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Chung Wah Steel Works Co Ltd v Chan Kwong Kwan

Judgment Cited authorities 3 Cited in Precedent Map Related
Vincent
Judgment Date21 January 2014
Year2014
Judgement NumberDCCJ4763/2011
Subject MatterCivil Action
CourtDistrict Court (Hong Kong)
DCCJ4763C/2011 CHUNG WAH STEEL WORKS CO LTD v. CHAN KWONG KWAN

DCCJ 4763/2011

IN THE DISTRICT COURT OF THE

HONG KONG SPECIAL ADMINISTRATIVE REGION

CIVIL ACTION NO 4763 OF 2011

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BETWEEN
CHUNG WAH STEEL WORKS COMPANY LIMITED Plaintiff

and
CHAN KWONG KWAN Defendant

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Before: HH Judge Wilson Chan in Chambers
Date of Hearing: 21 January 2014
Date of Decision: 21 January 2014

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DECISION

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Introduction

1. This is the defendant’s application under section 53(2) of the District Court Ordinance, Cap 336, for an order that:-

(1) Mr Wong Kin Keung (“Wong”) be joined as a party to the present proceedings for the issue of costs; and

(2) Wong do pay the costs of the entire proceedings including counsel’s fees jointly and severally with the plaintiff.

2. Wong is and was at all material times a director and shareholder of the plaintiff, owning 51% of its issued shares. Wong is and was at all material times also the owner of Unit E15 (as defined in my Judgment herein dated 12 September 2013).

Factual and procedural background

3. The present action concerns the plaintiff’s claim against the defendant for damages caused by a fire which occurred in the evening on 18 September 2007 (“the Fire”). The plaintiff commenced the action on 13 December 2011.

4. Pleadings were closed in February 2012 and after the exchange of witness statements and discovery, the matter was set down for trial on 21 to 23 May 2013. After the case was set down for trial, the defendant took out the following applications:-

(1) Security for costs application on 21 February 2013; and

(2) The defendant’s application to amend his Defence and to withdraw his admission as to the plaintiff’s exclusive possession of Unit E15.

5. In respect of the security for costs application, the defendant relied on, inter alia, the following grounds:-

(1) that the plaintiff was impoverished; and

(2) that there was another company called Chung Wah Engineering (Hong Kong) Limited occupying Unit E15. This company and the plaintiff were owned and controlled by Wong and the plaintiff was used to pursue this action to avoid payment of costs if the plaintiff’s claim should fail at the end.

After the plaintiff filed its affirmation in opposition setting out its means supported with bank statements, and further explanation on the occupancy of Unit E15 and why the losses were suffered by the plaintiff, as the plaintiff was carrying on business at Unit E15, the defendant withdrew its application for security for costs with costs be to the plaintiff in any event on 28 February 2013.

6. As for the defendant’s amendment application, the court allowed his application after argument. Subsequently, there was the question of whether the defendant’s withdrawal of his admission was restricted to the issue of quantum only, which question was determined by the court on 7 August 2013 (being the 5th day of the 6-day trial). Thus, whether the plaintiff was at the material time a licensee with exclusive possession of Unit E15 (“the Exclusive Possession Issue”) is an issue that has truly and completely come into play only in the later part of the proceedings, if not towards the end of the trial.

7. Judgment in this action was handed down on 12 September 2013. In summary, the plaintiff’s claim was dismissed for the following reasons:-

(1) On negligence, the evidence of how the Fire started was equivocal and there was no evidence on the cost, practicability or effectiveness of the fire preventive measures that could have been put in place by the defendant in Unit E16;

(2) On the facts of the case, there was not enough to invoke the principles of Ryland v Fletcher - “the ‘thing’ brought onto the defendant’s premises was second-hand furniture, electrical appliances and various other miscellaneous items. They are not exceptionally dangerous or mischievous. The items did not escape. What escaped was the fire.”; and

(3) On nuisance, in light of Wong’s evidence, it was held that the plaintiff did not have exclusive possession of Unit E15 and therefore had no locus standi to sue the defendant on nuisance.

8. The defendant now makes this application against Wong relying on the findings of fact in the Judgment.

Relevant legal principles

9. It is trite that an order for payment of costs by a non-party will always be exceptional, and an application for such an order should be treated with caution. The ultimate question in any such “exceptional case” is whether in all the circumstances it is just to make the order. The discretion to award costs against non-parties may be exercised in a variety of circumstances, such as where the third party is considered to be the real party interested in the outcome of the litigation, or where the third party has been responsible for bringing the proceedings and they have been brought in bad faith or for an ulterior purpose, or there is some other conduct that makes it just and reasonable to make an order [see: Hong Kong Civil Procedure 2014, Practice Note 62/6A/6].

10. Order 62, rule 6A of the Rules of the District Court contemplates a two-stage process:-

(1) The court first considers whether a party should be joined for the purposes of costs. The court will refuse the joinder only if it is plain and obvious that it amounts to an abuse of process, by reason of delay or other misconduct by the applicant, or because the application can be seen to be manifestly and fundamentally misconceived as to be an abuse by the applicant; and

(2) It is only at the second stage that the court considers whether the costs order should be made against the non-party, the overall consideration always being whether it would be in the interests of justice to do so [see: Sun Focus Investment Ltd v Tang Shing Bor [2012] 5 HKLRD 853 at 860].

11. The availability of an order for security for costs at an early stage of the litigation, which has not been pursued, would, in many situations, be a strong argument for refusing to exercise the discretion to order costs against a non-party, but discretion must be distinguished from jurisdiction [see: Sun Focus Investment Ltd v Tang Shing Bor, supra, paragraph 25 at 862]. Thus, this question is relevant to the consideration at the second stage.

12. Where the non-party is a director of a company, the key issues to be considered are the bona fides of the pursuit of the action and whether the conduct of the director was so exceptional as to justify an order made against him. In Metalloy Supplies Ltd v MA (UK) Ltd [1997] 1 WLR 1613, it was held at page 1620 that:-

“It is not, however, sufficient to render a director liable for costs that he was a director of the company and caused it to bring or defend proceedings which he funded and which ultimately failed. Where such proceedings are brought bona fide and for the benefit of the company, the company is the real plaintiff. If in such a case an order for costs could be made against a director in the absence of some impropriety or bad faith on his part, the doctrine of the separate liability of the company would be eroded and the principle that such orders...

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