pointed out that this court only referred to one document amongst the NP documents (paragraph 114 of the judgment). This court also referred to the annual return of a company which was a public document that could be downloaded from the Companies Registry website at a nominal fee. 25.I do not agree. It was Orient HK’s witness who made the allegations that required rebuttal evidence to show the purpose and destination of the Funds. The fact that James Xu did not turn up at the trial could not be in the contemplation of SSL. Had he turned up, he would have been cross-examined on the NP document. I find relevance to be established. 26.Thirdly, by its nature, Norwich Pharmacal proceedings are to assist a plaintiff to ascertain the identity of wrongdoers. The fact that a defendant eventually held to be liable to the plaintiff was not identified as a wrongdoer in the Norwich Pharmacal proceedings should not be a bar to an order for NP costs against the defendant. However, the failure to identify him there should alert the court to make enquiries as to the causation between the NP Action and the subsequent action against him. 27.Here, it was 2 years after the present action was instituted that SSL sought the Leave Order. On SSL’s own case, the need to use the NP documents against Orient HK was “responsive”, ie to answer James Xu’s allegations, quite unlike the usual situation where a plaintiff seeks a Norwich Pharmacal order to properly start an action (eg against D2). I have doubts on the question of causation. 28.Mr Suen, counsel for the plaintiff, submits that Orient HK was found to be “inextricably linked in the overall fraudulent scheme”. That, with respect, was a misstatement. Orient HK was never sued for fraud. In particular, it was not found to be at fault in receiving the Funds or disbursing 70% of them. 29.Fourthly, where there was only one wrongdoer identified in the Norwich Pharmacal application and he was sued with judgment against him, he should normally bear the NP costs. But where there were multiple alleged wrongdoers with different degrees of involvement and culpability, and whose liabilities may not be joint and several, there is a need to avoid double recovery by the plaintiff and apportion costs amongst the wrongdoers. For this purpose, the plaintiff needs to justify why he seeks full NP costs against only one defendant or a limited number of defendants. 30.The NP Orders sought were wide-ranging in terms of the information sought, the wrongdoers involved and the amount involved was way beyond the amount claimed against the defendants. The added complication was that SSL launched proceedings in different jurisdictions:
31.Mr Constanzo, Mr Wong, Mr Hua and the Cosco entities were some of the wrongdoers identified in the NP Action or pursuant to the NP Orders. There had been related proceedings (paragraph 14 of the judgment). However, SSL was completely silent as to whether NP costs were sought in any of them; if not, why not; who else was sued and whether or not the NP documents were used against them. 32.To ask Orient HK to bear all costs of the NP Action is wholly unjust and oppressive but it is impossible for the court to apportion costs. SSL has not even assured the court that there would not be double recovery. In any case, SSL could not be trusted even if it had, for it had concealed, at the trial, the fact that it had recovered part of the US$700,000 claimed from its own wittness (paragraph 23 of the judgment). 33.Fifthly, even in the same action with more than one wrongdoer, the court may have to apportion the NP costs to do justice between the parties. 34.Mr Suen submits that there should be no difference in treatment between the 2 defendants since they were found to be wrongdoers in very similar circumstances in the action. 35.I disagree. Whilst NP documents were relevant to the present action, the 2 defendants were found liable for different amounts owing to different issues. Mr Wou points out that the judgment had referred to one document which caused a finding to be made against D2, not Orient HK (paragraphs 114 and 128 of the judgment). Accordingly, there should be difference in treatment of costs between Orient HK and D2. 36.Sixthly, notwithstanding an authority to the contrary, I am of the view that it is not necessary to establish that a wrongdoer ought to foresee that steps by way of investigation and discovery are likely to result from their wrongs against the plaintiff. 37.The “foreseeability test” was referred to in Morton-Norwich Products Inc and ors v Intercen Ltd (No.2) [1981] FSR 337. There, the plaintiffs took prior “discovery action” which identified the defendant as tortfeasors. They sought costs of the discovery action as “damages” in an action on concealed fraud. Graham J held (at pp 349-350) that the defendants (infringers of patents) or reasonable people in their position should have realized that the expense of investigation and discovery of the full facts was highly likely to result from the commission of their torts. It would justify the court in holding that the costs of the discovery action would be recoverable and would satisfy the test of remoteness not only in an action for tort but also in one for breach of contract. It was a loss which should have been in the contemplation of the defendants and was foreseeable in the relevant sense. See also Hong Kong Civil Procedure 2015, Vol 1, para 24/2/1, relied on by Mr Wou. 38.For myself, I have some reservation as to whether the foreseeability test is necessary. Norwich Pharmacal applications are well-established practice in civil litigation. The exercise may end up identifying eg an unexpected wrongdoer like D2 or an innocent recipient of funds like Orient HK. Whether such type of defendants should be liable for costs of the NP Action could not depend on their foresight as depicted by Graham J. 39.If I have to make a finding, I agree with Mr Wou that there could be no suggestion that Orient HK could or ought to foresee the NP Action taken by SSL. Orient HK had no direct contract with SSL. It did not even know that it was holding money on Quistclose trust for SSL until service of the statement of claim. However, it is not necessary to decide the validity of the foreseeability test as it is sufficient for me to rely on the other 6 factors under section C. 40.Seventhly, the plaintiff who obtained a Norwich Pharmacal order is equally bound by the implied undertaking as to confidentiality in discovery unless he obtains the court’s permission to use the documents in other proceedings. His costs in seeking such permission are recoverable from the relevant wrongdoer. 41.In summary, Orient HK should not be liable for the costs in relation to the 1st NP Order anyway as those documents were not used against Orient HK. Taking all circumstances into account, I hold that Orient HK is only liable for SSL’s costs of applying for the Leave Order. Having regard to my decision dated 15 June 2015 (varying the costs order nisi), Orient HK shall bear only 30% of such costs. C2. Claim against D2 42.D2 was identified as a wrongdoer pursuant to discovery under the 1st NP Order. The 2nd and 3rd NP Orders related to D2. The Leave Order also applied to D2. 43.As a matter of principle, D2 should be liable for the costs of seeking the 3 NP Orders but my comments in paragraphs 29-32 apply equally to D2. There is nothing on which this court can rely to fix liability for even a percentage of SSL’s costs. I grant nominal costs to SSL at 20% of the NP costs for applications for the 1st, 2nd and 3rd NP Orders. 44.As regards the costs for the Leave Order, D2 should bear all the costs, of which 30% is joint and several with Orient HK. COSTS 45.In principle, costs of the summons follow the event and should be borne by the defendants. However, I consider SSL’s application to be oppressive and opportunistic in expecting the full costs of the NP Action to be borne by the defendants. Orient HK has been successful in knocking down the bulk of the NP costs. Had SSL taken a more realistic and proportionate view of the whole circumstances, much of the costs and time of this summons could be saved. I therefore make an order that there be no order as to costs as between SSL and Orient HK. As for D2, it should bear 80% of SSL’s costs of this summons. CONCLUSION 46.I order as follows:
47.I thank counsel for their assistance.
Mr Jenkin Suen, instructed by Haldanes, for the plaintiff Mr Jean-Paul Wou, instructed by Fairbairn Catley Low & Kong, for the 1st defendant The 2nd defendant was not represented and did not appear [1] These 2 persons featured prominently in the judgment dated 14 February 2014 given after trial. |
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